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

eco ideas

Identifying Risks (Typical Examples)

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. As standards and programs in different countries rely on different criteria and measurements, if our products fail to comply with the requirements at the product design stage, for which we constantly keep understanding the latest trend, we may miss sales opportunities in the markets of the products that required massive investment in their development. This is a potential risk that may cause significant business losses.

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 (Typical Examples)

Business Operation

Panasonic has adopted Factory Energy Management System (FEMS) at factory sites, and optimized energy consumption in production. We also proactively promote to adopt renewable energy, such as solar cells, which is suited to regional features, at our sites across the world. Panasonic promotes utilization of renewable energy among customers by expanding the energy solution business in addition to the manufacturing business of solar cell modules. We are also working to establish practical fuel cell technologies to generate electricity from hydrogen, a clean source of energy. Verification test of fuel-cell forklifts powered by hydrogen electrolytically generated from water using renewable energy started in fiscal 2020. (Panasonic Environment Vision 2050) In addition, we are working on to increase the number of zero-CO2 factories, assuming future demand from BtoB clients for manufacture of products using renewable energy.

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. As we offer a wide range of energy-creation and energy-storage products, enforcement of the subsidy by the government has created great business opportunities for us. Collaborating in creating better ideas, products and services with other companies, we work on focusing on developing, selling, and are spreading highly energy-efficient houses widely.
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. To obtain the business opportunity, we started full-scale operation of the automotive battery factory in the US in 2017, while also strengthening our partnerships with other companies.

Strategy

We believe that more and more clean energy will be used in every corner of society, instead of fossil fuels. We formulated the Environment Vision 2050 to achieve "a better life" and "a sustainable global environment" compatibly. In the vision, we aim to reduce the amount of the "energy used", generate more amount of the "energy created" than is that of used, and replace purchased energy with the "energy created" by ourselves. In other words, the size of our contribution through the creation and utilization of renewable energy sourced from our products must exceed the amount of the "energy used" in our factories and by our products. This vision is incorporated within our business policy as our corporate goal for 2050. As a part of the targets for reducing GHG emissions, energy consumption reduction targets for 2030 and 2050 have been set as SBT-accreditation in line with the standards for 2°C increase scenario goal agreed in the Paris Agreement.

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.

Results of the analyses based on the 2°C increase scenario suggest that the burden of CO2 emissions would increase as carbon pricing is adopted by the major countries. However, effects of the burden are minor, as we have worked on reducing CO2 emissions with our products through increase in their energy-efficiency and creating and selling energycreating products, as well as reduction of CO2 emission in manufacturing through roll-out of zero CO2 model factories, to realize the Panasonic Environmental Vision 2050.

When we identify issues that need to be addressed, we gather latest information on relevant environmental regulations, using the data base on environmental regulations, and shared the information to relevant departments. In the case that taking some measures is necessary, we share the information and situation with Companies and Business Divisions, and relevant parties necessary take actions in due time. This ensures that those issues have minor effects on our businesses.

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. In procurement, we are securing suppliers for alternative materials and maintaining emergency stocks by evaluating the criticality and replaceability of the procured materials and parts in advance. With such activities, the effects on our business is expected to be minimum.

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.