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.

Scenario Analysis

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.

• * The projected business environment in scenario 4 is unique to Idemitsu. Other organizations’ projections that are similar to each scenario are as follows.
  • “Squall”: International Energy Agency (IEA), Current Policy Scenario
  • “Cloud”: IEA, Stated Policy Scenario
  • “Prism”: IEA, lies between the Stated Policy Scenario and Sustainable Development Scenario
  • “Azure”: IEA, Sustainable Development Scenario

Risks and Opportunities

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	●	●	●	Enhancement of our financial standing and shift to low-carbon solutions to secure profitability
	Decline in energy and resource prices due to technological advances		●	●	Strengthening of the competitiveness of the entire supply chain
	Introduction of a carbon tax by the government		●	●	Monitoring of government policy trends and internal study of carbon prices
	Possibility of divestment of and regulations on the coal business		●	●	Scaling back of mine production as well as development and practical deployment of biomass co firing technologies
	Decline in brand image of companies with high carbon emissions		●	●	Enhancement of engagement with stakeholders
Physical risks	Impact of natural disasters and rising sea levels on operations and damage to coastal sites	●	●	●	Systematic strengthening of equipment security and response to moving the control room
	Impact on truck shipping of abnormal rainfall and impact on marine shipping of more frequent typhoons	●	●	●	Making the supply chain resilient to maintain supply
Opportunities	Dawning of a carbon-neutral society	●	●	●	Turning refineries into CNX*2 centers and development of carbon utilization technologies
	Expanding demand for renewable energy	●	●	●	Development of renewable energy sources in Japan and overseas
	Expanded demand for biomass fuels	●	●	●	Development and practical deployment of black pellets
	Advancement of ammonia combustion technologies and expanded demand	●	●	●	Construction of ammonia supply chain
	Expanded demand for products and materials that help save energy	●	●	●	Development of next-generation materials and commercialization of solid-state electrolytes
	Expanded share of electric vehicles and practical deployment of EVs and electric ships	●	●	●	Participation in the development of ultra-small EVs and lubricants for EVs
	Development of distributed energy resource systems and expanded demand	●	●	●	Development of and entry into VPP (Virtual Power Plant) control services
	Stable supply of energy for local communities	●	●	●	Smart one-stop shop concept and utilization of service station networks

• *1 Short term: under 1 year; Medium term: 1–5 years; Long term 5 or more years
• *2 CNX: Carbon Neutral Transformation

Risk Management

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.