1. Governance System
MHI Group has identified the "provision of energy solutions to enable a carbon-neutral world" as a material issue under our materiality framework ("materiality"), which responds to the important global issue of climate change.
Our materiality initiatives help us to realize sustainability management throughout our business operations. Through this approach to materiality, we aim to increase our corporate value and drive medium- and long-term growth. The Materiality Council, which was established on October 1, 2021, and is chaired by the MHI Group President, meets twice a year to monitor business activities aimed at achieving materiality targets and to direct business divisions to take appropriate actions.
In addition, our Sustainability Committee, which is chaired by the Chief Strategy Officer (CSO), generally meets twice a year to address sustainability issues raised by our stakeholders. In order to further strengthen ESG initiatives, the committee's members are made up of corporate officers in our corporate-center functions and officers in charge of domains and segments in accordance with the agenda. The CSO is responsible for the analyses based on the TCFD recommendations and reporting within the Sustainability Committee.
Climate change-related risks and opportunities are factors that each business unit considers when developing their respective business plans.
The committee also reports to the Board of Directors regularly on the status of the Sustainability Committee's activities, including disclosures in accordance with TCFD recommendations.
2. Strategies (Scenario Analysis)
(1) Climate Scenarios and Strategies
MHI Group has developed two climate change scenarios and assessed their future impact on each business in 2030.
The first scenario is the "scenario in which decarbonization is advanced worldwide through stricter climate change policies (Decarbonization Scenario)," aiming to achieve economic growth while limiting the global average temperature rise to a maximum of 1.5℃ above pre-industrial levels in the year 2100 in order to minimize environmental impact.
This scenario depicts a world in which strict measures are implemented to reduce greenhouse gas emissions, and society as a whole works to address climate change. The scenario parameters are based on data disclosed by international organizations and the Japanese government (Note 1).
As MHI Group, in this scenario, it is necessary to minimize the occurrence of physical risks, such as the impact caused by a rise in climate-related natural disasters, while responding to transition risks that include stricter environmental regulations and carbon taxes.
- 1IEA Net Zero by 2050 - A Roadmap for the Global Energy Sector, IPCC Sixth Assessment Report, Climate Impacts of an SSP1–1.9 Scenario, and information disclosed by the Ministry of the Environment and Japan Meteorological Agency.
The other scenario is the "scenario in which climate change policies are not made stricter and the world's dependence on fossil fuels continues (Fossil Fuel Dependency Scenario)," aiming to achieve economic growth based on utilization of fossil fuels as the primary energy source at current levels. Under this scenario, our assumption is for global average temperatures to increase to 4.0℃ above pre-industrial levels in the year 2100.
This scenario assumes a world where stricter measures to reduce greenhouse gas emissions are failed to be implemented, and natural disasters become more severe and frequent over time. The scenario parameters are based on data disclosed by international organizations and the Japanese government (Note 2).
- 2IPCC Sixth Assessment Report, Climate Impacts of an SSP5–8.5 Scenario, and information disclosed by the Ministry of the Environment and Japan Meteorological Agency.
(2) Risks and Opportunities under the Hypothetical Climate Scenarios
As a common transition risk shared by the Group, the Decarbonization Scenario assumes a significant rise in the cost of carbon emissions due to an increase in regulations such as carbon taxes. However, we believe that there are also numerous business opportunities to be had by leveraging the strengths of products and technologies in our portfolio that enable decarbonization.
The Fossil Fuel Dependency Scenario, on the other hand, focuses on the physical risks associated with climate change. In terms of opportunities, as it is difficult to imagine that future regulations will be eased in developed countries that are already promoting various environmental regulations, we can assume that business opportunities will arise by offering attractive emissions reduction technologies.
Recognizing the importance of climate change risks and opportunities to our business operations, we have given them careful consideration.
(3) Selection for Analysis and Determination of Risk and Opportunity Impact
The following criteria were used to select which businesses to analyze:
- Businesses at or above a certain scale (roughly 200 billion yen) that are significantly impacted by carbon neutrality
- Businesses that are currently small in scale but are expected to grow significantly in the future due to the impact of carbon neutrality
In determining the impact of risks and opportunities, we forecasted the difference in business profit between the end of FY2023 and 2030 and classified businesses as follows:
- Large: Business profit impact of 10 billion yen or more
- Medium: Business profit impact of at least 5 billion yen but less than 10 billion yen
- Small: Business profit impact of less than 5 billion yen
(4) Strategies for the Risks and Opportunities (Scenario Analysis)
Analysis by business domain (Decarbonization Scenario)
When applying the Decarbonization Scenario, we analyzed the risks and opportunities that could emerge by 2030 for each business, as described below.
- As a result of the global shift to electrification, we can expect reduced demand for products and services related to internal combustion engines, such as turbochargers for automobiles and engine-powered forklifts, and we can also expect the shift to carbon-neutral fuels to reduce demand for diesel-fueled engines.
- Anticipated technology-related risks include delays in the development of our new products such as hydrogen gas turbines, and the emergence of alternative technologies for CO2 capture equipment.
- Anticipated impacts from the external environment include delays in the establishment of supply chains for hydrogen and ammonia as cleaner energy sources to replace or supplement fossil fuels, and consequently, delays in the launch of new markets.
- As the carbon neutrality trend progresses around the world, including in emerging countries, during the transition period, it is expected that there will be fuel conversion from coal and diesel fuel to natural gas, as well as an increase in demand for high-efficiency gas turbine combined cycle plants (GTCC) and gas engines.
- In an effort to realize both carbon neutrality and a stable energy supply, Japan's Cabinet approved the "Basic Strategy to Realize GX." With regard to nuclear power, it has announced a strategy to maximize the use of nuclear power by promoting the "restarting," "development and construction of advanced light water reactors," "utilization of existing reactors (operational life extension)," and "promotion of the nuclear fuel cycle." In light of this strategy, we expect an expansion of business opportunities related to the restarting of existing PWR and BWR plants, the establishment of Specialized Security Facilities to deal with major accidents, and the maintenance of plants that have already been restarted. Business opportunities are also expected to expand with, for example, potential for new construction and replacement projects based on our advanced light water reactor (SRZ-1200), which will provide the world's highest standards of safety.
- Work is underway to capture demand for coal-fired thermal power generation that incorporates ammonia co-firing and single-fuel and to develop engines that are biodiesel compatible.
- Business related to CO2 capture equipment is also expected to expand significantly. The markets in North America and Europe, in particular, where legislation, tax systems, and CO2 storage sites are being developed, are expected to grow, though other regions are also expected to grow as frameworks are put in place. By expanding our wide-ranging CO2 capture lineup, from large-scale plants to small and medium-sized equipment, we aim to diversify our business as well as provide services that include remote monitoring and CO2 utilization. Furthermore, MHI is one of the few manufacturers in the world with both CO2 capture technology and gas turbine combined cycle plants (GTCC), enabling us to offer solutions that meet a wide range of customer needs.
- To work towards building a CCUS value chain, we intend to provide solutions not only for CO2 capture, but also for its transport, conversion, utilization, and storage.
- In terms of hydrogen-related business, in addition to continuing to progressively develop hydrogen gas turbines, hydrogen engines, and electric compressors for fuel cells, we will contribute to realizing a hydrogen ecosystem that incorporates hydrogen production, storage, and transportation.
- We are also currently developing a standard platform for synchronizing and coordinating various mechanical systems, with the goal of optimizing operation by electrifying mechanical systems and making them more intelligent.
- Other efforts include working to establish new businesses in preparation for global carbon neutrality. More specifically, we have not only invested in an offshore wind power generation company in Hokkaido but are also making headway in entering the capacity market (Note). Additionally, we are working to develop the process equipment for Sustainable Aviation Fuel (SAF) production.
- Capacity market: a capacity market is a market for securing future supply capacity rather than a "wholesale electricity market," where the actual amount of electricity generated (kWh) is traded. It will be introduced in Japan in 2024 for the purpose of ensuring future supply capacity (kW).
(5) Analysis of Risks and Opportunities: Results of Major Product Analysis by Business Domain
The section below summarizes the risks and opportunities for the product businesses examined in this report.
Analysis of Risks and Opportunities: Results of Major Product Analysis by Business Domain
This table summarizes an examination of impacts based on forecasting the difference in business profit at the end of FY2023 and 2030.
Plants and Infrastructure Systems
|CO2 Capture System||Technology||
Logistics, Thermal & Drive Systems
|Logistics Systems||Market/Customer Trends||
- In determining the impact of risks and opportunities, we compared the impact on business profit between the end of FY2023 and 2030. Based on this, the risks associated with declining demand for coal-fired power plants and carbon-intensive steelmaking plants have been factored into the FY2023 figures (base plan figures).
|Steam Power||Market/Customer Trends||
|Nuclear power||Changes in policy
Plants and Infrastructure Systems
|CO2 Capture System||Changes in policy
|Metals Machinery||Market/Customer Trends||
Logistics, Thermal & Drive Systems
|Logistics systems||Market/Customer Trends||
Analysis of common risks to be addressed Group-wide
Transition Risks: Increased costs of complying with regulations such as the carbon tax (mainly in the Decarbonization Scenario)
We believe that, given the global situation regarding carbon taxes and other carbon pricing policies, the economic burden in developed countries such as Japan will increase. As Japan accounts for more than 70% of our group's regional CO2 emissions in Scope 1 and 2, we recognize that the economic impact would be significant if carbon pricing were to be implemented in Japan in the future.
To reduce this impact, MHI Group will promote energy saving, the introduction of carbon-free power sources, and the carbon neutralization of all plants based on our own technologies. For example, we are considering incorporating high-temperature heat pumps, hydrogen power generation equipment, and CCUS into our own manufacturing facilities.
MHI Group has already positioned its plant in Mihara City, Hiroshima Prefecture, as a pilot plant for achieving carbon neutrality, through the introduction of solar power generation equipment.
By leveraging the knowledge and new technologies gained from this initiative, we will also work to develop new business opportunities by allowing customers to visit and see actual emission reduction technologies in operation at the plant as a model case.
Physical Risks: Natural Disaster Damage (Both Scenarios)
In the Fossil Fuel Dependency Scenario, we recognize the risk of increased future natural disasters causing damage to the factories or supplied plants of our Group or partners.
Furthermore, even in the Decarbonization Scenario, we believe that these risks cannot be ignored given the recent record of natural disasters.
As a result, physical risks from natural disasters (wind and water damage, etc.) are assumed in both scenarios above.
We have determined that among our Group, which is expanding globally, we are most vulnerable to natural disasters in Japan where roughly 90% of disasters that have impacted our Group have occurred in the last five years. These have been primarily due to typhoons and torrential rain.
To prepare against disaster damage, we review our procedures on a regular basis, which specify alternative measures and backup systems in the event of a disaster causing catastrophic functional failure within our businesses, and we conduct extensive training for employees and other relevant personnel.
Furthermore, as of FY2021, we conducted a risk survey of all domestic plants to reduce the risk of property damage in the event of a disaster, with the assumption that the frequent occurrence of major disasters could result in higher insurance premiums or suspension of insurance coverage.
3. Metrics and Targets
(1) Declaration of Achieving Carbon Neutrality by 2040
In October 2021, MHI Group planned and announced two new targets aimed at achieving a carbon-neutral society.
The first target is to reduce the Group's CO2 emissions (Scope 1,2 (Note 1)) to net zero by 2040. As an interim target, we also plan to reduce emissions by 50% by 2030 (versus 2014 levels). This represents a reduction of CO2 emissions from production activities at the Group's plants and other facilities. Through such efforts, we are committed to achieving carbon-neutral factories by applying technologies that we have developed and promoting further energy saving.
- 1Scopes 1 and 2 of the GHG Protocol, an international standard for the accounting and reporting of greenhouse gas (GHG) emissions.
The second target is to achieve net zero CO2 emissions across the entire value chain by 2040. As an interim target, we also plan to reduce emissions by 50% by 2030 (versus 2019 levels). This is primarily based on our customers reducing CO2 emissions (Scope 3 (Note 2)), through the use of our Group's products, as well as reduction contributions from the widespread use of CCUS.
- 2Scopes 3 of the GHG Protocol, an international standard for the accounting and reporting of greenhouse gas (GHG) emissions.
(2) Progress Status
We are making steady progress toward our interim CO2 reduction target for 2030, with Scope 1 and 2 totaling roughly 530,000 tons and Scope 3 totaling roughly 1.2 billion tons as of the end of FY2022.
It should be noted that Scope 3 has a total of 15 categories, and in terms of Scope 3 emissions, around 99% of CO2 emissions are from product use (Category 11), for which our primary countermeasure is reduction of such emissions. Going forward, we will consider more precise measuring methods and emission reduction in other categories as well.
(3) Roadmap for Target Achievement
The year 2030 marks the midpoint of our carbon neutrality target for 2040, and we continue to pursue various solutions to meet the target. From FY2021 to 2030, we will invest a total of 2 trillion yen in carbon-neutral R&D and investments.
We will also promote energy saving and electrification, where rational, at our own plants. In addition, we have introduced a 12 MW solar power generation facility that can convert all electricity demand from Mihara Machinery Works into a non-fossil fuel; by the end of FY2023, all electricity used by the entire plant will become carbon neutral, establishing the plant as a development field for related technologies and solutions.
Our production development efforts include expanding our lineup of CO2 capture equipment, and in addition to large-scale equipment that has established a significant track record, we have also begun to sell small and medium-sized solutions that collect less than 300 kg/day. Moreover, we continue to work with electric power companies to develop an advanced light water reactor (SRZ-1200), with the goal of commercialization around the mid-2030s.
In addition, to work towards the realization of a "hydrogen ecosystem," in FY2023, we plan to add hydrogen production and storage facilities to the existing power generation demonstration facility at Takasago Machinery Works and to launch operations at the Takasago Hydrogen Park. This facility will be used to comprehensively test a variety of technologies, ranging from hydrogen production to power generation.
4. Risk Management System
Transition risks and physical risks are factors that each business unit considers when developing their respective business plans. The Sustainability Committee reviews the results of their considerations, encompassing the above-mentioned risks and opportunities related to climate change, and the activities of the Sustainability Committee, including those relating to the TCFD, are regularly reported to the Board of Directors.