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Gate 2 Strategic Edge

Sustainability Management—Tackling Climate Change through Our Businesses

With the adoption of the Sustainable Development Goals (SDGs) and the Paris Agreement by the United Nations, companies’ measures to address climate change are becoming important for the sustainability of society. Mitsui has identified “Secure sustainable supply of essential products,” “Enhance quality of life,” and “Create an eco-friendly society” as components of its Materiality. Accordingly, our global business activities will both contribute to the development of economies and societies in a variety of countries and regions worldwide and help address climate change and other global issues. We believe that a favorable long-term balance between economic and social contributions is essential to realizing a sustainable growth strategy.

Also, in December 2018 the Company declared its support for the Task Force on Climate-related Financial Disclosures (TCFD). Pursuant to the TCFD recommendations, we will advance relevant disclosure further.

Strategy Pursue Economic, Social, and Environmental Value in a Balanced Manner

We view the various risks and opportunities related to climate change as important factors that we must take into consideration when building business strategies. We have formulated Medium-term Management Plan 2023 in light of scenario analysis conducted in the fiscal year ended March 31, 2020.

Major Risks and Opportunities Related to Climate Change

Mitsui conducts a wide range of businesses in many different countries and regions. We believe the potential impact of climate change on our businesses is as follows.

Transition risks Policy and legal risks
  • Shift to the use of energy with low carbon emissions due to various national and regional policies (changes in energy and power mix)
  • Government-imposed restrictions on greenhouse gas emissions, with carbon taxes and cap-and-trade emissions-credit schemes
Technology risks
  • Changes in supply and demand in markets for existing commodities and services, the obsolescence of existing production equipment and facilities, or impairment of the value of Mitsui’s ownership interests accompanying the introduction of new technologies geared toward climate change or the development and dissemination of alternative products
Market risks
  • Increases in demand for low-carbon products and services or fossil fuel-related products and services
  • Fund procurement risks due to the adoption of decarbonization policies by financial institutions and insurance companies
Physical risks Acute risks
  • Interruption of the operations of project companies in Australia and the United States, etc., due to cyclones and hurricanes
Chronic risks
  • Impact of global warming on agricultural and marine products or impediments to operations accompanying rising sea levels

Further, for each of our business fields we have analyzed the internal and external environment and identified risks and opportunities.

* Please view the table below while scrolling horizontally.

Segment Risks Opportunities
Iron & Steel
Products
  • Decrease in demand for materials and drilling equipment for the energy sector
  • Reform of steel production, processing and supply chains responding to low carbon society
  • Increase in demand for maintenance businesses to contribute to extending life of infrastructure
  • Increase in demand for lighter vehicles and highly efficient motors accompanying spread of electric vehicles
Mineral &
Metal Resources
  • Decrease in demand for raw materials (iron ore, coal) due to increase in Electrical Arc Furnace usage in anticipation of efforts to reduce greenhouse gases
  • Increase in the cost of environmental measures and carbon taxes
  • Increase in the difficulty for obtaining environmental permits
  • Expansion of recycling businesses in response to circular economy
  • Increase in demand for raw materials for secondary batteries, copper, and aluminum accompanying the spread of vehicle electrification
Energy
  • Decrease in demand for fossil fuel and the subsequent decrease in the value of upstream assets
  • Expansion of LNG and gas businesses that have a relatively low environmental impact
  • Increase in demand for biofuel, hydrogen, and other next-generation energy
Machinery &
Infrastructure
  • Change in the social conditions surrounding coal-fired thermal power businesses
  • Change in the supply and demand of existing businesses accompanying the creation of new technologies and new markets
  • Impact of extreme weather on cargo transportation volumes
  • Development of renewable energy generation businesses
  • Increase in demand for storage batteries that help address increased volatility in power grids
  • Circular economy and sharing
Chemicals
  • Change in demand for fossil fuel-derived chemicals
  • Change in industrial structures due to strengthening of environmental restrictions
  • Increase in demand for recycling in anticipation of a recycling-based society
  • Increase in demand for biochemicals and energy-saving materials
  • Increase in demand for forests as a source of absorption and emission credit businesses
Lifestyle
  • Change in food-producing regions accompanying global warming, etc.
  • Impact on supply chains of extreme weather
  • Rising need for securing food resources and securing stable food supplies
Innovation &
Corporate
Development
  • Increase in insurance claims accompanying a rise in physical risks
  • Increase in demand for insurance accompanying a rise in physical risks
  • Increase in business opportunities in relation to environmental derivatives

Aiming for Net-Zero Emissions in 2050

Mitsui has set a goal of achieving net-zero emissions by 2050. As a pathway to that goal, we aim to reduce GHG impact by 50% in 2030 compared to the impact in 2020.

Aiming for Net-Zero Emissions in 2050

For “Transition,” only the future “Reduction contribution” attributable to the Company has been envisioned.

1 Medium-term Management Plan 2023

GHG impact is the Company’s GHG Emissions net of the Reduction contribution resulting from Opportunity & Transition. We aim to reduce the 2030 GHG impact to half of that in 2020.

To this end, we will pursue three main initiatives. Reduction initiatives will optimize our resource and power-generation asset portfolio to reduce emissions. Transition initiatives will help realize a low-carbon society by advancing the shift from coal-fired to LNG-fired thermal power generation. Opportunity initiatives will utilize measures focused on climate change as opportunities to advance new businesses.

2 Introduction of an internal carbon pricing system

At Mitsui, we introduced an internal carbon pricing system in April 2020 in order to increase the medium- to long-term resilience of businesses emitting large volumes of GHG, and to encourage the development of projects that are effective at reducing GHG emissions. Regarding new business projects, in projects with potential risks or opportunities from GHG regulations, etc., we have added analysis of the potential impact of a 2°C scenario to project screening factors, as well as the reasonableness of countermeasures in the event these risks are realized. We will also use the internal carbon pricing system for assessing risks in existing projects.

GHG-Related Initiatives

Mitsui has been conducting GHG emission surveys in Japan since the fiscal year ended March 31, 2006, and overseas since the fiscal year ended March 31, 2009. Previously, we disclosed Scope 1 and Scope 2 GHG emissions based on the control approach of the GHG Protocol.* As of the fiscal year ended March 31, 2020, we disclosed the Scope 3, Category 15 indirect GHG emissions of investment-based energy businesses, investment-based mineral and metal resources businesses, and investment-based thermal power generation businesses that do not fall under the classification of either Scope 1 or Scope 2, and we disclosed the Scope 1 and Scope 2 GHG emissions of the businesses of affiliated companies in all business fields. We have extended the scope of disclosure to reflect our corporate strategy, which entails continuously reforming our portfolio with a focus on resilience to risks arising from climate change and utilizing our wide-ranging business development to take on opportunities flexibly.

In the fiscal year ended March 31, 2020, GHG emissions from the Head Office, Company offices and branches, and domestic and overseas subsidiaries were 0.75 million tons. Further, GHG emissions from un-incorporated joint ventures in the metal resources and energy field totaled 3.07 million tons. As a result, total GHG emissions were 3.82 million tons. In addition, Scope 3, Category 15 indirect GHG emissions accompanying investments amounted to 32 million tons.

GHG Protocol is a GHG emissions calculation and reporting standard formulated through an initiative led by the WRI (World Resources Institute) and the WBCSD (World Business Council for Sustainable Development).

GHG Emissions Unit: Thousand t-CO₂e
  2018.3 2019.3 2020.3
Scope1+2 3,985 3,776 3,820
Scope 3
(Investment)
32,000

Note:Scope includes greenhouse gas emissions of the Company, consolidated subsidiaries, and un-incorporated joint ventures in the Mineral & Metal Resources and Energy sectors (Scope 1 and Scope 2, including gas generated at times of production).

Management Foundation Risk Management and Governance Concerning Climate Change

ESG Due Diligence Checklists and the Specially Designated Business Management System

Decisions are made on the selection of new businesses and on whether or not to implement new businesses following deliberations at respective committees based on quantitative standards such as profitability and on qualitative evaluations. As part of these evaluation efforts, respective business divisions conduct environmental, social, and governance (ESG) impact assessments using ESG due diligence checklists that, with reference to international standards, summarize environmental and social risks for each business division. Factors covered by these assessments include climate change, pollution prevention, ecosystems, water stress, and human rights.

Upon completion of these evaluations, businesses that have high qualitative risks in relation to climate change and other ESG factors are classified as “specially designated businesses” and advanced in compliance with the Specially Designated Business Management System. As required, recommendations on whether or not to proceed with potential new businesses and recommendations on optimizing the quality of potential new businesses are sought from the Sustainability Committee, the Environmental & Societal Advisory Committee, and other bodies. Ultimately, whether or not to proceed with potential new businesses is determined through deliberations that consider whether or not new businesses meet certain quantitative and qualitative standards and which are held at meetings of the Board of Directors, the Corporate Management Committee, and the Council of Investment and Finance Proposals, which supervise ESG risk.

Business Domains Subject to Specially Designated Business Management System

Business Domain Key Points for Screening
   
Applicable to All Four Business Domains
  • Significance and social value of the business itself
  • Significance of Mitsui engaging in this business
1
Environment-related business

Business that has a large impact on the environment
Examples: Coal-fired power plant business, offshore oil field business, etc.

  • Contributions of such businesses to the environment and society
  • Measures to mitigate environmental load (incl. climate change, biodiversity loss, water risk)
  • Safety assurance and work environment
  • For development business, appropriate consideration for and understanding of the human rights of local residents and other related parties, and other related matters
  • Compliance with environmental laws, regulations and guidelines, etc.
2
Medical, healthcare and bioethics related business

Business related to the fields of medical and healthcare, business related to the development of technologies relating to the human genome, genetic analysis, genetic recombination, and other relevant matters, or business that handles products to which these technologies are applied
Examples: Business with a high public profile in the medical and healthcare fields (dialysis, pharmaceutical drug manufacturing business), development of new drugs using genetic analysis technology, etc.

  • Ethical screening based on the guidelines of three Japanese government ministries (Ethical Guidelines for Human Genome and Genetic Sequencing Research: MEXT, MHLW, METI)
  • Approval by the ethics committee of the research institute in question, acquisition of informed consent, checking of processes, etc.
3
Projects receiving subsidies

All projects that directly or indirectly receive subsidies from governmental and administrative agencies, or other such entities, both within and outside of Japan

  • Evaluation in light of Mitsui’s management philosophy (MVV)
  • Social impact and ensuring accountability and process transparency
  • Determination of the interests of stakeholders, and resultant considerations and responses
  • Responsibility and capability over the medium to long term as the operator of a business with a high public profile
4
Business harboring other unusual reputation risks

Business that may be in conflict with public order and morality, Mitsui’s management philosophy, etc., and business with a high public profile
Examples: Business involving utilization of sensitive personal information, social infrastructure business, etc.

  • Evaluation in light of Mitsui’s management philosophy (MVV)
  • Social impact and ensuring accountability and process transparency
  • Determination of the interests of stakeholders, and resultant considerations and responses
  • Responsibility and capability over the medium to long term as the operator of a business with a high public profile

CASE Mitsui’s Forests

We own forests in 74 locations that cover a total of roughly 44,000 hectares, which is approximately 0.1% of Japan’s total land area. Over many years, we have maintained and managed our forests, which have an estimated public value of approximately ¥200.0 billion.*1 In addition, all of our forests have obtained the FSC® certification (FSC®-C057355) and SGEC certification, which are both international standards. It is also estimated that Mitsui’s forests absorb and sequestrate roughly 160,000 tons of CO₂ and accumulate approximately 10 million tons of CO₂ per year.*2 These factors demonstrate how we contribute to the mitigation of climate change-related risks through responsible forest management.

  • This was calculated based on Evaluation of the Value of Ecosystem Services with Respect to the Biodiversity Preservation Activities of Companies, Ministry of the Environment.
  • This was calculated through the use of the Tier 2 approach in “Chapter 4: Forest Land” of 2019 Refinement to the 2006 IPCC Guidelines on National Greenhouse Gas Inventories. The calculation method has been changed from the previous calculation method based on the Tier 1 approach of the 2006 IPCC Guidelines to a calculation method based on the aforementioned Tier 2 approach in order to refine calculations from the fiscal year ending March 31, 2021, onward.

“Mitsui’s forests” in Owani-machi, Aomori “Mitsui’s forests” in Owani-machi, Aomori

“Mitsui’s forests” in Owani-machi, Aomori

Governance in Support of Climate Change Countermeasures

To create an organization that operates under the Corporate Management Committee, in May 2017 we established the Sustainability Committee, which comprises directors, executive officers, and the general managers of each relevant corporate division. With a view to advancing management based on an awareness of the sustainability of society and the Company, the Sustainability Committee offers recommendations on business policies and business activities from the viewpoint of sustainability. These activities include the formulation of basic policies for sustainability management. Furthermore, with the aim of realizing measures in response to sustainability issues, we have established the Environmental & Societal Advisory Committee as an advisory body to the Sustainability Committee. Mitsui mainly appoints to the former committee external experts who provide a wide range of insight on climate change; policies on water, energy, and other environmental matters; trends in technology; and human rights.

Details of the discussions at meetings of the Sustainability Committee are periodically reported to the Corporate Management Committee and the Board of Directors and utilized in decisions on the Company’s management policies. Further, meetings of the Board of Directors discuss overall sustainability, including the progress of climate change countermeasures. In the fiscal year ended March 31, 2020, out of a total of 70 proposals and reports submitted to and discussed by the Board of Directors, 25 related to sustainability and governance.

Governance in Support of Climate Change Countermeasures

Initiatives of the Sustainability Committee to Date

FY2018
  • Policy deliberations for coal-related business initiatives
  • Report on latest trends in climate change issues
  • Discussion on information disclosure policy for environment-related data
  • Deliberations on enhanced disclosures of non-financial information in consideration of the external environment
FY2019
  • Deliberations on enhanced disclosures of non-financial information
  • Discussion on reviewing Materiality
  • Report on external environment in ­relation to climate change
  • Discussion on declaration of support for TCFD
FY2020
  • Discussion on climate change scenario analyses
  • Discussion on key priorities established in relation to sustainability
  • Discussion on the introduction of internal carbon pricing system
  • Discussion on establishment of GHG-related targets

Environmental & Societal Advisory Committee

Aiming to realize measures in response to sustainability-related issues, Mitsui has established the Environmental & Societal Advisory Committee as an advisory body to the Sustainability Committee. Mainly comprising external experts who provide a wide range of insight on climate change; policies on water, energy, and other environmental matters; technology trends; human rights; and labor issues, this advisory committee evaluates risks in relation to each of these themes and provides recommendations on improving the quality of business projects.

CASE Business Impact Assessments Associated with Transition Risks (Scenario Analysis)

We have selected business fields considered to possess significant financial and non-financial impacts related to transition risks, used multiple climate change scenarios to carry out impact assessments for each business, and investigated countermeasures based on the results.

(1) Business Fields Selected for Scenario Analysis in the Fiscal Year Ended March 31, 2020

Taking into consideration the GHG emissions of entire supply chains, we selected the following business fields.

  • Oil and gas development businesses and LNG businesses
    ( Energy Segment)
  • Coal businesses
    ( Mineral & Metal Resources Segment)
  • Thermal power generation businesses
    ( Machinery & Infrastructure Segment)
(2) Selected Scenarios

We have used the following scenarios taken from World Energy Outlook, which is published by the internationally recognized International Energy Agency (IEA):

  • New Policies Scenario (NPS): Scenario based on the GHG reduction target submitted to the United Nations by respective countries
  • Sustainable Development Scenario (SDS): Scenario needed to uphold the Paris Agreement, which seeks to keep global warming within 2.0°C of the pre-Industrial Revolution level
(3) Analysis Results

* Please view the table below while scrolling horizontally.

  Evaluation of the impact on existing businesses Countermeasures
Oil and gas
development
businesses and LNG
businesses
With reference to short-term market levels and the outlooks of multiple third-party organizations, Brent Crude is expected to trend between $30 and $80 per barrel in the medium to long term. Even under the SDS, which is a more conservative scenario than the NPS, the Company’s highly cost-competitive assets are expected to maintain their advantages to a certain extent. While the energy industry faces the dual challenges of the need to realize increased volume and improved quality, renewable energy is expanding steadily. Meanwhile, fossil fuel will remain an indispensable energy source for the time being. We will strengthen the cost competitiveness of new business projects while considering the carbon costs. At the same time, we will focus our efforts on gas and LNG projects, which have comparatively low environmental burdens.
Coal businesses The SDS is premised on further spread of the Electrical Arc Furnace method and on substitutes for coking coal being realized through innovative steel technologies, which have yet to be established. Ongoing verification of the possibility of realizing new steel technologies and of their impact is required. We will pay close attention to trends in new technologies and to progress in relation to the Electrical Arc Furnace method and the policies of respective countries. At the same time, over the medium to long term a steady increase in demand for high-quality coking coal centered on India and Southeast Asia is expected. While providing stable supplies to customers, we will strengthen our competitiveness.
Thermal power
generation businesses
Even based on the SDS, the impact on existing businesses will be limited as businesses contracted under long-term power purchase agreements—in which a consideration is paid for generation capacity rather than for generation volume—account for the majority (96% as of March 31, 2020) of the Company’s power generation business portfolio. In stages, we intend to lower coal-fired thermal power as a percentage of our equity share of power generation capacity and increase the percentage of renewable energy, including hydropower, to 30% by 2030.

CASE Major Physical Risks and Countermeasures

Under the NPS scenario, the physical risks would be relatively higher because the target agreed under the Paris Agreement to keep global warming within 2.0°C of the pre-Industrial Revolution level would not be met. Mitsui has carried out a survey of the impact of physical risks over the past five years on important investment assets, as well as an analysis based on the RCP (Representative Concentration Pathway) used by the IPCC (Intergovernmental Panel on Climate Change).

Major Physical Risks and Countermeasures

The major physical risks facing assets owned by Mitsui include the potential for localized storms, particularly strong tropical hurricanes and cyclones arising in the Atlantic and South Pacific, to cause negative impacts on operations in our mineral and metal resources projects. Furthermore, in cases of severe damage to production plants or facilities or infrastructure, such as the roads, railways and ports used for shipments, there is a risk that production or shipments could be suspended for long periods until these facilities are restored. On top of Mitsui’s own investments, in cases when Mitsui suppliers suffered significant damage, there is the risk of the overall supply chain failing, including failures to receive supplies of raw materials. Mitsui implements measures such as taking out insurance coverage, establishing crisis management policies, and upgrading facilities as necessary. Furthermore, we are also considering the establishment of a system to assess whether each of these measures is being appropriately arranged.