Responding to Climate Change

Responding to TCFD

Express its support of the TCFD recommendations

In July 2018, Sumitomo Forestry Group recognized the risks and opportunities associated with climate change and expressed its support for the recommendations from TCFD (Task Force on Climate-related Financial Disclosures) established by the Financial Stability Board. In the same year, we conducted an initial scenario analysis for the Timber and Building Materials Business and the Housing Business based on the TCFD recommendations, assessing the risks and opportunities that climate change issues pose to society and our businesses, as well as the resilience of our strategies, and in the following year 2019, we began disclosing information with reference to the framework recommended by the TCFD. In 2021, the analysis was implemented for the Environment and Resources Business and former Overseas Housing and Real Estate Business, and furthermore, in 2022, the analysis was conducted across the entire Group, covering all businesses in the Group. In cooperation among each division and the headquarters departments analysis were conducted and countermeasures across businesses were examined. We will continue to work on improving the level of scenario analysis in the Sumitomo Forestry Group.

Sumitomo Forestry Group Disclosure of TCFD Scenario Analysis

Sumitomo Forestry Group Disclosure of TCFD Scenario Analysis


The Sumitomo Forestry Group promotes the response to issue of climate change centered on the Sustainability Committee, similarly as other ESG challenges. The Sustainability Committee, chaired by the President and composed of members made up of executive officers, also appointed as directors and each divisional manager, formulates and promotes initiatives for medium to long-term ESG challenges related to the sustainability of the Sumitomo Forestry Group in addition to analyzing risks and opportunities, conducting progress management of the Mid-Term Sustainability Targets, which incorporate business strategies toward achieving the SDGs, including monitoring of implementation and effectiveness of the Our Group's Values and Code of Conduct. It also reports all proceedings at committee meetings to the Board of Directors.

In February 2022, Sumitomo Forestry revised of the Executive Remuneration System in order to further integrate business with ESG. We have included remuneration linked to rate of achievement of sustainability indicators during Executive Remuneration. In the event that Sumitomo Forestry fails to meet its long-term greenhouse gases emissions reduction target based on Science Based Targets (SBT), amount of remuneration paid will be reduced from the regular stock remuneration amount in accordance with the degree of target performance.

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The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) states unequivocally that human activity causes climate change, that it causes extreme weather and increases the frequency of occurrence, and that greenhouse gases emissions are strongly related to changes in ice sheets and sea levels. In light of this, society's expectations of the CO₂ absorption and carbon storage functions of forests, the carbon stock and CO₂ emissions reduction from wood products and wooden construction, and the unused forest resource for biomass power generation. Sumitomo Forestry Group contributes to the realization of a decarbonized society, by effectively utilizing forest resources, which are renewable natural capital, and providing "shared benefit" through forest management, manufacturing and distribution of timber and building materials, and wooden construction and renewable energy businesses.

2In February 2022, we unveiled Mission TREEING 2030, our long-term vision for decarbonization. As one of our business policies in Mission TREEING 2030, we set "promoting decarbonization and circular bioeconomy to maximize the value of forests and trees" and contribute to the decarbonization of society through our business by promoting the benefits of forests and wood resources in all areas in Japan and abroad, such as CO₂ absorption, storage, and reduction. As for the first phase of our long-term vision Mission TREEING 2030, we have announced a three-year Mission TREEING 2030 Phase 1 (2022-2024) of Mid-Term Management Plan, which provides the groundwork for our future growth and contribution to decarbonization. One of our five basic policies is "Further integration of business operations and ESG".

Risk Management

Sumitomo Forestry Group has established the Risk Management Committee, which is chaired by the President and CEO and consists of all other executive officers. The Sustainability Committee, which is chaired by the President and CEO, composed of executive officers concurrently serving as directors, and the divisional managers of each business unit. Each of these committees meets four times a year, and each department decides on specific countermeasures and evaluation indicators for risks that may arise in the short term in daily operations, and reports progress to the Risk Management Committee on a quarterly basis. The Sustainability Committee discusses social, environmental, and governance medium and long-term risks, including climate change comprehensively for the entire value chain.

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Metrics and Targets

Sumitomo Forestry Group has formulated long-term targets related to climate change and is promoting initiatives while incorporating them into its annual planning. In 2017, the Group declared its intention to formulate SBTs and formulated new Group-wide greenhouse gases emissions reduction target, which were approved as SBTs in July 2018. In September 2021, we submitted an application to the SBT Initiative secretariat to enhance our Scope 1 and 2 greenhouse gases emissions reduction target for 2030 from the previous 21% to 54.6% reduction, which is in line with a 1.5°C reduction in order to expedite our initiatives. Furthermore, we joined RE100, an international initiative aiming for 100% renewable energy for electricity consumption, in March 2020. We are accelerating our initiatives to cut greenhouse gases emissions toward achieving the goal of using 100% renewable energy for electricity used in the Group’s business activities and fuel for power generation in our power generation business by 2040. According to the Mid-Term Sustainability Targets (2022-2024) announced in February 2022, each division will set its own target for the ratio of renewable energy procurement and take necessary budgetary measures, including capital investment, to steadily promote initiatives toward achieving RE100.

TCFD Scenario Analysis

Identifying and Evaluating Risks and Opportunities

Based on the results of scenario analyses conducted in the past by division, the Sumitomo Forestry Group conducted this analysis from a company-wide, cross-sectional perspective, covering all divisions in 2022: Timber and Building Materials; Housing; Global Housing, Construction, and Real Estate; Environment and Resources; and Lifestyle Services. We considered the situation in 2030 using two scenarios: the 4°C scenario, in which no further progress is made in tackling climate change, and the 1.5/2°C scenario, in which progress is made in transitioning the society toward decarbonization.
The relevant departments and each division of our company collaborated to identify risks and opportunities of each division, conducted financial impact assessments, and discussed countermeasures for items that were identified as significant risks and opportunities. In addition, the five divisions jointly discussed countermeasures to address cross-cutting issues that affect multiple divisions.
We will closely examine cross-sectional countermeasures in cooperation with related departments to reflect them in the next medium-term management plan and other business plans to be launched in 2025, or when necessary adding to the existing targets. In the future, we will further increase the accuracy of our scenario analyses, while moving forward with the creation of business strategies for the resilience that will see us through into an uncertain future.

Assumptions for Scenario Analysis

In conducting scenario analysis, we used the following two scenarios from the International Energy Agency (IEA) and the United Nations Intergovernmental Panel on Climate Change (IPCC).

Setting scenario 4°C scenario 1.5/2°C scenario
Social image A scenario where the status quo is maintained, economic development is prioritized, and global temperature rise and its effects continue to worsen A scenario in which society as a whole takes a major turn toward decarbonization and succeeds in limiting temperature increases
Reference scenario For transition risks Stated Policies Scenario (IEA) Sustainable Development Scenario (IEA)
Net Zero Emissions by 2050 (IEA)
For physical risks SSP5-8.5 (IPCC) SSP1-2.6 (IPCC)
SP1-1.9 (IPCC)
Risks & opportunities Physical risks and opportunities are likely to become apparent Transition risks and opportunities are likely to become apparent

Source: Compiled from IPCC AR5, AR6, SR1.5, IEA WEO 2020, Net Zero Emission by 2050

Source: IPCC, SR1.5, etc.

Scenario Analysis Results by Division

The scenario analysis was first conducted for each business unit. The leading matters are as follows.
In Timber and Building Materials Business, while there is concern that procurement costs will rise due to policies related to forest protection, demand for domestic wood is expected to increase due to the market's orientation for decarbonization. In Domestic Housing Business, there are concerns about a shift away from wooden constructions due to a growing preference for robust buildings as a result of more severe weather disasters, but the market for environmentally conscious housing is expected to grow further, depending on trends in decarbonization policies and ESG investment.
In Global Housing, Construction and Real Estate Business, in addition to matters common to the domestic housing business, medium- to large-scale construction using wood, a renewable material, is gaining prominence due to progress in ESG investment. While this trend is expected to accelerate, there is a risk of brand value abandonment and stock price slump if compliance with environmental regulations is delayed.
In Environment and Resources Business, rising temperatures and other physical risks will have a significant impact on business, but commercial opportunities for forestry fund and forest-derived biomass fuels are expected to expand.
While there are concerns that rising temperatures and other factors will lead to a decline in the number of users of owned facilities in Lifestyle Services Business, it is expected that customers' preference to decarbonize and their desire for safety and security in the face of more severe disasters will lead to an increase in the number of users.

Transition Risks Physical Risks Opportunities
Timber and Building Materials Business ・Cost increase due to introduction of carbon tax and stricter environmental regulations
・Logging tax in accordance with the strengthening of forest protection policy
・Increased wood procurement costs due to higher reforestation costs
・Decrease in sales due to reduction in area where forestry is permitted, decrease in wood procurement volume as a result of stricter forest protection policies
・Decrease in value of wood and sales of timber and building materials due to growing preference for more robust buildings as a result of more severe disasters
・Increase in demand for renovation to environmentally conscious housing due to stricter environmental regulations, and increase in sales of timber and building materials
・Increase in sales of timber and building materials due to development of processing technology for materials for environmentally conscious housing and medium- to large-scale buildings
Housing Business ・In the short term, technological development costs and construction costs for LCCM housing* and medium- to large-scale buildings will increase.
・In the long term, the value of wood will decline due to the development of decarbonization technologies for steel, concrete, and other building materials, and sales of wooden buildings will decline.
・Decrease in sales of timber and building materials due to growing preference for more robust buildings as a result of more severe disasters ・Increasing demand and sales of LCCM (Life-Cycle Carbon Minus) homes in response to growing decarbonization orientation
・Sales increase due to entry into growing markets such as environmentally conscious multi-family housing due to customer preferences, policy changes, etc.
Global Housing, Construction and Real Estate Business ・Cost increase due to introduction of carbon tax and stricter environmental regulations
・Brand value loss due to delay in complying with environmental regulations, stock price slump, and sales decline
・Increased material procurement costs due to construction damage, extended construction time, and supply chain disruptions caused by severe disasters
・Intensifying competition to secure development sites due to a shift in demand to areas with less risk of disasters
・Increasing demand for environmentally conscious housing in response to the growing trend toward decarbonization
・Expansion of the market for medium- to large-scale wooden constructions in response to ESG demand from investors and financial institutions
Environment and Resources Business ・Cost increase due to introduction of carbon tax and stricter environmental regulations
・Decrease in wood production due to stricter forest protection policies
・Increased cost of installing energy-efficient heavy equipment due to stricter environmental regulations
・Increased operating costs because of soaring prices of fuel
・Increased forest road networks damage and road repair costs due to changes in precipitation and weather patterns
・Increased forest fires due to higher average temperatures, increased wood procurement and reforestation costs
・Increased demand for logs and wood due to customers' preference for decarbonization
・Increase in gain on sale of forestry fund credits due to expansion of credit market
・Increased demand for renewable energy due to strengthened decarbonization policies, and increased sales of biomass-derived energy business
Lifestyle Services Business ・Decrease in sales of gasoline card business due to shift from gasoline to electric vehicles ・Increase in costs for renovation of owned facilities and BCP response due to the severity of disasters
・Decrease in customers using owned facilities due to rising temperatures and increased costs for safety considerations
・Increase in insurance subscribers, shorter policy periods, more frequent renewals, and sales due to more severe disasters
・Increase in the number of Sumirin Denki subscribers due to customers' preference for renewable energy
・Customer acquisition by responding to customers' desire for decarbonization and for safety and security in the face of increasingly severe natural disasters

*LCCM housing: houses that reduce CO2 emissions during construction, occupancy, and demolition, and also generate renewable energy using solar power generation, etc., to achieve negative CO2 emissions over their entire life cycle

Cross-organizational Financial Impact Analysis Scoping All Divisions

Among the risks and opportunities identified through the business-by-business analysis below are affecting, more than one business and have particularly large financial impacts. The increasing operating costs associated with the introduction of the carbon tax, environmental regulations, and the intensification of weather-related disasters will affect Timber and Building Materials Business and all divisions, while the growing preferences of customers for decarbonization will present opportunities for Environment and Resources Business and all divisions.

Factors Factors of Particular Impact* Related Business
Transition Risks Policies and Regulations Introduction of Carbon Pricing [Risks]
・ Increase in business costs due to the introduction of carbon tax imposition and emission trading system (Timber and Building Materials, Environment and Resources)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate, Environment and Resources, Lifestyle Services
Forest conservation policies [Risks]
・Increase in wood procurement costs due to payment of logging tax, logging fees, etc. (Timber and Building Materials, Environment and Resources)
・Increase in domestic wood costs due to the shift of reforestation costs as a result of mandatory reforestation, etc. (Timber and Building Materials)
・ Timber and Building Materials, Environment and Resources
Introduction of environmental regulations [Risks]
・Governments implement regulations on the use of used vehicles, which will increase the cost of introducing heavy equipment and trucks (Environment and Resources)
・Sales increase due to the growing demand for environmentally conscious housing retrofits in response to stricter regulations on buildings (Housing)
・Increase in sales due to increased demand for environmental certifications/low-carbon housing in response to stricter regulations on buildings (Global)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate, Environment and Resources, Lifestyle Services
Market Shift in customer orientation toward decarbonized products [Opportunities]
・Increase in sales due to increased demand/use of domestic wood by utilizing wood industrial complex and laminated engineered wood plants (Timber and Building Materials)
・Increase in sales due to higher unit prices for logs and wood, associated with increased demand for renewable raw materials and products (Environment and Resources)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate, Environment and Resources, Lifestyle Services
Increased cost of raw materials [Risks]
・Increase in raw material costs due to higher energy costs (Timber and Building Materials)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate
Technology Advances in next-generation technologies [Risks]
・Decrease in sales due to lower demand for wood as a result of progress in research and development of decarbonization of steel materials and concrete, which are competitors of wood (Timber and Building Materials)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate, Environment and Resources
Physical Risks Acute Intensifying weather disasters [Risks]
・Decrease in sales due to increased demand for robust buildings using building materials other than wood and decreased disruption for wooden buildings (Housing)
・Cost increase due to higher purchase prices caused by supply chain damage (Global)
・Timber and Building Materials, Housing, Global Housing, Construction and Real Estate, Environment and Resources, Lifestyle Services

* The amount of impact 10% or more of each division's ordinary income

Cross-organizational Issues Related to All Divisions and Countermeasures to Address Them

Addressing financial impacts across multiple businesses requires a company-wide approach. In addition to climate change, we have also identified cross-organizational issues that need to be strategically addressed in light of international trends and future market forecasts toward the realization of a sustainable society, including natural losses, human rights issues, and changing customer preferences. In considering countermeasures to address this issue, we pursued the creation of opportunities in the wood cycle, keeping in mind the three pillars of decarbonization initiatives in the wood cycle, namely "forests," "wood," and "construction," as stated in Mission TREEING2030.

Relationship Between Cross-organizational Issues/Countermeasures and the Wood Cycle

Proposed countermeasures identified through joint discussions with all divisions

Items corresponding “wood cycle” Cross-organizatioal issues Countermeasures
Energy Forest Expansion of forest supply to meet demand for decarbonization shift ・Development of tree species and forests in response to the decarbonization shift, such as fuel wood and high-strength wood
・Development of supply and demand for local production for local consumption (secure and consolidate mountain owners)
Wood Expansion of biomass and biofuel supply business ・Expand applications for wood chips and pellets that can be disposed of or used for biorefinery/SAF fuel by utilizing abundant forest resources and wood technology (considering development of wood-based SAF and challenging a demonstration plant)
Materials Wood Strategies for supplying commercial products according to local market conditions ・In order to standardize decarbonized design for medium- to large-scale buildings, on the basis of implementation and participation in planning activities, define the strategies of each region, select/cultivate company-owned forests, and develop commercial materials
Wood and Construction Promotion of circular use of wood ・New product design from the perspective of improving the scope and possibility of wood reuse at the time of demolition while lengthening the wood life cycle, and expanding the scope of reuse of demolition materials outside of the Kawasaki Chip Plant (biomass)
Construction Construction Property Management (PM)
Facility Management (FM)
・Expanding the stock-type business as building management to reduce GHG emissions after construction, from the viewpoint of building contracting
Construction Community townhouse development ・Seeking environmentally conscious demands from other axis than wood superiority
Overall Forest, Wood and Construction Strengthen supply chain, including internal completion ・Upstream: the allocation of company-owned forests to be determined in consideration of the position of the forestry fund in the resource strategy, as well as supply chain efficiency
・Midstream: study and design the location and routing of production and distribution sites in accordance with upstream and downstream supply chain requirements
・Downstream: establish supply chain requirements by type of new construction, renovation/remodeling, etc., of houses, and coordinate with other departments