Disclosure based on TCFD recommendations (Response to Climate Change)

Support initiative for TCFD recommendations

In February 2021, the Group announced its agreement with the TCFD recommendations. In addition to switching to renewable energy and increasing the sales ratio of SDG-contributing products, we also formed a company-wide cross-organizational task team and promoted activities to disclose information based on the TCFD recommendations.

Governance

The Group has positioned the Sustainability Promotion Committee (chaired by the President) as a high-level committee that formulates, deliberates, and decides on measures that contribute to the realization of a sustainable society, including the SDGs. The committee is responsible for achieving GHG reduction targets on climate change issues, risk management, and achieving sales ratio targets for SDG-contributing products and technologies (including contributions to climate change issues). The committee is responsible for the execution of measures related to climate change response, and its supervision is the responsibility of the Board of Directors. Regular reports on climate change issues and important decisions made by the Sustainability Promotion Committee are reported to the Board of Directors by the President.

A TCFD Task Team was established under the Risk Management Committee, which is the subcommittee of the Sustainability Promotion Committee for ongoing TCFD (information disclosure) and more comprehensive disclosure details. See the figure below “Sustainability Promotion System” for details of governance related to the “TCFD Task Team.”

Strategy (impact on the organization’s business, strategy, and finances)

With regards to TCFD, in fiscal 2021 the TCFD Task Team led a climate-related scenario analysis project for the year 2040 (long-term), identifying potential risks and opportunities associated with climate change. We have identified the following risks and opportunities that we expect will have a relatively large financial impact.

In fiscal 2023, we updated information about “plausible scenario components” of the “climate-related scenario analysis,” and verified that there were no changes to “our Group impact assessment.”

The 1.5/2°C scenario

[Risks]

The significant risks we have identified include increased operating and transportation costs due to higher carbon prices, higher electricity prices due to advances in low-carbon technologies, and higher prices for biomass feedstocks, and higher prices for various plastic feedstocks due to higher naphtha prices resulting from lower gasoline demand.

[Opportunities]

In the current social environment, the movement of people and goods is being replaced by digital means due to incentives to avoid physical contact and the increased burden of travel costs. We think this presents opportunities to expand sales of semiconductor-related products. In addition, we will pursue new business opportunities by developing new technologies, products, and services with an eye toward a low-carbon society and a recycling-oriented economy. These include 3R + Renewable products, electric vehicle (EV)-related products such as battery materials and lightweight automotive materials, as well as packaging films for food with room-temperature storage and freshness preservation functionality.

The 1.5/2°C scenario analysis
	Drivers	Plausible scenario components (world developments)	Our Group impact Impact assessment	Risks Opportunities
Policies & regulations	Carbon price increase	• Carbon price rise* [Carbon prices under the 1.5℃ scenario (advanced industrial nations)] 2030: 140 USD/t-CO₂ 2040: 205USD/t-CO₂ 2050: 250USD/t-CO₂ (2022 IEA World Energy Outlook)	• Increase in operating costs due to higher manufacturing energy costs	Risks
Policies & regulations	Carbon price increase		• Transport cost increase	Risks
Market	Low-carbon technology progress	• Higher electricity prices due to greater demand for electricity from renewable energy sources	• Operating cost increase	Risks
	Low-carbon technology progress	• Rising prices of raw materials due to increasing demand for biomass-derived raw materials	• Soaring prices of biomass feedstock	Risks
	Reduced demand for gasoline associated with low-carbon technology progress	• Naphtha gains status as a main product, rather than its conventional by-product status • Along with gasoline and diesel, naphtha is in stable supply, but prices are rising	• Increase in purchase and procurement costs due to higher naphtha prices	Risks
	Digital alternatives to the movement of people and goods	• Carbon taxes and GHG emission regulations make the movement of people and goods more costly • Increased demand for semiconductors used in digital devices	• Sales increase due to sales expansion of semiconductor-related products	Opportunities
	Low-carbon technology progress	• Resource recycling requirements from customers • Accelerate switchover to 3R + Renewable (sustainable resource) related products	• Sales increase due to early market launch of 3R +Renewable products	Opportunities
	Increased demand for low-carbon technology products	• Shift to a low-carbon society • Tightening of carbon tax and GHG emission regulations • Progress in the development of CO₂ transport technologies sensitive to economic efficiency, and infrastructure buildup	• Sales increase due to expanded sales of low-carbon products and services	Opportunities
	Increased EV-related demand (battery materials, lightweight automotive materials)	• EVs steadily increase as a percentage of total vehicle sales volume	• Sales increase due to expanded sales of products/services for EVs • Increased sales of lightweight automotive materials	Opportunities

* Higher operating costs due to carbon price rises:
Assuming our Group’s total CO₂ emissions for fiscal 2040 is at the same standard as fiscal 2023 of approximately 160,000 t/year (Scope1 + Scope2) and the carbon price is 29,602 yen/t-CO₂ (144 yen/USD), the increase in costs is calculated at approximately 4.6 billion yen/year. (Previous year: approximately 5 billion yen/year)

The 4°C scenario

[Risks]

Assuming that the introduction of electricity derived from renewable energy sources will be systematically promoted toward the 2050 goal of taking on the carbon neutrality challenge, we can foresee that the impact of transition risks, such as fluctuations in fossil fuel prices (especially crude oil and natural gas) and higher operating costs due to soaring electricity prices caused by stricter GHG emission regulations, would be greater than under the 1.5/2°C scenario. We have also identified significant physical risks associated with rising atmospheric temperatures. These include reduced sales due to supply disruptions of key raw materials and the shutdown of operations at our own manufacturing sites that could be caused by the occurrence or increased frequency of extreme weather events, such as cyclones and floods.

[Opportunities]

Sales of various sheeting products for building materials and waterproof sheeting products and services are expected to increase amid the promotion of efforts to build resilient cities that can withstand extreme weather conditions and major disasters. These include building materials and waterproof roofing sheet products that are lightweight, highly durable, impact resistant, highly insulating/heat shielding, fire-resistant, and have other functions. Due to severe environmental changes, including rising atmospheric temperatures, demand for packaging materials for long-term preservation of foods and processed products is expected to increase as the numbers of livestock used for meat decreases, and as demand for packaging materials for fruits and vegetables is expected to increase with declines in crop yields, leading to higher sales of various packaging film products.
With regard to diseases and mobility restrictions associated with climate change, we anticipate increased need for home care, including treatment and medication, and increased opportunities for diagnosis at local hospitals and immediate remote diagnosis at home (Point-of-Care Testing, or POCT) for infants and the elderly, who are particularly sensitive to rising atmospheric temperatures. We expect to expand our healthcare business, including various medical equipment and diagnostics, and our medical equipment and pharmaceutical packaging business. By further improving the performance and environmental adaptability of these products, we will contribute to solving social issues on a global scale. The GHG emission reduction targets for 2030 and 2050 will be implemented as a response to the carbon price increase, tighter GHG emission regulations, and changes in fossil fuel prices (these are identified as risks in the 1.5/2°C or 4°C scenarios). We will work to accomplish these efforts ahead of time as we convert long-term transition risks into short- and medium-term business opportunities to expand sales.

The 4°C scenario analysis
	Drivers	Plausible scenario components (world developments)	Our Group impact Impact assessment	Risks Opportunities
Market	Fossil fuel price fluctuations	• Crude oil and natural gas prices rise Crude oil 2021: 69USD/barrel → 2030: 82 → 2050: 95 Natural gas Japan 2021: 10.2USD/MBtu* → 2030: 10.9 → 2050: 10.6 Decrease in Japan. Increases in other regions (2022 IEA World Energy Outlook) * MBtu: 1 million British thermal unit	• Increase in raw materials costs due to higher purchase and procurement costs • Increase in operating costs due to higher manufacturing energy costs	Risks
Physical risk: Acute	Cyclones, flooding, and other extreme weather events increase in frequency and severity	Intensifying and increasing frequency of cyclones, torrential rains, floods, droughts, etc. • Major raw material suppliers: operations suspended • In-house manufacturing sites (domestic and overseas): Operations suspended	• Reduced sales due to temporary suspension of operations	Risks
		Resilient urban development promoted → Increased demand for building materials and industrial materials resistant to natural disasters (Examples of required functions: lightweight, highly durable, impact resistant, highly insulating/heat shielding, fire-resistant)	• Increase in sales of various sheeting products for building materials and waterproof sheeting products and services	Opportunities
		• Decrease in meat livestock → increased demand for packaging materials for long-term preservation of foods and processed products • Decrease in crop yields → Increased demand for fruits and vegetables packaging materials	• Increase in sales of various packaging film products	Opportunities
	Infectious diseases/rising temperatures leading to illness and restrictions on mobility	• Increased need for diagnosis at local hospitals, homes, remote diagnosis • Increased healthcare treatment opportunities for young children and the elderly who are sensitive to environmental changes (diagnosis and treatment) → Point-of-Care Testing (POCT)/increased demand for medical equipment	• Expanded sales of healthcare products/increase in sales • Increased demand for pharmaceutical packaging	Opportunities

Based on the new Medium-term Business Plan 2024-2026, the Sustainability Promotion Committee and Risk Management Committee will continue to play a central role in fiscal 2024 (by backcasting from the results of this scenario analysis) to materialize short-term measures, which will be deployed to relevant internal departments and implemented and promoted. In the medium- to long- term, we will update our scenarios and financial impact estimates as appropriate in light of changes in the macro environment, and work to enhance corporate value through the development of new technologies and products that contribute to a low-carbon society and a recycling-oriented economy. We will also work to enhance the sophistication of our management strategy by reforming our foundational organizational culture and strengthening our human resources.

Risk management

Identification, assessment and management of TCFD-related risks and opportunities are conducted in accordance with our Group risk management processes.
For details, see the “Risk Management” page.

Metrics and targets

We have been responding to the risks identified in the 1.5/2°C or 4°C scenarios, such as carbon price increases, stricter GHG emission regulations, and fluctuations in fossil fuel prices by proceeding with the GHG emission reduction targets of 46% or more reduction of CO₂ emissions (compared to fiscal 2013) by 2030, and taking on the challenge of carbon neutrality by 2050 and were able to achieve the 2030 target (48%) in advance in fiscal 2023.

The figure on the right, “Taking on the Challenge of Zero GHG Emissions” shows our actual performance to date.

Taking on the Challenge of Zero GHG Emissions

To acquire SBTi certification (standards equivalent to 1.5°C scenario targets), in February 2024, we made a commitment to develop targets and revised the targets as follows.
• 2050 target: Taking on the carbon neutrality challenge
• 2030 target: Reducing GHG emissions by 48% or more (compared to fiscal 2021)
We will continue our activities with these new targets.

With regard to the development of new technologies and products that contribute to a low-carbon society and a recycling-oriented economy included in these opportunities, the Group decided in fiscal 2018 to incorporate the SDGs as one of its corporate policies and started a certification system for SDG-contributing products, technologies, and activities in fiscal 2019. Contributing to the response to climate change (measures to counter global warming, reduce environmental impact, etc.) is part of the opportunity to achieve the SDGs, and we hope to contribute to a sustainable society through our business.

The Sustainability Promotion Committee has decided on a target ratio of revenue from SDG-contributing products to sales of 70% or more for fiscal 2030 and 50% or more for fiscal 2023 and is implementing the required activities. The actual results were 54.5% for fiscal 2022 and 61.9% for fiscal 2023, achieving the target for fiscal 2023.

Moving forward, we will undertake a series of initiatives that will contribute to the sustainable enhancement of corporate value. We will periodically confirm and update the risks and opportunities identified in our climate-related scenario analysis with an eye to changes in the external environment and market conditions, and will fulfill our responsibility for accountability by disclosing information to stakeholders as appropriate upon quantifying the financial and other impacts, and specifying and enhancing metrics and targets.

Topics More

2024/10/01 Sustainability Sumitomo Bakelite Co., Ltd. signed to the UN Global Compact
2024/02/01 Sustainability Sumitomo Bakelite Co., Ltd. announces its establishment of “Human Rights Policy for the Group of Sumitomo Bakelite Co., Ltd.”
2023/10/31 Sustainability Integrated Report 2023 of Sumitomo Bakelite Co., Ltd. has been issued.
2023/06/21 Sustainability Selected as an iSTOXX^® MUTB Japan Platinum Carrier 150 Index