HIGHLIGHT 7 A Strategic Response to Climate Change

In 2018, Sumitomo Forestry expressed its support of the recommendations made by the Financial Stability Board’s TCFD*1 (Task Force on Climate-Related Financial Disclosures) in recognition of the risks and opportunities that come with climate change. In the same year, we initiated a scenario analysis*2 in accordance with TCFD’s recommendations.

*1 An abbreviation of Task Force on Climate-Related Financial Disclosures. Established in April 2015 by a directive from the FSB (Financial Stability Board), this task force on climate-related financial information disclosure provides a framework for companies who voluntarily wish to disclose information on climate-related risks, opportunities and financial impact.

*2 A method that forecasts of the impact of climate change itself, as well as what changes long-term policy trends related to climate change may create in the business environment, to consider the possible impact on a company’s business and management.

Identifying and Evaluating Risks and Opportunities Based on a Scenario Analysis of 2030

A recommendation released by TCFD in June 2017 set out four thematic disclosure areas – governance, strategy, risk management and metrics/targets – for a company’s climate-related financial information. For Sumitomo Forestry, which handles wood as its primary resource and product, a major transition risk is the increase in timber procurement costs with stricter forest conservation policies, logging restrictions and other regulations in each of the countries we operate in. Physical risks include the intensification of natural disasters and the increase in housing construction costs due to delays related to temperature rises, among others. For our scenario analysis, the relevant headquarters departments worked with each business division. Two divisions, the Timber and Building Materials Division and the Housing and Construction Division, constructed scenarios forecasting both a +2°C and +4°C increase in average global temperature compared to pre-industrial levels and considered how each scenario would impact our situation in 2030.

In a +2°C scenario, we forecasted that with aggressive government promotion, the market for net zero energy houses (ZEH) would mature. We also predicted the entry of competitors from other industries with the development of advanced ZEH and the move toward lower costs. In addition, forest regulations and an increase in forest fires may actualize procurement risks. In a +4°C scenario, we forecasted that with government promotion of energy conservation measures in homes, the popularization and demand for ZEH and high-durable houses would continue to grow, but that the Timber and Building Materials Division would see changes in the supply chain as a result of increased fires and spread of pests that would make procurement difficult.

With these scenarios in mind and using science-based forecasts, we evaluated the financial impact on our operations if we continued our business as usual. Results of these scenario analyses were reported to the Sustainability Committee and the Board of Directors and were shared among top management. In the future, in addition to enhancing the accuracy of these analyses, we will discuss ways to incorporate our findings in our business plans and build resilience into our corporate strategy so that we can respond to an uncertain future.

The four TCFD disclosure categories

Governance The organization’s governance and climate-related risks and opportunities.
Strategy The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning.
Risk management The processes used by the organization to identify, assess and manage climate-related risks.
Metrics/Targets The metrics and targets used to assess and manage relevant climate-related risks and opportunities.
Risk assessment
Science-based world view for 2030 (excerpt). Opportunity examples related to climate change

For Details on Our Initiatives Related to Climate Change

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