Scenario Analysis for Disclosure Based on TCFD Framework

*This case study is published based on information as of July 2024.

DAIKIN INDUSTRIES, LTD.

Publication date	August 5, 2024 (Posted on June 26, 2025)
Sector	Industrial and Economic Activities

Company Overview

DAIKIN INDUSTRIES, LTD. is a global manufacturer with over 80% of its total sales coming from overseas markets and more than 80% of its group employees working overseas. Leveraging its core technologies in "air-conditioning" and "fluorochemicals", the company delivers products and services that enhance the health and comfort of people and spaces, by responding to the diverse needs arising from the unique cultures and values of each country and region.

Climate Change Impacts

According to the IEA (International Energy Agency) (Note 1), global demand for air conditioning is expected to more than triple the current level by 2050. While there are potential risks such as stricter energy regulations for air conditioning and tighter regulations on high-global-warming-potential refrigerants, it also creates opportunities to expand our group's competitive edge in environmentally friendly products and services.

Adaptation Initiatives

In May 2019, the company endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) aimed at reducing the risk of financial market instability caused by climate change. We subsequently conducted a scenario analysis to assess the risks and opportunities that climate change may pose to our business. Since 2020, we have been disclosing the findings in our sustainability report and corporate website.
The following scenarios were used in conducting the scenario analysis.

• IEA Sustainable Development Scenario (Note 2)
• IEA Base Line Scenario, Current Policies Scenario (Note 3)
• IEA The Future of Cooling (Note 4)
• IEA Net Zero by 2050 (Note 5)
• Institute of Energy Economics, Japan (IEEJ) Reference Scenario (Note 6)

The results of the latest scenario analysis are presented below. The analysis results are categorized based on the degree of temperature increase into three groups: 4°C scenario, 1.5°C scenario, and a comparison of both 4°C and 1.5°C scenarios.

Scenario	Analysis Results
4°C scenario with policies proceeding as they are	Rising summer temperatures will make air conditioning essential in an increasing number of regions. In addition, as winter temperatures rise, more areas will become suitable for heat pump heating, which operates most efficiently at outdoor temperatures of approximately -20°C or higher. Demand for air conditioners will double by 2030, and triple by 2050. Demand for air conditioning in non-OECD countries will increase more than five times in 2030 compared to 2016, while electricity generation will increase only 2.4 times (globally, air conditioning demand will increase 1.9 times, whereas electricity generation will rise by 1.4 times).
1.5°C scenario with stricter national regulations due to decarbonization policies	The Montreal Protocol’s refrigerant reduction targets will be strictly enforced, and if progress is deemed insufficient, regulations will be further strengthened. Strong energy conservation policies will be implemented in countries where strong regulations are not currently in place.
Both 4°C and 1.5°C scenarios	As temperatures continue to rise, extreme weather events will become more severe and frequent, increasing the risk of production stoppages and delays due to damage to our own factories and suppliers.

Based on the results of the scenario analysis, we classified the various external environmental changes associated with climate change into "transition risk" and "physical risk". We then assessed the financial impact on three levels: high, medium, and low to identify key risks and opportunities (Figure).

Effects/Expected Benefits

The risks and opportunities identified through scenario analysis are incorporated into the strategic management plan "FUSION" as policy directions and response measures, which are implemented by each business unit. Additionally, since the identified climate-related risks have a significant impact on our business strategy, they are integrated into our company-wide risk management process.