In April 2023, Metal One announced to support the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and joined the TCFD Consortium—companies, financial institutions and other organizations that support those recommendations. While improving the transparency of climate-related disclosures, we will strengthen our initiatives to foster a sustainable society.
Governance
The Metal One Group treats responses to sustainability issues, including climate change, as a key management issue. We have established a system that involves our board of directors in policies, targets and other crucial matters related to emissions reduction and climate change response and provides appropriate oversight.
The DEI & Sustainability Office tracks and manages Group-wide emissions and climate change initiatives, and also plans and proposes measures related to climate change response. The corporate supervising officer, who handles DEI and sustainability, oversees the office’s activities and continually reviews the Group’s basic policies on climate change response, emissions reduction targets, and the progress of initiatives.
These matters are reported regularly to the board of directors, which oversees business strategy and investment decisions in light of climate-related risks and opportunities, emissions reduction progress, and other relevant issues. This ensures that sustainability initiatives are not limited to individual measures but rather linked to Group-wide management decisions and medium- to long-term value creation.
The DEI & Sustainability Office works at the executive level as well, ensuring that each business division monitors the progress of emissions reduction measures and businesses that reduce emissions, reviewing and improving measures as needed. Using this framework, the Metal One Group has built a governance structure that manages and drives climate change response in an integrated manner at the management level.
Strategy
The Metal One Group recognizes that the transition to a carbon-neutral society will create risks and opportunities that could significantly impact our business environment. In particular, we view transition risks associated with the move to a decarbonized society—such as introducing carbon taxes and tighter regulations—as key management issues that could affect future earnings and cost structures.
At the same time, we recognize that climate change response is both a matter of risk mitigation and a valuable management opportunity to create new business. Based on this understanding, the Green Transformation Office is promoting business development to make the Group’s entire value chain green, from upstream to downstream, through low-carbonization and decarbonization.
The Office has identified three strategic focus areas that provide new value across the entire supply chain: (1) green steel, (2) renewable energy, and (3) the circular economy. We plan to use these to achieve carbon neutrality across the steel industry by creating business opportunities through broader distribution of low-carbon and decarbonized materials, the use of renewable energy, and better resource circulation.
In this way, the Metal One Group quantitatively evaluates and manages climate-related transition risks while viewing the transition to a decarbonized society as a growth opportunity. By reflecting this in our business strategy, we are building a resilient business structure over the medium to long term.
Scenario Analysis
Definition of Scenario Groups
While conducting our scenario analysis, we referred to materials published by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change—both globally recognized organizations cited in the TCFD recommendations—and developed multiple future scenarios. As we evaluated the greenhouse gas reduction targets of various countries, international guidelines, investor requests and other factors, we considered scenarios that include a transition to a society in which the rise in global temperatures since before the Industrial Revolution is limited to around 1.5°C. We intend to review these scenarios regularly while looking at changes in the business environment and underlying assumptions.
Scenario Analysis and Results
Our scenario analysis factored in short-term effects as well as the medium- to long-term time horizon from 2030 onward, and organized and evaluated climate-related risk and opportunity factors for each target business, both qualitatively and quantitatively. Specifically, it identified risk and opportunity factors at three stages—procurement, operations, and demand—and analyzed the impact of the most important factors from both transition risk and physical risk perspectives. For key variables, it evaluated the impact on each business using simplified financial analyses and other methods based on stated assumptions.
The quantitative analysis results are based on scenarios published by the IEA and others, as well as Metal One’s current judgment. They include considerable uncertainty, so we will continue to improve the precision of our analysis.
Effects on Existing Strategy and Business Transition Plans
Through our scenario analysis, we identified the risk that negative financial effects for our business strategy and business portfolio could arise if we do not take climate change response measures.
The Metal One Group is reviewing our business strategy based on this analysis, considering business transition plans and how to make the smoothest transition to a decarbonized society. From a medium- to long-term perspective, we are examining a shift toward businesses focused on low-carbonization and decarbonization, along with portfolio optimization reflecting future changes in the business environment.
Policy for Businesses Where Transition Risks Are the Main Issue
We expect some businesses to face transition risks having significant impact. Our policy is to respond to the transition to a decarbonized society primarily through the Green Transformation Office, creating business opportunities in areas such as green steel, renewable energy and the circular economy. Because new technologies and business models that drive decarbonization often take time to be deploy in society, we intend to expand our businesses focusing on emissions reduction in stages from a medium- to long-term perspective.
Policy for Businesses Where Physical Risks Are the Main Issue
We expect some businesses to face physical risks associated with climate change. We are considering medium- to long-term response measures, including diversifying business regions and procurement sources and ways to ensure business continuity. We will continue to monitor and assess the effects of climate change and reflect findings in our business strategy as needed.
<Physical Risks (4°C Scenario)>
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Acute Risks
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Natural disasters could disrupt logistics and supply networks
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Chronic Risks
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Rising sea levels could disrupt logistics and raw material procurement
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In recent years, climate change has affected port logistics and marine transportation in various ways. Approaching typhoons can disrupt port functions and delay ships entering or leaving port when berths are closed. There have also been cases in which routes were changed to avoid typhoons or voyage times were extended.
Heavy rain and storm surges can cause congestion and cargo backlogs at ports, leading to delays in cargo handling and delivery. This is especially true on ASEAN-bound routes, where from July to September (during typhoon season) vessels often have to wait or alter routes to avoid typhoons off the Philippines and elsewhere, which can affect transport schedules.
Rising summer temperatures are also affecting port operations. To ensure safety in high-temperature environments, break times are increased, and cargo-handling operations tend to take longer. There is also a growing recognition that sudden heavy rainfall, such as squalls, is increasing in frequency. This is another factor causing delays.
We recognize that logistics sites are therefore taking measures to ensure the safety of cargo-handling workers and others, such as adjusting shipping schedules to account for longer working hours during the summer and switching to nighttime cargo handling.
<Transition Risks (1.5°C Scenario)>
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Policy and Regulatory Risks
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Higher transaction costs due to the introduction of carbon taxes and the EU’s Carbon Border Adjustment Mechanism
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Technology Risks
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Delayed maturation of low-carbon steelmaking technology as well as investment uncertainty
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Market Risks
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Pressure on earnings due to higher decarbonization costs, and difficulty passing those costs on through price increases
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Reputation Risks
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Risk of reduced transactions due to decarbonization response delays
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<Opportunities (1.5°C Scenario)>
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Resource Efficiency
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Opportunities to roll out businesses and solutions related to improving resource efficiency as circular resource use expands
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Energy Sources
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Opportunities to expand transactions in low-carbon steel materials as renewable energy and hydrogen-based steelmaking become more widespread
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Products and Services
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Opportunities to provide environmentally conscious products and decarbonization-related services as demand for low-carbon steel materials grows
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Markets
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Opportunities for market expansion in low-carbon infrastructure and related fields as decarbonization demand increases
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Resilience
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Opportunities to strengthen the transaction base and achieve sustainable growth through green transformation initiatives, including decarbonization
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Risk Management
The Metal One Group has introduced processes to identify, evaluate and monitor climate change-related risks associated with our business activities and investments, as well as to take appropriate response measures. All processes are based on the recognition that these risks could materially affect the Group’s business performance and financial position.
We established our MRM Committee to conduct comprehensive risk reviews when carrying out investments and business plans that could materially affect the Group’s business performance and financial position. As part of this process, the DEI & Sustainability Office analyzes the impact on businesses and investment projects from the perspective of climate-related transition risks and physical risks, and presents its findings to guide management decision-making. In evaluating climate-related risks, we classify the impacts on business activities and the supply chain in terms of transition risks such as tighter regulations and higher carbon prices, as well as physical risks such as extreme weather and rising temperatures.
We continuously monitor the climate-related risks we identify and evaluate through these processes. We then review and strengthen our response measures as necessary in light of changes in the business environment and regulatory trends. Through this risk management framework, the Metal One Group manages climate-related risks in an integrated manner at the management level and links this to enhancing sustainable corporate value.
Metrics and Targets
Through our initiatives to reduce greenhouse gas (GHG) emissions, the Metal One Group has established medium- to long-term goals of achieving a 50 percent reduction by 2030, based on fiscal 2020*1 GHG emissions (Scopes 1 and 2*2), and achieving carbon net zero*3 by 2050.
We will continue to promote lower GHG emissions by implementing specific initiatives, including increasing the use of renewable energy and reducing electricity consumption.
<Metal One Group GHG Emission Results>
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FY2020
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FY2021
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FY2022
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FY2023
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FY2024
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Scope1
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39,672
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35,183
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36,659
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28,734
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28,381
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Scope2
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96,194
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74,925
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68,329
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62,649
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58,968
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Total Scope 1 and 2 emissions
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135,866
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110,108
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104,989
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91,383
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87,349
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We set fiscal 2020 as the baseline year because more precise data, particularly for affiliates, became available in that year. This data may be adjusted during the process of further scrutiny.
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Scope 1 and 2 emissions are calculated based on investment ratio standards, and include affiliates’ Scope 1 and 2 emissions proportional to our holdings.
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This assumes that offsets will be made using internationally accepted methods for emissions that remain after all feasible reduction efforts, including carbon removal.
