SHIONOGI Group’s Climate Change Strategies
Climate Change Countermeasures as Part of Management Strategy
In March 2022, the SHIONOGI Group announced its support for the TCFD*1 recommendations and participated in the TCFD Consortium, in which companies and financial institutions in Japan that support the TCFD recommendations work together to promote initiatives.
In FY2022, we launched a project that involved organizations related to management strategy and procurement, and analyzed the scenarios using two levels of temperature increase, 1.5°C and 4°C, based on social trends toward decarbonization with reference to the TCFD framework. We also discussed climate change strategies, which included identifying and assessing climate change risks and opportunities, evaluating financial impact, and formulating policies on how to respond to the risks.
*1 Task Force on Climate-related Financial Disclosures: An organization established by the Financial Stability Board (FSB) in response to a request from the G20 to discuss how climate-related information should be disclosed and how financial institutions should respond.
The SHIONOGI Group also promotes appropriate information disclosure in accordance with the TCFD recommendations, and for reference, the number of the disclosure items recommended by the TCFD is listed in parentheses at the end of each item.
SHIONOGI Group Governance System and Risk Management
As a mechanism to bolster management strategy and business foundation, the SHIONOGI Group has established an Enterprise Risk Management (ERM) system, which oversees the risks across the entire group. Regarding risks and opportunities, including climate change, that may have a significant impact on the future business environment of the SHIONOGI Group, we assess them in the ERM system in terms of impact, probability, and other factors. We ensure that measures for such risks and opportunities are implemented, and the progress of such measures is reported to the Board of Directors after deliberation at the Corporate Executive Management Meeting.
In addition, we have established an integrated EHS management function that unifies and manages various activities related to the environment, health, and safety (“EHS”). The progress of specific measures against climate change risks is managed by this EHS function. The Senior Executive Officer and Senior Vice President, Administration Division is appointed as the Corporate Officer in Charge of EHS, who also heads the SHIONOGI Group Companywide EHS Committee*2 and the Energy Conservation Committee*3. We have a system in place to ensure thorough and in-depth discussions. Decisions made by each of these committees, which are held at least four times a year in total, are reported to the CEO. Matters required for deliberation at an upper-level meeting are presented at the Corporate Executive Management Meeting.
See the sections Risk management and Governance for more information on the ERM system.
(Governance: Recommended disclosures a and b)
(Risk management: Recommended disclosure c)
*2 SHIONOGI Group Companywide EHS Committee: An organization that deliberates on and approves important EHS matters across the whole group, which include environmental policies, medium- and long-term targets, performance review, identification of environmental issues, and environmental risk assessment
*3 Energy Conservation Committee: An organization that is placed under the SHIONOGI Group Companywide EHS Committee and deliberates on matters concerning climate change and energy conservation
Consideration of the SHIONOGI Group’s Climate Change Strategies
Process to identify and assess risks and opportunities and to develop countermeasures
In our climate change scenario analysis, we thoroughly identify transition risks, physical risks, and opportunities that climate change may bring to our business activities. After evaluating the financial impact and business resilience regarding each identified item in the 1.5°C and 4°C scenarios, we assessed the priority of response to such risks and opportunities and developed response policies and countermeasures. The process from identifying these risks and opportunities to formulating countermeasures as well as other important matters are reported to and approved by the Corporate Executive Management Meeting and the Board of Directors.
Details on how to proceed with scenario analysis
We conducted a scenario analysis to understand risks and opportunities for the future business of the SHIONOGI Group. We have assessed the impact on our business as of the year 2030 with reference to the following reference sources.
・1.5°C scenario: The average temperature increase is kept below 1.5°C in 2100 compared to the pre-industrial level.
- Reference climate scenarios: IEA*4-NZE, IPCC*5-1.5, and IPCC AR6 SSP*61-1.9, and the like
- More rigorous measures (including carbon tax and environmental regulations) are introduced, and the society as a whole proactively works on measures to tackle climate change.
・4°C scenario: The average temperature rises by 4°C in 2100 compared to the pre-industrial level.
- Reference climate scenarios: IPCC AR6 SSP3-7.0/SSP5-8.5 and the like
- Stricter measures (including carbon tax and environmental regulations) are not introduced, resulting in more severe and frequent natural disasters (a world of “Take it as it comes”)
*4 IEA: International Energy Agency
*5 IPCC: Intergovernmental Panel on Climate Change
*6 SSP: Shared Socioeconomic Pathway
External environment surrounding the SHIONOGI Group |
1.5°C scenario | 4°C scenario |
|---|---|---|
| Policies and regulations | Stronger policies to achieve carbon neutrality by 2050 (such as introducing carbon tax, increasing the renewable energy ratio, and stepping up energy conservation efforts) | More powerful policies to deal with catastrophic disasters (regulations, subsidies, and other policy support) |
| Investment/lending institutions | Requests more demanding than policies toward carbon neutrality | Although there is pressure to respond to the deteriorating natural environment as climate change advances, the pressure is not strong enough to affect investment and lending decisions. |
| Society | Changes in values (consumption propensity) brought by a decarbonized society | The same situation as the current one |
| Natural environment | Gradual changes in climate | More severe and frequent natural disasters and changes in precipitation patterns |
Targets of scenario analysis
Our analysis covers each plant of the SHIONOGI Group in Japan and overseas as well as the supply chains related to the group’s key products.
Assessing and Identifying risks and opportunities
Table 2 below shows the results of our assessment of risks and opportunities related to climate change using the 1.5°C and 4°C scenarios.
We have identified three items as risks and opportunities stemming from climate change with relatively large financial impact: 1) introduction of carbon pricing, 2) impact of locally abnormal weather and temperature rise on raw material procurement, and 3) rising sea levels. If all the identified risks and opportunities materialize, the financial impact on the core operating profit targeted for 2030, the final fiscal year of the SHIONOGI Group’s medium-term business plan STS2030, was estimated to be just around 10%. The STS2030 Revision, which was revised in June 2023, aims to further expand earnings compared to STS2030. Therefore, we judge that the resilience of our business against the climate change scenarios that can be expected in the future is sufficiently secured.
| Classification | Main risks and opportunities | Details of anticipated risks and opportunities | Single-year financial impact for FY2030*7 | |||
|---|---|---|---|---|---|---|
| 1.5°C scenario | 4°C scenario | Remarks | ||||
| Transition risks | Policy | Introduction of carbon pricing | New regulations put in place on manufacturing, procurement, and other business activities, such as introducing and expanding carbon taxes, emissions regulations, and emissions trading systems | Medium | Small | Approximately 5.5 billion yen*8 in the anticipated worst case scenario for Scopes 1-3 of the SHIONOGI Group (in the 1.5°C scenario) |
| Tougher energy-saving regulations | Energy-saving regulations for production facilities becoming tougher than the annual average reduction of 1% or more in energy consumption per unit required by the current Act on Promotion of Global Warming Countermeasures, resulting in additional capital investment | Small | Small | |||
| Physical risks | Acute | Impact on raw material procurement due to locally abnormal weather and rising temperatures | Procurement of biological raw materials becoming difficult because of the adverse effects of rising temperatures on growth and yield, quality, price, and other factors | Medium | Medium | The identified risk is based on the assumption that lysate reagents used in quality testing are unavailable. |
| Damage to supply chain facilities due to intensifying storm and flood damage | Disruption or suspension of supply chain operations caused by locally abnormal weather (such as typhoons and sudden downpours) and associated disasters (equipment damage, flooding, power outages, and other damage) | Small | Small | |||
| Chronic | Rising sea levels | Plants or other operating sites becoming inoperable due to rising sea levels | Large | Large | The identified risk is based on the worst case scenario in which an operating site, such as a plant, must be relocated. | |
| Opportunities | Market | Cultivation of new markets and regions through research and development of new medicinal products | Application of the technologies and know-how that the SHIONOGI Group has cultivated to treatment of other diseases | Small | Small | The identified opportunity is based on the assumption that drugs to treat NTDs (Neglected Tropical Diseases) will be developed and launched. |
| Switching to ecofriendly low-carbon containers and packaging | Cost reduction resulting from replacement with environmentally friendly packaging materials | Small | Small | |||
*7 Financial impact: Large: 10 billion yen or more; Medium: 1 billion yen to less than 10 billion yen; Small: less than 1 billion yen
*8 The estimated figure is based on a carbon tax internally calculated as 18,162 yen/t-CO2 with reference to the IPCC Special Report on Global Warming of 1.5°C.
Table 3 below describes the SHIONOGI Group’s response policy regarding the three items that have a relatively large financial impact: 1) introduction of carbon pricing, 2) impact of locally abnormal weather and temperature rise on raw material procurement, and 3) rising sea levels.
| Identified risk | Classification of risk response policy | Remarks on established policies |
|---|---|---|
| Introduction of carbon pricing | Risk reduction | The possibility of the identified risks becoming real in the medium term is relatively high, since carbon pricing has already been introduced in some countries and is under consideration in Japan. Therefore, we will mitigate the risks by implementing medium- to long-term activities to reduce our greenhouse gas (GHG) emissions. |
| Impact on raw material procurement due to locally abnormal weather and temperature rise | Risk retention | We have defined the worst case scenario as the situation where quality testing cannot be conducted because lysate reagents made from the blood components of horseshoe crabs cannot be procured due to their decreasing population caused by climate change, leading to the suspension of shipments of some of our main medicinal products. However, reagent manufacturers are engaged in activities to preserve horseshoe crabs. Also, even if procurement of lysate reagents becomes difficult, alternative reagents using genetically modified proteins exist. Therefore, although the long-term possibility cannot be ruled out, we will retain the risk, judging that the probability of the risk manifesting by 2030 is extremely low at this point. |
| Rising sea levels | Risk retention | There is no doubt about the long-term trend of rising sea levels caused by climate change, and we have set the worst case scenario as the situation where sea level rise may adversely affects operations at some of our key manufacturing sites located in particularly low-lying areas above sea level. However, the average sea level rise along the coasts of Japan over the period from 2031 to 2050 is projected to be less than 0.2 m. Therefore, although the long-term possibility cannot be ruled out, we will retain the risk, judging that the probability of the risk manifesting by 2030 is extremely low at this point. |
Carbon tax (carbon pricing)
We have internally estimated the carbon tax for 2030 to be 135 USD/t-CO2 with reference to the IPCC Special Report on Global Warming of 1.5°C. The estimated carbon tax of 18,162 yen/t-CO2 is based on an exchange rate of 134.53 yen/USD as of the end of March 2023. This value was used to estimate the financial impact associated with carbon tax.
Metrics and Targets for the SHIONOGI Group Climate Change Countermeasures
As mentioned above, we conducted a detailed assessment of the impact of climate change on the SHIONOGI Group’s business using the TCFD framework as a reference. As a result of considering strategies and specific countermeasures, we have set “reduction of GHG (CO2) emissions” as a metric for reducing risks related to climate change. In addition, in response to the Japanese government’s declaration of “Carbon Neutrality by 2050” and the worldwide movement toward reducing CO2 emissions, we believe that the SHIONOGI Group also needs to aim for carbon neutrality by 2050.
・Metric:
- GHG (CO2) emissions reduction (FY2019 benchmark)
・Targets:
- Reduce GHG emissions (Scopes 1 and 2) by 46.2% by FY2030 compared to FY2019.
- Cut down GHG emissions (Scope 3, Category 1: Purchased products and services) by 20% by FY2030 compared to FY2019.
To improve energy efficiency, we also aim to improve energy intensity by 1% per year and to introduce equipment with high energy consumption efficiency.Please see the section "Climate Change" for yearly activity progress.
・Other targets regarding climate change countermeasures:
- Reduce energy consumption and improve energy efficiency.
・Promotion of energy conservation efforts to reduce energy intensity by 1% per year
・Promotion of the introduction of high-efficiency equipment
- Reduce GHG emissions.
・Promotion of the introduction of renewable energy
・Promotion of the introduction of high-efficiency equipment
*9 SBTs (Science Based Targets): CO2 emissions reduction targets based on scientific data
＊ Targets approved by the SBT initiative