Actions for Climate Change: Recognition of and Action on Risks and Opportunities

Tackling climate change is seen as one of the Sustainable Development Goals (SDGs) adopted by the United Nations. Since the Paris Agreement came into force in November 2016, initiatives to tackle climate change are being undertaken around the world. In Japan, the country declared carbon neutral by 2050 in October 2020, making it even more important to address climate change.

For the Daigas Group, which is engaged primarily in the energy business, climate change represents an important management challenge, and initiatives to reduce CO2 emissions are a crucial mission. In January 2021, the Daigas Group established and announced the Daigas Group Carbon Neutral Vision, indicating its vision of how it strives to become carbon neutral by 2050.

The Daigas Group announced the Daigas Group Medium-Term Management Plan 2023: Creating Value for a Sustainable Future in March 2021 to further accelerate its efforts toward low-carbon or carbon-free business operations.

The recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) announced in June 2017 (the “TCFD recommendations”) encourage companies to disclose climate change-related financial information to promote appropriate investment decisions by investors.

Osaka Gas supports the TCFD recommendations, and utilizes them as indicators to validate its climate change response.
We also participate in the TCFD Consortium,^* where discussions take place on efforts toward information disclosure on responses to climate change based on the TCFD recommendations.

The Daigas Group regards tackling climate change as a key management issue. Just as with other important business activities across the Daigas Group, the Board of Directors is responsible for making decisions on and supervising activities aimed at tackling climate change and other environmental issues. At the ESG Council (Management Meeting), which is held three times a year, executives discuss activity plans and activity reports related to ESG issues, including climate change issues, and submit reports to the President.

The Group also has the ESG Committee, chaired by the Executive in Charge of ESG Promotion (Vice President), who supervises the Daigas Group’s sustainability activities, and consisting of the heads of related organizations. The ESG Committee meets four times a year for the cross-organizational deliberation, coordination, and supervision of climate-change-related issues, including the planning and promotion of related business activities, progress in achieving relevant targets, and risk management. The committee submits to the Board of Directors deliberation proposals and reports on important agenda items, such as the status of achievement of sustainability-related ESG management targets and business projects expected to sustain a major financial impact due to climate change.

Director remuneration is based on a remuneration system that encourages Directors to achieve sustainable growth of the Group and increase the value of the Corporation over the medium and long term. Remuneration for Directors other than Outside Directors consists of basic remuneration as fixed remuneration, performance-linked remuneration, and stock remuneration. For the purpose of contributing to the enhancement of corporate value over the short to medium to long term, performance-linked remuneration is determined based on net income attributable to owners of the parent for the most recent three years (consolidated net income) and the ESG indicators achievement coefficient^* for the previous fiscal year. Stock-based remuneration is granted annually at a certain time of the year in the form of restricted stock, with the aim of increasing the linkage between remuneration and medium- to long-term improvements in corporate value, as well as to promote further value sharing with shareholders.

The major risks and opportunities associated with climate change, their business and financial impact, and the Daigas Group's response to this impact, are shown below.

The Daigas Group has been working on climate change scenario analysis that is intended to be utilized as reference material in the evaluation and preparation of countermeasures, and to understand the impact of climate change on the Group’s business on a medium- and long-term basis. For the analysis, we used the scenarios* published by IEA (see figures below).
We assessed our energy businesses (gas, electricity and related businesses in Japan and overseas) which are expected to experience the greatest impact from climate change among the Group’s businesses, assuming a multi-track scenario that takes into account the progress of energy conservation and changes in the composition of power sources, etc.
We steadily implement initiatives to increase the resilience of the Daigas Group's businesses, while applying the suggestions gained from scenario analysis to our evaluation of medium- and long-term business strategies. Moreover, as the global response to climate change continues to progress, the scenario's preconditions may also change in the future. We will continue to deepen our scenario analysis, renewing our assumptions in line with the latest conditions as necessary, taking into account scenarios established by external authorities.

Using a multi-track scenario analysis, we pinpointed anticipated risks and opportunities based on the environment surrounding the Daigas Group’s energy businesses in Japan and abroad, evaluated these risks and opportunities and examined countermeasures, in terms of both the short and medium terms, until 2030, and the long term, to 2050.

The Group is engaged in gas and electricity businesses, primarily in the Kansai area, which use natural gas as their main raw material and fuel. The external environment is undergoing various changes due to climate change. We have classified the major factors associated with these changes into “transition risks” and “physical risks,” and identified the major risks and opportunities. Significant risks for the Group related to climate change include the possibility that rising sea levels and natural disasters such as typhoons and torrential rains due to localized abnormal weather events, etc. may cause damage to our manufacturing equipment. In addition, it is possible that our businesses may be affected by significant increases in the carbon tax rate in Japan, or an increased desire among our customers to switch to non-fossil fuels. However, promotion of the development and spread of renewable energy and decarbonization technologies also represents a significant opportunity for the Group.

The Daigas Group will proceed to contribute to radically reducing CO2 emissions and realizing a decarbonized society, through initiatives such as energy conservation, the advanced use of natural gas, and the contribution to widespread use of renewable energies.

The Daigas Group's Medium-Term Management Plan has identified “achieving a low carbon / carbon neutral society” as a priority issue, and expects to spend 150 billion yen on decarbonization related investments in the period from 2021 to 2023 as it works toward achieving the goal of carbon neutrality in 2050.

The Daigas Group is actively contributing to the spread of renewable energy, and estimates that the impact on sales of its renewable energy business expansion will be in the order of 100 billion yen in fiscal 2031.3.

It should be noted that there are uncertainties and assumptions in the above estimation of financial impact. In practice, the impact may vary significantly as a result of changes in key factors.

Initiatives to reduce greenhouse gas emissions are a crucial mission for the Daigas Group. We focus on reducing CO2 emissions, not only from our own business activities, but also from customers who use the energy we provide. Please see below for details on the specific initiatives by the Daigas Group to reduce greenhouse gas emissions.

Under the Daigas Group Carbon Neutral Vision, we have established the goal of contributing 10 million tons per year of CO2 emissions reductions by FY 2031.3 as a management target, in order to further advance these business activities. This indicator will enable us to contribute to reductions throughout society, and we therefore use it as a management target linked to the Group’s business initiatives.

Securing a stable supply of energy, a core social infrastructure, is one of the major climate change-driven challenges facing society as a whole. By continuing to provide a range of services, including multiple sources of clean energy such as gas and electricity utilizing decarbonization technologies, disaster response equipment, and the widespread and advanced use of energy, the Daigas Group will strive to contribute to society in terms of stable supply and resilience for a decarbonized society.

In response to the growing global trend towards decarbonization, we will engage in activities to contribute to reducing CO2 emissions across society, promote the advanced use of gas, and advance initiatives to develop decarbonization technologies, aiming to balance business growth with the stability of the core social infrastructure.

When deciding on the Daigas Group’s business plan and investment plan, the internal organizations responsible for the gas, electricity and other businesses analyze the risk factors and their impact on each business, distill and identify risks, and submit these together with other business risks, etc. to the Executive Board for deliberation. Climate change risks in the formulated plans are managed through a PDCA cycle, and are reported and followed up at the Environment Subcommittee, ESG Committee, and ESG Council (Management Meeting). The PDCA (plan-do-check-act) cycle is used to manage such actions.

Decisions on climate-related risk and sustainability, including investment decisions, are made by the Board of Directors and the Executive Board. Matters related to climate change that were proposed or reported by March 31, 2022, included the following.

The Daigas Group will proceed to contribute to radically reducing CO2 emissions and realizing a decarbonized society, through initiatives such as energy conservation, the advanced use of natural gas, and the widespread use of renewable energies.