Response to Climate Change

Basic Stance / Risks and Opportunities Identification Based on Scenario Analysis

Basic Stance

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.
出光興産, DFF Inc.

Identifying Risks and Opportunities Based on Scenario Analysis

Scenario Analysis

With regard to risks and opportunities associated with climate change, we use scenario analysis to explore possible energy transition pathways resulting from decarbonization, the development of environmental technologies, and social change as well as to examine their impacts on our company. This scenario analysis is designed to identify energy demand and the effects of climate change in the Asia-Pacific region, assuming business environments in 2050 as follows. We prepared four scenarios. Of these, one scenario assumes an increase in energy demand that exceeds the trend toward low-carbon emissions due to high economic growth across Asia, while another assumes that the targets of the Paris Agreement have been achieved. (See the diagram below.) Currently, we are examining specific priority issues in a way that is particularly conscious of the “Prism” scenario, in which our group is expected to take stronger environmental measures. This scenario assumes that, in 2030, domestic petroleum demand will decrease 30% compared with the 2017 level. As an energy supplier, we are acutely aware that significant risk could emerge under this scenario. Accordingly, we actively engage in deliberating priority issues based on this analysis.

Figure
Risks and Opportunities

Based on the results of this scenario analysis, we are examining the risks and opportunities we face. As for transitional risk, we have identified a possible decline in fuel oil demand in step with the popularization of electric vehicles (EVs) and changes in consumer awareness, in addition to a risk of deterioration in the overall reputation of the fossil fuel sector. On the other hand, given the increasing demand for renewable energy and environmentally friendly products, we are aware of opportunities to contribute to the realization of a low-carbon society and to expand our businesses.
Taking these factors into account, we aim to reform our business portfolio in order to become a group of resilient companies by responding to these risks and strengthening our business initiatives to capture opportunities.

Classification Matters to be evaluated Responses and initiatives
Transition
risks
Decline in demand for petroleum products due to the spread of EVs and changes in consumer awareness
  • Market monitoring and the establishment of optimal production, supply and sales systems
  • Departure from the business portfolio depending on fossil fuel
Decline in energy prices due to technological advances
  • Strengthening of the competitiveness of the entire supply chain
Possibility of divestment of the coal business
  • Development of black pellets and biomass co-firing technology
Decline in the reputation of the oil and coal businesses
  • Strengthening of external engagement
Introduction of carbon pricing
  • Internal discussions of carbon pricing
Physical risks Suspension of equipment operation and production sites damage due to abnormal rainfall and others
  • Reinforcement of equipment maintenance and strengthening of the supply chain
Impact of sea-level rise on manufacturing and distribution bases
  • Measures such as reinforced seawall and relocation of control rooms
Opportunities Expanding demand for renewable energy
  • Development of renewable energy sources in Japan and overseas
Strengthening of IMO (International Maritime Organization) regulations
  • Efficiency improvement and reinforcement of refinery facilities
Increasing demand for environmentally friendly products with low environmental impact
  • R&D and overseas expansion of lubricants for electric vehicle units, advanced greases, and biological pesticides
Increasing demand for energy-saving materials
  • Development of applications for next generation materials and commercialization of all solid state lithium-ion battery materials
Development of distributed energy resource systems
  • Development of and entry into VPP (Virtual Power Plant) control services
Development of the circular economy
  • Development of recycling technologies for waste plastics, solar panels, carbon, etc.
Advent of the MaaS (Mobility as a Service) society
  • Development leveraging the existing refueling network and entry into ultra-compact EVs
Development of natural gas resources
  • Shifting focus from oil to gas
Risk Management

Climate change-related risks identified via our analyses are handled by the Safety & Environmental Protection Headquarters and departments in charge of corporate planning. These risks are also reported to the Management Committee. Furthermore, the Management Committee assesses and evaluates the magnitude of each risk and reports its conclusions to the Board of Directors through the President and Representative Director. We are also developing a comprehensive risk management system that incorporates ESG elements into our internal control system. Issues recognized in the course of identifying risks and opportunities are referred to departments specializing in relevant areas to enable them to fully discuss and address each risk in a way that employs input from outside experts.

出光興産, DFF Inc.