Scenario Analysis Based on TCFD Recommendations

Kanematsu Corporation

Publication date	July 6, 2023 (Posted on February 19, 2024)
Sector	Industrial and Economic Activities

Company Overview

Kanematsu Corporation is a trading company founded in 1889. The Kanematsu Group provides a wide variety of products and services in four business segments: "Electronics & Devices", "Foods, Meat and Grain", "Steel, Materials & Plant", and "Motor Vehicles & Aerospace", organically combining its domestic and international networks and expertise in each business field with the functions of a trading company, including commercial transactions, information gathering, market development, business development and structuring, risk management, and logistics.

Climate Change Impacts

The following four events are feared to affect Kanematsu Corporation's business due to climate change.

• Intensification of extreme weather events such as cyclones and floods
• Rise in average temperatures
• Changes in precipitation and weather patterns
• Rise in sea levels

These events may cause damage to equipment and facilities, loss of sales opportunities due to supply chain disruption, and relocation costs.

Adaptation Initiatives

The Company endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in June 2021, and has been disclosing the results of its scenario analysis, impact assessment, and consideration of countermeasures since June 2022. A summary of the results is as follows.

• Selection of Businesses for Scenario Analysis
  The impact of climate change on the Group was classified based on the quantitative aspect of sales, and we selected the North American beef business and the steel tubing business, which have large qualitative and quantitative impacts related to climate change.

• Selection of Climate Scenarios
  For scenario analysis, we referred to information from international organizations (*1) and selected the 4°C scenario (*2) and the below 2°C scenario (*3) for the years 2030 and 2050.

• Impact of Climate-related Risks and Opportunities
  For each scenario, the impact on revenues or costs of the subject businesses (North American beef and steel tubing businesses) was evaluated using the following quantitative criteria: large, medium, and small (Fig. 1, *4).

• Results of Scenario Analysis
1. North American Beef Business
   

   Opportunities: New opportunities associated with the development/adoption of new technologies (plant-based meat)

   Physical risks: Rise in feed and pasture prices due to higher average temperatures
   As for the impact of physical risks, in both scenarios, damage to feeding facilities, processing and storage facilities, and loss of sales opportunities due to severe extreme weather events such as cyclones and floods, and rise in feedstuff and forage prices due to higher average temperatures were evaluated as relatively significant (Fig. 2).

2. Steel Tubing Business
   

   Opportunities: New opportunities associated with the development/adoption of new technologies (CCUS, EOR)(*5)

   Physical risks: Damage to plants due to severe extreme weather events such as cyclones and floods
   The impact of physical risk was assessed as loss of sales opportunities due to damage to company-owned factories and loss of sales opportunities due to disruption of supply chains caused by disasters equivalent to Hurricane Ida and Hurricane Catrina, and relatively high relocation costs of processing facilities due to sea level rise in 2050 under the 4°C scenario (Fig. 3).

   Transition Risk: Decreased demand for fossil fuels
   As an impact of the transition risk, a relatively large decrease in sales is expected under the below 2°C scenario due to the expected decline in oil field development as a result of a significant decrease in demand for fossil fuels (Fig. 3).

Effects / Expected Benefits

The results of the scenario analysis identified that risks and opportunities could exist in both of the two targeted businesses.
Based on the results of the analysis, the Kanematsu Group has formulated a business strategy that sees climate change as an opportunity, and is promoting investment in business fields with environmental and other themes as a priority measure in its six-year medium-term vision through the fiscal year ending March 31, 2024. Furthermore, our Group has actively engaged in a forest conservation project and Joint Crediting Mechanism (JCM) project in recent years. Through these projects, we plan to offset all our CO₂ emissions with credits generated by our Group or avoided emissions to be converted into credits (become carbon neutral(*6)) as soon as possible and eventually aim to become carbon negative(*7) so that we can keep on contributing to Japan and the international community.