Climate Change

Basic Concept

Since our Group is engaged in businesses that consume a large amount of energy during manufacturing, there is a risk that various regulations and systems (carbon pricing, etc.) associated with the Paris Agreement, etc. will lead to higher costs for energy and raw materials. We also believe that the occurrence of natural disasters due to extreme weather phenomena in recent years will lead to risks such as the instability of business continuity and supply. On the other hand, we also believe that the growing awareness of climate change among society and customers provides an opportunity for our low-carbon, resource-recycling steel products to gain a competitive advantage.

Domestic 2030・2050 Environmental Vision / Medium-term Sustainability Plan

Comparison of Blast Furnace Method and Electric Furnace Method CO2 Emissions (as of February 2021)

(Source) Figures quoted from "Environmental Initiatives" and "Global Warming Countermeasures", etc. as published on company websites 2019-2021.

Response to TCFD Recommendations

In April 2022, the Yamato Kogyo group endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was established by the Financial Stability Board (FSB), whose members include representatives of central banks and financial supervisors from 25 major countries and regions, and its recommendations for companies and organizations to disclose information on climate-related risks and opportunities. In Japan, the Ministry of Economy, Trade and Industry (METI) has published the "Guidance on Climate-related Financial Disclosures (TCFD Guidance)”, and companies have been accelerating their efforts to comply with the TCFD recommendations. In addition, the "Corporate Governance Code" revised by Japan Exchange in June 2021 also requires listed companies to disclose information based on the TCFD framework.
In light of the impact of climate change on our business, the Management Committee and Sustainability Committee of the Yamato Kogyo group have been considering climate change countermeasures in our domestic business since the FY2021. The following are the disclosures related to climate change based on the TCFD recommendations approved by the Board of Directors in April 2022.

Climate Change-related Governance Structure

Our group reports to the Board of Directors of Yamato Kogyo Co., Ltd. on a case-by-case basis on matters related to climate change issues discussed by the Environment Committee of the Sustainability Committee that meets regularly.*1 When considering business plans and annual budgets, the Board of Directors makes decisions based on the impact of climate change on business management, including risks and opportunities. The Board of Directors also checks and supervises the targets and progress regarding climate change, which the Sustainability Committee has designated as materiarity of the Medium-term Sustainability Plan.
The Sustainability Committee is chaired by Representative Director, President of Yamato Kogyo, and the Environment Committee is led by the General Manager of Sustainability Management Department.

*1 Normally held once or twice a year, three times in FY2023.

Climate Change-related Governance Structure

Risk Management Related to Climate Change

Our group classified climate-related risks in its operations into migration risks and physical risks following the TCFD recommendations, and further assessed the risks by examining their materiality in consideration of short, medium, and long-term time horizons and relevant laws and regulations. The risk assessment was determined after review and discussion at a Management Committee attended by directors and corporate auditors.

Climate Change Related Strategies

＜Assumptions for scenario analysis＞
In our scenario analysis, while taking into account the Paris Agreement’s goals and the IPCC Sixth Assessment Report, we examined two scenarios: a 2℃ scenario, which is a low-carbon transition scenario, and a 4℃ scenario, which projects higher warming outcomes and more significant physical impacts. In light of the Paris Agreement's goal of "pursuing efforts to limit the increase in global average temperature to 1.5℃ above pre-industrial levels," we will continue to study transition scenarios toward the 1.5℃ goals.

Global Average Surface Temperature Change (Relative to 1986-2005)

Source: IPCC Fifth Assessment Report

＜Scope of scenario analysis＞
The scenario analysis is based on the Japanese government's greenhouse gas reduction targets (46% reduction by FY2030 and carbon neutrality by FY2050) and is conducted over a medium to long-term time horizon to 2050.

  • ① Japan (domestic)
  • ② Risks and opportunities associated with climate change that are likely to impact our business
  • ③ Potential climate change impacts across the value chain as the scope of analysis

The analysis at this time is as follows.

Climate Change-related Scenario Analysis

Scenario Factor Impact on Yamato Kogyo Group Responding to Risks/Opportunities/Impacts
2℃*2 Factor (1) Increasing demand for products that promote customer/society's effort in decarbonization and climate change
The competitive environment will change as responses to climate change expand throughout the value chain and low environmental impact products and companies that tackle environmental issues are selected
Infrastructure construction for disaster prevention and mitigation will proceed slowly
Opportunity
Expansion of competitive advantage
  • Increasing demand for low-carbon and recycling-oriented steel products due to the introduction of various regulations and systems for mitigating climate change and increased social awareness
  • Improved competitive environment and increased market share as competitors reduce production or withdraw from the market
  • Steadily capturing demand for recycled steel in Japan, which is expected to increase due to the growing superiority of recyclable products that contribute to a low-carbon society
Opportunity
Market expansion
  • Diversification of the supply chain to strengthen the raw material procurement network
  • Increase in demand for our products as our customers recognize our resilience to climate change
  • Expanding construction demand for disaster preparedness
  • Expand sales of products with environmental certifications (EcoLeaf and Carbon Footprint of Products certification) that contribute to climate change mitigation and energy conservation
  • Expand sales of products for disaster prevention and mitigation, such as steel sheet piles used for river/harbor revetments and poling
Factor (2) Carbon pricing
Various costs such as retail electricity prices will increase due to policies and regulations (carbon pricing)
Risk
Increase in operating costs
  • Rising energy costs
  • Increased capital investment costs due to climate change countermeasures
  • Tightness of raw materials and sub-materials
  • Consideration of procurement decentralization
  • Reduction of raw materials and sub-materials consumption and cost through optimization of scrap mix ratio
  • Negotiate with customers on the price increase
  • Promote energy conservation through automation of manufacturing processes and introduction of energy-saving equipment
  • Considering investment in renewable energy, including M&A
Factor (3) Shift of blast furnaces to electric furnaces
The shift of blast furnace makers to electric furnaces will affect the procurement of raw materials, sub-materials, and energy
Factor (4) Increasing social demands
Increasing social demand for CO2 reductions will be driving a shift in materials and production processes toward low-carbon/decarbonization
Risk
Conversion of materials and production processes
  • Transformation of materials and production processes toward low-carbon/decarbonization
  • Obsolescence of our existing technology due to the development of innovative new materials in the decarbonization process
  • Demand for minimization of energy consumption and use of renewable energy sources in product manufacturing
  • Delays in introducing equipment for newly developed low-cost ammonia and new energy sources
  • Increased costs for the purchase of green certificates, etc., when electric power companies are unable to meet the requirements and obligations for renewable energy-derived electricity due to our business model that depends on electric power companies
  • Reduction of electricity and fuel consumption rate
  • Promote investment in energy-saving and low-carbon technologies
  • Continued consideration of introducing renewable energy to offices, warehouses, etc. (Yamato Kogyo Head office has already converted to CO2-free electricity derived from renewable energy sources)
Opportunity
Management Efficiency
  • Increase production capacity and reduce manufacturing and transportation costs by shifting to more efficient production and sales processes
  • Our low-carbonization will be accelerated according to electric power companies' zero-carbonization by 2050, which brings an increase in investors, product sales, and the recruitment of excellent human resources due to improved corporate reputation and image
  • Introduction of efficient production processes to reduce labor and improve quality and yield, such as large-scale renewal of rolling lines, automation of equipment, and promotion of DX
  • Consider transportation conversion from trucks to ships or rail containers with less environmental impact
4℃*3 Factor (5) Intensification of natural disasters
Physical risks (flooding, property damage) at our sites and sales/procurement logistics network will become apparent
Prevention and response will increase costs
Heat stress during work reduces productivity and regulations will be tightened in response
Risk
Delays or stoppages in operations due to abnormal weather
  • Suspension of operations due to the breakdown of production facilities, paralysis of sales and procurement logistics networks, etc., caused by natural disasters such as torrential rains and large typhoons
  • Increased flood countermeasure costs, supply chain restructuring costs, and insurance premiums
  • Consideration and increased costs to prevent heat stroke risk among workers on site due to rising temperatures, etc.
  • Ensure employee safety due to frequent wind and flood damage from large typhoons, heavy rain, etc.
  • Ongoing implementation of natural disaster countermeasures
  • Purchase insurance (implemented) and review contracts considering intensification disasters
  • Conduct physical risk assessments at our plants
  • Establish global group-wide procurement system in preparation for a disaster when production or procurement of raw-material and sub-materials become difficult due to the disruption of the supply chain
  • Improvement of the working environment at plants by installing wall ventilation structures, adopting air-conditioned clothing, and improving operator rooms (air-conditioning and refrigerators have been installed)
Factor (6) National Resilience
Disaster prevention and mitigation plans will be revised and government-led disaster response to infrastructure, etc., will spread
Opportunity
Market Expansion
  • Expanding construction demand for disaster preparedness
  • Expand sales of products for disaster prevention and mitigation, such as steel sheet piles used for river/harbor revetments and poling

*2 2℃ scenario: A scenario in which the necessary measures are taken to limit the temperature increase to 2℃ or lower compared to the time of the Industrial Revolution period.
*3 4℃ scenario: A scenario in which no special measures are taken against climate change and the average temperature increases about 4℃.

＜Opportunity initiatives＞

Expansion of competitive advantage – market expansion

In Japan, the movement toward achieving carbon neutrality by 2050 is accelerating, and we expect that our customers in the construction and transportation industries will increase their procurement of products that contribute to low carbon emissions. Against this backdrop, our group has been working to expand its market through industry-leading initiatives. For example, in the area of climate change, while electric furnace makers generally emit about a quarter of the CO2 emissions per ton of blast furnace makers in their steel manufacturing processes, Yamato Steel has been introducing rationalization equipment, including the adoption of a state-of-the-art single-stage preheater (SSP) in FY2019 that achieves significant energy savings. This has enabled us to reduce CO2 emissions per ton to approximately one-sixth that of the blast furnace method, giving us a competitive edge in the electric furnace industry. In addition, while the selection of companies that produce products with low environmental impact is expected to be selective, we have taken steps such as becoming the first company in the Japanese steel industry to obtain two types of environmental certifications, "EcoLeaf" and "Carbon Footprint of Products". We will continue to address climate change and expand our market by capturing business opportunities through our competitive advantage.
See also below for our group's competitive advantages and initiatives in climate change.

Realizing a Circular Economy with Steel

＜Risk initiatives＞

Efficient energy use

A large amount of electric power is indispensable for our group's business. We recognize that future trends in energy policy and laws and regulations will have a significant impact on our operating costs if retail electricity prices increase. To date, our group has implemented a variety of initiatives for the efficient use of energy, ranging from the introduction of equipment to fuel conversion and the establishment of technologies. These efforts have produced results not only in terms of total CO2 emissions but also in terms of CO2 emission intensity per ton of crude steel produced. Against the backdrop of growing social demands for further decarbonization in the future, we believe that the following past, present, and future initiatives of our group will lead to risk reduction.

  • ・Low NOx regenerative burner installed (since Mar 2001)
  • ・Fuel conversion to LNG (since Jan 2006)
  • ・Establishment of low-temperature operation technology for reheating furnaces (since 2013)
  • ・Use of LEDs in plant facilities (since 2018)
  • ・Introduction of single-stage preheater (SSP) (since Jan 2019)
  • ・Establishment of dynamic control technology by introducing exhaust gas analyzers
  • ・Use of renewable energy

As a result of these efforts, energy consumption in FY2023 was 0.115 GL and energy intensity was 0.186 kL/t-crude steel production.

Energy Consumption and Intensity

Indicators and Targets

Based on the scenario analysis, we set medium-term and annual targets as climate change-related indicators and targets in the Medium-Term Sustainability Plan, and the Sustainability Committee monitors and verifies progress and reports to the Board of Directors. The emissions reduction target has been set to a target of 38% reduction from the 2013 level for Scope 1 and 2, targeting 2025, taking into consideration the characteristics of our group's business, past initiatives, and future social trends.

CO2 Emissions and CO2 Emission Intensity (5-year trend)

*4 Direct emissions from in-house fuel use and industrial processes
*5 Indirect emissions from the use of electricity and heat purchased by the company

(Note 1) Data cover domestic iron and steel products business. Because the electric furnace business is characterized by heavy use of electric power, it would be significantly impacted by any change in the generation mix of electric power companies.
(Note 2) Calculated based on METI, "Action the Rational Use of Energy".

Medium-term Sustainability Plan “Climate Change”

Materiality Item FYE March 2026 FYE March 2025
Medium-term targets*6 Annual targets*6
Climate change Response to Climate change risks We will disclose to the market financial impact from transitional and physical risks relating to climate change in the period to FYE March 2026.
  • Continue to calculate the potential impact and disclose risk response costs if carbon pricing is introduced according to TCFD recommendations.
Reduction of greenhouse gases ("GHG") emissions We will reduce CO2 emissions by 38% from the FYE March 2014 level.*7*8
  • Continue to collaborate with specialist suppliers and university research institutes to capture the status of next-generation industrial furnace development using CO2-free fuels (hydrogen, ammonia, etc.) and the status of CO2-free fuel supply chain expansion.
  • Scope 1 and Scope 2 will disclose all GHG emissions of domestic consolidated subsidiaries and overseas consolidated subsidiary, SYS.
  • Scope 1 and Scope 2 will establish a system for calculating all GHG emissions in our new site in Indonesia.
  • Scope 3 will be calculated and disclosed for Yamato Steel on a non-consolidated basis.
Efficient energy use We will reduce CO2 emission intensity by 20% from the FYE March 2014 level.*7*8
  • Same as above
Use of renewable energy We will introduce renewable energy in specified business areas by FYE March 2026.
  • Establish solar power generation equipment and its operating systems after installation.

*6 Unless otherwise stated, descriptions under these items target iron and steel products business, that would have the greatest impact on Yamato Kogyo Group.
*7 To conform with the Japanese government's reduction targets, we use FYE March 2014 as the base year.
*8 Scope 1 and 2 total. Because the electric furnace business is characterized by heavy use of electric power, it would be significantly impacted by any change in the generation mix of electric power companies.

CO2 Emissions of Yamato Kogyo Group

Energy-related CO2 emissions (FY2022)

(Unit: Thousand t-CO2)

Scope1 Scope2 Scope1+2
Steel business (Japan) 60.13 103.52 163.65
Trackwork system business 0.07 1.14 1.21
Other 11.34 0.41 11.75
Total domestic sites 71.54 105.07 176.61
Steel business (Thailand) 95.04 258.44 353.48
Total 166.58 363.51 530.08
  • The data covers the Company (Yamato Kogyo) and its five major domestic and overseas consolidated subsidiaries (Yamato Steel, Yamato Trackwork System, Yamato Shoji, Matsubara Techno, and Siam Yamato Steel). The aggregation period follows the accounting period of each company.
  • The Company and its domestic subsidiaries use the coefficient specified by the Act on Promotion of Global Warming Countermeasures, and calculate it by the Act on Rationalizing Energy Use.
  • Siam Yamato Steel (SYS), a consolidated subsidiary in Thailand, calculates the coefficient and calculation method provided by TGO (Thailand Greenhouse Gas Management Organization).
  • Since the Company has been using CO2-free electricity derived from renewable energy sources since October 2021, it is excluded from the calculation of Scope2 emissions.
  • SYS has higher emissions than domestic steel operations due to higher production volumes and larger emission factors.

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