Environment: Climate Change Risks and Opportunities, and Resilience of Strategy through Scenario Analysis

eco ideas

We recognize risks and opportunities concerning climate change as a critical business challenge and we are making action as follows based on the Recommendation by TCFD.*1 We have identified risks and opportunities in the business areas of home appliances, housing, and automotive that are judged to be susceptible to climate change. The identified risks are categorized into those related to transition to a low-carbon economy and others related to physical changes caused by climate change, and further studies are then undertaken. Opportunities are also being investigated to create new businesses mainly in the areas of energy resources, products, and services.

*1 TCFD: The task force was set up by the Financial Stability Board (FSB) in response to a request by the G20 Finance Ministers and Central Bank Governors. TCFD published its recommendations in 2017.

Identifying Risks

Risks concerning Transition to a Low-Carbon Economy

The energy efficiency standards for products are becoming increasingly demanding and products that do not meet such standards may be banned from sale. In concrete terms, meeting with a minimum energy performance standard (MEPS) is legally stipulated under the laws and regulations such as US federal law, the California State law, and the EU ErP Directive. Not only in advanced countries, the standard is also legally binding as mandatory in many developing countries and sales of non-standard products are prohibited. Many countries also adopt energy efficiency labeling programs, under which the products display their energy efficiency level so that customers are able to choose eco-conscious products more easily. Minimum energy performance standards and energy efficiency labeling programs for electric and electronic products significantly contribute to CO2 reduction during product usage, which occupies the largest percentage in the product lifecycle. These standards and programs are constantly reviewed and discussed for amendments and their scope of the covered products in each country or region continue to expand. At the same time, their requirements are becoming stricter. Because these standards and programs in different countries rely on various criteria and measurements, if we fail to keep up to date with the latest requirements in the product design stage, the products that we developed with massive investment may not even be released into the market. This is a potential risk that may cause a significant business loss.

Physical Risks

As the Panasonic Group operates its business globally, its production sites face physical risks in their operations that may be hindered by abnormal weather conditions associated with global warning, such as flooding. Other than direct damage to factory buildings and facilities, losses from the cessation or suspension of operations must also be taken into account. If such a situation should occur, the costs required to restore the business becomes excessive.

Identifying Opportunities

Energy Sources

In order to optimize energy consumption in our production factories, we install the Factory Energy Management System (FEMS) in each site. See page 47 for more details. We also proactively utilize renewable energy, such as solar power, in our sites across the world according to the suitability of regional feature. Panasonic promotes the utilization of renewable energy among customers by expanding the energy solution business in addition to the manufacturing business of solar cell modules. See page 48 for more details.

Products and Services

In 2018, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) introduced a financial support system to promote energy-efficient housing. The system provide incentives in proportion to the expenses paid for installation and construction when building a new house with high energy efficiency, when building a new house with high energy efficiency, renovating a house with installation of thermal insulation, and/or installing energy-saving equipment. Not only do we own Panasonic Homes Co., Ltd, a housing company; furthermore, we deal with wide range of products for energy creation and energy storage. Therefore, introduction of this incentive system by government could become huge business opportunity to Panasonic. Panasonic Homes has been working, focusing development, sales, and spread of high energy efficient houses, with target of building Net-Zero energy houses (ZEH) up to 50% of the total number of built detached houses by 2020.
Because more countries are employing environmental policies concerning reduction of greenhouse gas emissions, the regulations for engine mounted vehicles are tightening. As a result, vehicles are becoming more electrified and HVs and EVs are expected to become ever more common. Panasonic produces and sells high performance automotive batteries. As HVs and EVs spread in society, demand for such secondary batteries, the core component of such vehicles, is expected to increase. With this in view, we aim to sell 2.5 times the number of automotive secondary batteries in fiscal 2022 than we did in fiscal 2018. As a means to grasp this opportunity, we have started full operation of automotive battery factories in the US and China and will commence mass production of the batteries in Himeji Factory in 2019.

Scenario Analysis

World Energy Outlook 2017 (WEO2017) issued by the International Energy Agency (IEA) presents the New Policies Scenario (NPS=4 degree scenario), a set of policies to realize the targets set by various countries in the Paris Agreement, and the Sustainable Development Scenario (SDS=2 degree scenario) that could “hold the increase in the global average temperature to well below 2°C above pre-industrial levels” if executed.

Towards realization of Environment Vision 2050, we analyzed the impact of climate change on our business based on the said scenarios, discussed the countermeasures, and verified the resilience of our strategy.

Respective SDS and NPS were created on the assumption that the average temperature would rise 2°C or 4°C by 2100. Assuming that we continue the current business activities, we analyzed the impact of climate change on our business as of 2030.

SDS, the 2°C rise scenario, forecasts rapid changes in society to restrain greenhouse gas emissions by 2030. For example, the scenario estimates that an emission restriction measure possibly charging more than 100 dollars per one ton of CO2 emissions, may be adopted. Using this 2°C rise scenario as a reference, we analyzed the impact from regulation changes on our business by 2030, assuming that there will be no major impact to the business from physical risks from climate change, such as water shortages and more frequent abnormal weather conditions.

At the same time, using NPS, the 4°C rise scenario, we analyzed the impact from physical changes due to climate change to our business by 2030, assuming that such impact from physical changes would be greater than that from regulation changes.

Analysis results based on the 2°C rise scenario suggested that the burden from CO2 emissions would increase as carbon pricing is adopted in major countries. However, we should be able to avoid this burden by minimizing the impact from carbon pricing through striving to reduce carbon emissions in products (by adopting energy efficiency and creating energy) as well as during their manufacturing process to realize Panasonic Environment Vision 2050.

We also understand that changes or amendments in environmental laws will greatly affect our home appliance business that covers a wide range of energy-saving products. To prepare for such changes, we understand information as on updated environmental laws and regulations environmental laws and regulations across the world through close coordination among management departments and environmental departments in different regions as early as possible.
We obtain the latest environmental legal information through the environmental regulation databases, and share the information among the relevant departments. When we identify some issue to address, we notify this to Companies and relevant departments, as well as acquiring the information on current situations to formulate countermeasures.

When referring to the 4°C rise scenario, we need to take account of the impact from the predicted increase in abnormal weather conditions, such as flooding and tropical storms, on the supply chain, and reduced economic activity in society. For example, we experienced large scale flooding in Thailand in 2011 and we suffered massive losses. Although we established a range of countermeasures in case of a recurrence, if some disaster hinders our business operations—or those of any party in the supply chain—sales will be affected and we would still need to direct significant funds to recover damaged facilities. To prepare for such situations, we create Business Continuity Plans (BCP) based on past experience of damage from abnormal weather conditions. At the beginning of 2012, we established the Business Continuity Management (BCM) Guidelines that focus on minimizing various risks related to factories and operations in accordance with the BCM System. As a means to reinforce disaster and accident countermeasures, we have established the Disaster/Accident Countermeasure Committee under the Global and Group Risk Management Committee, which is chaired by the Chief Risk Management Officer (CRMO), comprising directors of the Professional Business Support Sector (PBSS) under the head office. The Disaster/Accident Countermeasure Committee is now establishing a readiness against a range of serious risks from natural disasters, such as earthquake and flooding, to large scale accidents, including fire and explosion. We have also established working groups dedicated to different types of risk under the Disaster/Accident Countermeasure Committee to create concrete measures against risks through liaison between related departments.

We plan to undertake further analyses on impacts from climate change on the supply chain and on markets and production areas that may be sensitive to climate conditions. Changes in social movements and the underlying scenarios will be monitored by environment departments, and promotion of investment and collaboration will be monitored by respective Companies.

* Note that these scenarios presented by the IEA are merely potential prospects with a high degree of uncertainty. The analysis results obtained based on these scenarios are our forecasts developed from those scenarios and our own medium- to long-term future prospects may be different in actuality.