Disclosures on Response to Climate Change and Environmental Issues (TCFD)

Major countries and regions around the world have made declarations regarding carbon neutrality, and the shift toward decarbonization is now a global trend. In October 2020, Japan also made a declaration pledging to become carbon neutral by 2050. However, thermal power generation still accounts for over 70% of Japan's total power generation, and the ratio of energy consumption in the industrial sector is large, making it more difficult for Japan to achieve carbon neutrality than other countries. In light of this situation, in September 2021, Mitsubishi Research Institute published its Recommendations for Achieving Carbon Neutrality by 2050 and outlined three key points for achieving carbon neutrality by 2050, along with concrete measures to support transformations toward that goal.

It is important for society as a whole to regard these initiatives as investments for the future—as opposed to costs—and link them on to new industrial competitiveness. The participation of all stakeholders, including consumers, companies, national and local governments, research institutions and non-profit organizations will be essential to achieving carbon neutrality.

We are pushing ahead with policy recommendations, research activities, and consulting to provide support for the efforts of all stakeholders taking on challenges toward achieving carbon neutrality.

We recognize that responding to climate change issues—including achieving a carbon-neutral society—is an important field in which we can contribute not only to decarbonization of the Group, but also to the improvement of social value by utilizing our knowledge in research and consulting. In order to advance sustainability-related efforts, including those in this area, we have clarified responsibility for promoting sustainability by establishing two key sustainability-related positions: Chief Sustainability Officer (CSO), a role which is held by the President, and Sustainability Management Officer, a role which is held by the General Manager of the Corporate Administration Unit.

The Sustainable Management Office is responsible for managing the Group's environmental value policies and measures, including disclosure in compliance with TCFD. Matters for deliberation and decision making are proposed by the head of the Corporate Planning Division, before being approved by the Sustainability Management Officer, the CSO and Management Strategy Committee. Final decisions are then made by the Executive Committee.

The expected financial impact of climate-related risks and opportunities on the Group in 2030 is as follows.

It has become clear that the main climate-related opportunities for the Group are the shifting of the business environment toward carbon neutrality, and that the main risks are the impact on profit and loss from the introduction of carbon taxes.

Measures to increase opportunities

In terms of measures to respond to the shifting of the business environment toward carbon neutrality, we believe that we should expand our policy review support and consulting services to private companies, in fields relating to three key points presented in the carbon neutral recommendations: (1) early zero emissions of the power sector, (2) induction of strategic innovations, and (3) behavioral changes on the demand side).

Specifically, we will engage in policy-making and expand private consulting in various fields such as the promotion of innovation, carbon pricing, sustainable finance (integrating sustainability factors such as the environment into funding economic activities) and international collaboration—in 14 key areas of the growth strategy accompanying the Japanese government's 2050 carbon neutrality declaration. We recognize the importance of sharing the medium to long-term external environmental changes brought about by climate change throughout the Group and utilizing the Group's high-level insights, know-how, and network to create new businesses.

Measures to reduce risks

The main climate-related risk is the introduction of carbon pricing such as carbon taxes.

The Group's GHG emissions are low, at 9,686 tCO2(for the fiscal year ended September 30,2022), and the majority of these are Scope 2 emissions resulting from the use of electric power at data centers and offices. As considerations on carbon pricing such as carbon taxes progress, efforts to minimize financial impact through the reduction of GHG emissions are essential. The Group will actively promote the introduction of renewable energy, in particular by improving the percentage of power used by data centers accounted for by renewable energy, in order to reduce GHG emissions derived from electric power. In addition, based on the knowledge accumulated by contributing to the institutional design of markets trading in carbon emissions, we will work to reduce emissions with a view to utilizing carbon emission rights (credits)—which are highly effective in reducing emissions—resulting from CO2 emission reduction projects in Japan and overseas.

To manage the risks faced by the entire Group, the president—who also has ultimate authority over risk management—appoints an officer in charge of risk management. The Group has also established the Risk and Compliance Management Division as the department supervising risk management. The Risk and Compliance Management Division keeps track of risk predictors and carries out risk management in emergencies, in cooperation with the risk management departments of Group companies. This constitutes the group-wide risk management framework, abbreviated as ARMS. Risk predictors for the whole Group are detected monthly by ARMS and reported to the Executive Committee. The Internal Control and Risk Management Committee, chaired by the president, meets four times a year, and submits a summary and annual risk management policy and risk management plan to the Executive Committee at least once a year for discussion before reporting to the Board of Directors.

Risks affecting the Group's business operations at present are described in the Securities Report. For example, the report states that the increase in the number of natural disasters due to climate change is inducive of risks relating to large-scale disasters and information security. The results of climate-related risks identified in the consideration process for disclosure in accordance with the TCFD framework, and business and financial impact analyses have been reported to the Executive Committee and the Board of Directors. Climate-related risks to be noted are shared at the Internal Control and Risk Management Committee and managed by ARMS.