Recognizing that responding to climate change is one of the most important issues that must be addressed on a global scale, the Idemitsu Group works to tackle this issue through both “mitigation” and “adaptation” by making maximum use of our resources.
Specifically, by examining a range of possible future business environments based on the analysis of multiple scenarios, we identify risks and opportunities and reflect them in our strategies and initiatives.
Due to the pandemic, Idemitsu’s mainstay petroleum business is currently suffering from a decline in demand. Global petroleum demand in 2020 declined a record nine million barrels per day year on year. In addition, resource prices grew increasingly volatile as they were affected by excess financial assets due to global monetary easing aimed at spurring
economic recovery.
However, the global decarbonization trend is rapidly advancing. For example, the European Union aims to implement initiatives for a green recovery by simultaneously achieving an economic recovery from the pandemic and a structural shift to green energy. In the United States, too, the new government significantly changed federal policies on climate change measures, rejoined the Paris Agreement, and set a target of reducing CO₂ 50-52% by 2030 compared to 2005. Declaring its intention to achieve carbon neutrality by 2050, Japan raised its reduction target for 2030 from 26% to
46%.
With its mainstay business centered on fossil fuels, Idemitsu revised its Medium-term Management Plan to ensure the Company remains sustainable into the future and demonstrates strong resilience to environmental changes. When formulating the previous 2019 Medium-term Management Plan, we used the “Prism” scenario for our assumptions. However, the “Prism” scenario does not allow for the achievement of the 2°C goal of the Paris Agreement. Given that decarbonization trends are currently gaining significant steam around the world, we are now proceeding with a strong recognition of the possibility of the “Azure” scenario, which does allow for the achievement of said goal. Under the “Azure” scenario, various countries cooperate to take action and begin shifting the structure of their energy systems to contain the global temperature rise to below 2°C. In this scenario, for example, assuming that fossil fuel use within the Asian Pacific region peaks in 2025, Japan’s domestic fossil fuel demand compared to 2019 can be expected to decrease 30% by 2030, 60% by 2040, and 80% by 2050.
Based on the assumptions of the long-term business environment for 2050, we examined the risks and opportunities related to climate change, analyzed the financial impact, and organized them as shown in the table below.
Classification | Matters to be evaluated | Term*1 | Responses and initiatives | ||
---|---|---|---|---|---|
Short | Medium | Long | |||
Transition risks |
Decline in demand for fossil fuels | ● | ● | ● |
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Decline in energy and resource prices due to technological advances | ● | ● |
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Introduction of a carbon tax by the government | ● | ● |
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Possibility of divestment of and regulations on the coal business | ● | ● |
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Decline in brand image of companies with high carbon emissions | ● | ● |
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Physical risks |
Impact of natural disasters and rising sea levels on operations and damage to coastal sites | ● | ● | ● |
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Impact on truck shipping of abnormal rainfall and impact on marine shipping of more frequent typhoons | ● | ● | ● |
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Opportunities | Dawning of a carbon-neutral society | ● | ● | ● |
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Expanding demand for renewable energy | ● | ● | ● |
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Expanded demand for biomass fuels | ● | ● | ● |
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Advancement of ammonia combustion technologies and expanded demand | ● | ● | ● |
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Expanded demand for products and materials that help save energy | ● | ● | ● |
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Expanded share of electric vehicles and practical deployment of EVs and electric ships | ● | ● | ● |
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Development of distributed energy resource systems and expanded demand | ● | ● | ● |
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Stable supply of energy for local communities | ● | ● | ● |
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Climate change-related risks are handled by the Safety & Environmental Protection Headquarters and the Corporate Planning Department. These risks are also reported to the Management Committee.
In addition, each department regularly assesses climate-related risks in business activities through self-checks and conducts comprehensive risk management in conjunction with checks through internal audits.