Risks and Opportunities Related to Climate Change
Kawasaki endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in September 2019. The TCFD recommends the disclosure of climate change-related information, such as that outlined in the table at right.
This section lays out Kawasaki’s analysis of its risks and opportunities related to climate change based on the disclosure provided in response to the CDP climate change 2019 questionnaire*.
What Are Climate Change-Related Risks?
change-related risks are broadly divided into (1) transition risks, related to the transition to a low-carbon economy, and (2) physical risks, related to physical changes due to climate change.
Climate Change-related Risks: Transition Risks
|Risk Type||Risk||Description||Financial Impact||Risk Management Methods|
|Policy||Carbon pricing||Carbon pricing, carbon trading and other regulations (particularly regarding the use of the Company’s products after their sale) may be put into place.||Such regulations would apply to almost all of the Company’s products and therefore greatly impact net sales.||Assuming carbon pricing, carbon trading and other regulations, we are focusing efforts on energy transition, which includes renewable energy, mainly hydrogen.|
|Legal||Act on Promotion of Global Warming Countermeasures||Costs related to responding to the tightening of regulations, such as Japan’s Act on Promotion of Global Warming Countermeasures and, overseas, European emissions standards (Euro 4), and ship emissions regulations (the Energy Efficiency Design Index, or EEDI), may emerge.||Kawasaki manufactures products with significant CO2 emissions, such as transportation equipment and large engines, and any strengthening of current regulations would apply to almost all its products and therefore greatly impact net sales.||We are developing products and technologies to reduce CO2 emissions ahead of the strengthening of laws and regulations.|
|Technology||Transition to hydrogen energy||Realizing a carbon-powered society is part of Japan’s national energy strategy, but in the process of realizing such a society, technological development costs will impact business.||If commercializing hydrogen energy proves impossible, there is a risk that R&D expenses made thus far will go to waste. Kawasaki invests approximately ¥50 billion in R&D annually. The portion of this related to hydrogen energy is undisclosed.||To realize a society that makes full use of hydrogen, as specified in Japan’s Strategic Energy Plan, we are working with Japanese and Australian governmental authorities and related companies to quickly build a hydrogen supply chain.|
|Market||Pressure to transition to renewable energy||Electricity costs may rise due to the strengthening of CO2 emissions regulations, and pressure to transition to renewables may arise in connection with the government’s strategic framework for hydrogen.||Currently, purchased electricity accounts for a large portion of Kawasaki’s energy use and procurement costs of approximately ¥10 billion per year.
Assuming that adopting an energy mix that includes 26% renewable energy (government target) would result in an extra cost of 15%, the annual cost impact on the Company would be around ¥0.3–0.5 billion.
|Kawasaki’s Head Office coordinates internal energy procurement, and the Company gathers information and formulates policy and countermeasure proposals under the direction of the Head Office.|
|Reputation||Gap between Kawasaki’s stance on environmental initiatives and external evaluations||Kawasaki will contribute to the market by providing products and services that help reduce environmental burden, but inadequate disclosure could create the risk of a gap between this stance and external evaluations (such as the CDP evaluation).||If efforts to address climate change are not well received and external evaluations decline, this could lead to divestment from the Company or removal from related stock indices.||We are working to eliminate any gaps between our actual initiatives and external evaluations by honestly answering climate change-related surveys, including that of the CDP, and carrying out appropriate disclosure.|
Climate Change-related Risks: Physical Risks
|Risk Type||Risk||Description||Financial Impact||Risk Management Methods|
|Acute physical risk||Loss of power due to facility damage from super hurricanes, storm surges, etc.||As Kawasaki’s shipbuilding and large structure manufacturing sites are located in coastal areas, they are at risk of losing power due to facility damage from super hurricanes, storm surges, etc.||In the event of power outage due to facility damage from a super hurricane, storm surge, or other such event, the Company’s operations or supply chains could be halted, greatly impacting net sales.||Kawasaki has formulated business continuity plans (BCPs), established emergency contact systems, and carries out regular inspections and drills, among other measures, in order to minimize the damage caused by major disasters, such as typhoons, earthquakes, floods, and pandemics.|
|Chronic physical risk||Prolonged extremely high or low temperatures||Kawasaki’s shipbuilding and large structure manufacturing involve outdoor work, necessitating adequate precautions for work in high or low temperatures. If such weather conditions become more prolonged, it could require additional measures to ensure the safety of employees or lead to declines in labor productivity.||The need for additional measures to ensure the safety of employees, declines in labor productivity, or halts in operations due to prolonged extremely high or low temperatures could greatly impact net sales.||In line with business sites’ safety management rules and systems, we implement a variety of countermeasures, including promoting awareness of heat stroke prevention measures, posting and sending out information on daily heat stroke risk levels, encouraging employees to intake adequate water and salt, and using spot coolers.|
Climate Change-related Opportunities
|Opportunity Type||Opportunity||Description||Financial Impact||Opportunity Realization Strategy|
|Opportunity 1||Creating green energy, including hydrogen, with Kawasaki-brand products||We aim to create clean energy, including hydrogen, with Kawasaki-brand products. We see opportunities in all sectors, such as energy and infrastructure, related to replacing fossil fuels with hydrogen.||Under Kawasaki’s hydrogen business strategy, through new business commercialization, the hydrogen business is planned to account for 5% (¥150.0 billion) of the ¥3 trillion net sales target for fiscal 2030.||To realize a society that makes full use of hydrogen, as targeted in Japan’s Strategic Energy Plan, we are working with Japanese and Australian governmental authorities and related companies to quickly build a hydrogen supply chain.|
|Opportunity 2||Growing demand for power generation and distributed power sources as means of business continuity planning||In preparation for power outages and supply chain interruptions due to super hurricanes and other natural disasters caused by climate change, demand for distributed power sources is expected to increase, creating opportunities.||Under Kawasaki’s business strategy, energy system & plant engineering businesses are planned to account for 20% (¥600.0 billion) of the ¥3 trillion net sales target for fiscal 2030.||In the energy system and plant engineering businesses, we are advancing improvements to power generation equipment, such as gas turbines, combined generation equipment, and gas engines, to increase efficiency and decrease environmental burden.|