TCFD - work to understand and disclose the impact

In November 2019, the azbil Group endorsed the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) to gain an accurate understanding of the impact of climate change on business activities and disclose that impact. After this announcement, evaluations of each of our businesses’ opportunities and risks, based on a scenario where global temperatures are rising, indicate that the opportunities for business activities that contribute to reducing CO2 greatly outweigh the risks. The azbil Group delivers comprehensive products, services, and solutions that address various social issues. In FY2021, we estimated the financial impact on two of the Group’s core businesses, the Building Automation (BA) and Advanced Automation (AA) businesses. In line with the TCFD recommendations, we will continue to disclose our governance, strategies, risk management, indicators and goals.

Governance

The azbil Group recognizes that climate change is one of the top priorities in practicing the Group philosophy, and a cross-group task force led by designated officers was formed to deliberate in Management Meetings from the perspective of business and financial impacts under supervision of the Board of Directors.

Strategy

Based on information from the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA) and other organizations, we have identified the long-term business risks and opportunities for the azbil Group until 2030 according to a well below 2℃ scenario^*1and a 4℃ scenario.^*2

*1 This scenario assumes that temperature rise is contained within a sustainable range due to the implementation of stricter regulations and the introduction of technological innovations aimed at a decarbonized society.

*2 This scenario assumes that no effective measures to reduce greenhouse gas (GHG) emissions are implemented, resulting in continued temperature rise and an increase in abnormal weather and natural disasters.

Disclosure of opportunities and risks

Type	Scenario	Building Automation (BA) business	Advanced Automation (AA) business	Life Automation (LA) business
Opportunity	Well below 2℃	Expanding demand for energysaving and CO2-reducing solutions and services that meet global needs	Increased demand for solutions, and sensors and other measuring instruments designed for new industries and processes that reduce the effect on the environment	Increased SMaaS business for gas meters using IoT technologies
Opportunity	4℃	Increased demand for products, services, and solutions that enable buildings to adapt to climate-related disasters	Increased demand for products, services, and solutions that offer anomaly prediction functions	Increased demand for products, services, and solutions adapted to handle climate-related disasters
Migration risk	Well below 2℃	(Shared by all core businesses) Increased R&D costs for new products and services that target new markets and meet new regulations Increased production and procurement costs due to rising energy prices Increase in the azbil Group’s costs of CO2 emissions and reduction in customers’ intensive capital investment in fossil fuels due to rising carbon prices
Physical risk	4℃	(Shared by all core businesses) Operational stoppages due to abnormal weather events, inability to provide products, services, and solutions Large reduction in customer investment due to business instability caused by abnormal weather

Impact of opportunities and risks on azbil Group financial plans, and countermeasures

At this stage, we recognize that there are more opportunities than risks, as reduction of CO2 emissions significantly outweighs CO2 emissions from azbil Group business activities.

TCFDimpact

We have divided risks into physical risks and migration risks and are analyzing their impacts on finances. Although we estimate physical risks based on a number of assumptions, we believe their impact on business is limited due to the countermeasures we have put in place such as decentralizing our production network and formulating BCPs. For migration risks, we have formulated the 2030 Greenhouse Gas (GHG) Emission Reduction Targets based on SBTs to gradually reduce our GHG emissions, and we are putting systematic risk reduction measures in place. Emissions from the azbil Group’s own business activities (scopes 1+2) were approximately 0.019 million metric tons, a figure that is roughly 1/160 of the 2.94 million metric tons of effective CO2 reduction at our customers’ sites,^*1 a relatively low level. Even with the rise in future carbon prices and increase in burden of 5,000 to 10,000 yen per ton taken into account, the total financial burden should be around 100 to 200 million yen. However, after a quantitative evaluation of the impact on the azbil Group’s business in 2030 in the hypothetical well below 2℃ scenario, we expect it will lead to effective reduction of CO2 at customers’ sites and the expansion of new energy markets. We therefore estimated the contribution to the increase in sales to be at least on the scale of about 12 billion yen per year.

Building Automation (BA) business: approx. 7 billion yen
Due to the increased installation of related equipment and the increased installation of high-efficiency equipment caused by the spread of renewable energy sources and the increase in electricity fees, we assumed an increase in demand for existing businesses related to energy conservation such as our total energy management service (TEMS). We also assumed an expansion in business opportunities for one-stop services that combine energy procurement and emissions-related transactions (such as from renewable energy sources) with energy management systems (EMS) that centrally manage everything from the visualization of CO2 emissions to carbon offsets. Our estimates are based on a scenario with certain assumptions as well as past installation histories and customer needs in the hospital and hotel market, where energy use is high.

Advanced Automation (AA) business: approx. 5 billion yen
We assumed an increase in business opportunities related to markets that contribute to carbon neutrality (hydrogen, CO2-free ammonia, carbon recycling / CCUS^*2). Our estimates are based on a scenario with certain assumptions such as trends and past installations in the target market and information on the target market’s growth rate from third-party research organizations.

To control risks and expand business opportunities, the azbil Group encourages the reduction of the environmental impact of our business activities while pursuing environmental preservation through our core businesses by harnessing the technologies and expertise accumulated through those initiatives and utilizing our measurement and control technologies to help customers solve their environmental issues, which will lead to the realization of a sustainable society.

※1 Effective CO2 reduction is estimated by the difference between adopting and not adopting azbil Group products, services, and solutions at customers’ sites

※2 Carbon dioxide Capture, Utilization and Storage

Risk Management

The azbil Group comprehensively works to identify risks that may have a significant impact on operations, including those connected to climate change. (1) After risks are extracted and by the azbil Group General Risk Management Committee, consisting mainly of the department managers, (2) the azbil Group General Risk Committee, headed by the corporate executive in charge of risk management, identifies risks deemed important to the azbil Group for deliberation and decision-making by the Board of Directors. Once the risks are identified, we work to reduce those various types of risk by proposing countermeasures at the Management Meeting and other forums and reporting on the implementation status of measures as necessary to the Board of Directors.

Indicators and Goals

We promote efforts to combat climate change through our business activities which contribute “in series” to the achievement of a sustainable society, by considering indicators and goals that take into account all azbil Group customers, the Group itself, and its entire supply chain.

We aim to increase the effective reduction CO2 at our customers’ sites to 3.40 million metric tons by FY2030.
We have formulated the azbil Group’s 2050 Long-Term Implementation of the 2050 Long-term Vision for Reducing GHG Emissions in order to reduce GHG emissions from our business activities (scopes 1+2) to substantially zero emissions by 2050 with the ultimate aim of achieving a carbon-neutral society. To achieve this long-term vision, we have set medium-term 2030 Targets for Reducing GHG Emissions for our business activities, and we are working on measures to cut CO2 emissions across our entire supply chain.

2030 Targets for Reducing GHG Emissions

GHG emissions from business activities (scopes 1+2): 55% reduction (2017 base year)

GHG emissions across the entire supply chain (scope 3): 20% reduction (2017 base year)