Information Disclosure Based on TCFD Recommendations | Climate Change | Environment | Sustainability | IHI Corporation

Governance

The IHI Group has a duty to contribute to society and the environment in a way that will realize a sustainable society. We know management with clearly defined values is essential to governance making these contributions possible.
We have identified issues considered important toward this ESG Management as material issues, and have established the ESG Management Promotion Committee as a forum for discussing and deciding policies, implementation methods, and plans of action. The ESG Management Promotion Committee is chaired by the Chief Executive Officer and consists of officers at the executive level and above. In addition to this, we put a Groupwide Environment Committee and a task force in place to advocate for carbon-neutral initiatives.
Amid discussions at these meetings and committees, matters related to important management decision-making are deliberated on by the Management Committee, which serves as the decision-making body for management execution, and are then submitted to the Board of Directors.
The IHI Group regards combating climate change as an important ESG management issue, and is managed by the ESG management promotion system above.

Strategy

The IHI Group promotes efforts to mitigate climate change through reduction in two steps: (1) Reducing greenhouse gas emissions by utilizing existing technology and equipment and (2) Building new technology and techniques. We will steadily continue these efforts to achieve carbon neutrality throughout the value chain.
By expanding the existing life-cycle business of our IHI Group products to our customer value chain and by improving the value we provide, we contribute to the realization of carbon neutrality for our customers. We invest management resources derived through our life-cycle business from a customer value chain perspective into the development of new technologies and systems that contribute to carbon neutrality as well as growth business and development-focus business, aiming for both carbon neutrality and increased sustainable growth.
Moreover, by actively introducing these new technologies and systems within the IHI Group, this will in turn lead the early realization of carbon neutrality in our business activities.

Risk and Opportunity Due to Climate Change

The IHI Group conducted simple scenario analyses of four business domains significantly impacted by climate change: the energy business, bridge and water gate business, vehicle turbocharger business, and the civil aero engine business.
The first step set (1) a carbon-neutral world as the highest transition risk and (2) a world greatly impacted by climate change as the highest physical risk in our own independent scenarios drafted with reference to external scenarios created by the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC). The second step identified risks and opportunities for all four business domains. The third step assessed the impact each business has. The fourth and last step drafted countermeasures according to our findings.
In the future, the IHI Group will enhance its ability to leverage scenario analyses in business strategy through efforts, such as assessing the financial impact of climate change. The IHI Group will proactively incorporate the concepts pursued by TCFD signatories in management policies and business strategies, contributing not only to the sustainable development of our Company, but society as a whole.

External reference scenarios:
-A carbon-neutral world IPCC RCP 2.6, IEA 2DS Scenario, etc.
-A world greatly impacted by climate change IPCC RCP 8.5, etc.

IHI Group Scenarios

High-transition risk scenario
This scenario presents (1) a carbon-neutral world where society at large shifts to mitigate climate change and stop all greenhouse gas emissions.
High-physical risk scenario
This scenario presents (2) a world greatly impacted by climate change that needs to adapt to the physical impact and directly confront drastic devastation by natural disasters.

Countermeasures set to address the two extreme worlds anticipated by these IHI scenarios enhance the resilience of IHI Group businesses against future risks.
The IHI Group can also reduce risks against the harshest world facing both these scenarios at the same time by integrating the countermeasures for each.

The IHI Group divides the risks and opportunities identified for each of the four business domains and the countermeasures into two categories: 1. risks, opportunities, and countermeasures specific to each business and 2. risks, opportunities, and countermeasures shared across all businesses.
Risks, opportunities, and countermeasures in 1. are shown in the table below while those in 2. are shown in the table on the next page.

1. Main Risks, Opportunities, and Countermeasures Specific to Each Business (Four Main Business Domains)

(1) Risks, Opportunities, and Main Countermeasures in a Carbon-neutral World

	Energy Business	Bridge and Water Gate Business	Vehicle Supercharger Business	Civil Aero Engine Business
Risks	Declining demand for large fossil fuel power generation equipment	Increasing procurement costs (carbon tax, etc.) for materials with high CO₂ emissions (concrete, steel, etc.)	Declining demand for combustion engine vehicles unable to address carbon-neutral requirements and a falling demand for existing turbochargers	Declining demand for aircrafts due to carbon-neutral requirements and standardization of alternative highspeed means of transportation
Opportunities	Increasing demand for fuel conversion, carbon capture and storage (CCUS), and other decarbonization technologies Increasing demand for regulated power supplies, storage energy, and Power-to-X to provide a stable energy supply as renewable energy becomes the standard	Increasing demand for roads (bridges and tunnels) to provide a more efficient transportation network Increasing demand for railway construction due to expansion of railway systems overseas	Potential to secure market competitiveness and leverage an increase in demand for turbochargers by being first to market with new turbocharger products (electric products in addition to existing models) for carbon-neutral electric vehicles (PHEV, HEV, FCV, etc.)	Increasing demand for the development of aircraft engines supporting carbonneutral requirements and a rise in opportunities due to electrification of engines and utilization of advanced material technologies
Main countermeasures	Rapidly deploy carbon-neutral technologies to society Promote technological development to stabilize the energy supply Expand the life-cycle business through remote monitoring and other Internet of Things (IoT) technologies	Reduce construction schedules and labor costs by labor-saving, remotization, and improving construction methods through promoting digital transformation (DX)	Rapid development and commercialization of turbochargers for electric vehicles that comply with carbon-neutral requirement trends	Early commercialization of electric engines and advanced technologies such as advanced composites

(2) Risks, Opportunities, and Main Countermeasures in a World Greatly Impacted by Climate Change

	Energy Business	Bridge and Water Gate Business	Vehicle Supercharger Business	Civil Aero Engine Business
Risks	Extreme delays due to on-site construction stoppages or disasters caused by frequent severe weather	Extreme delays due to on-site construction stoppages or disasters caused by frequent severe weather	Suspension of production due to disrupted supply chains caused by frequent severe weather	Suspension of production due to disrupted supply chains caused by frequent severe weather
Opportunities	Contributing to early recovery of equipment damaged in severe weather Increasing demand for digital technologies to promote labor saving and remote operation	Increasing demand to build robust national infrastructure Contributing in early recovery of infrastructure damaged in severe weather	No opportunities unique to our business	No opportunities unique to our business
Main countermeasures	Expand the life-cycle business through remote monitoring and other Internet of Things (IoT) technologies	Expand business beyond life-cycle business with wider perspective to include disaster prevention business Create technologies and systems that contribute to maintenance, disaster prevention, disaster mitigation, and quick recovery of infrastructure	Strengthen supply chains	Strengthen supply chains

2. Main Risks and Countermeasures Shared Across All Businesses

(1) Transition Risks and Countermeasures for a Carbon-neutral World

Category	Main Items	Main Countermeasures and Transitioning to Opportunities
Policy and legal	Introduction of carbon taxes, stronger industrial waste regulations, raising costs due to the adoption of renewable energy and energy-efficient equipment, etc.	Reduce costs in business activities through efficient production and distribution as well as the proper management of energy consumption
Technology	Raising costs due to research to realize carbon-neutral products and services, failed technological development, etc.	Concentrate investments in technological development while staying acutely aware of policies, technologies, markets, and other social trends
Market	Declining demand for products and services with high CO₂ emissions, etc.	Actively draft and promote business plans that always anticipate multiple business scenarios to adapt to dramatic changes in market structures
Reputation	Lost opportunities due to poor evaluations of our response to climate change, declining social credibility, etc.	Disseminate easy-to-understand information about products and services that can help both mitigate and adapt to climate change

(2) Physical Risks and Countermeasures in a World Greatly Impacted by Climate Change

Category	Main Items	Main Countermeasures
Acute/Chronic	Ceased business activities due to damaged offices and business sites caused by typhoons, floods, or other natural disasters, etc.	Incorporate the response to climate change into the business continuity plans of plants and offices to ensure the safety of Officers and employees and strengthen the supply chain Draft, execute, and manage advance measures in anticipation of foreseeable flood damage

Risk Management

In addition to short-term business risks, the IHI Group also manages sustainability-related risks that affect the medium- to long-term business environment as a risk to conducting business. In particular we assess the medium- to long-term impact of these risks to the IHI Group and convert them into short-term business risks. The Group has clarified the roles and responsibilities of its Internal Audit Division, corporate divisions, business areas, and business divisions (including affiliated companies), which are managed under a multi-layered risk management framework.

Metrics and Targets

Under Carbon-Neutral 2050, the IHI Group has pledged to make its entire value chain carbon-neutral by 2050.
We aim to be carbon-neutral in our processes overall by reducing the direct and indirect (Scope 1 and 2) greenhouse gas emissions from our business activities as well as Scope 3 emissions from the upstream and downstream processes in our value chain.
For greenhouse gases (Scope 1 and 2), we have set a target to halve our emissions from fiscal 2019 by fiscal 2030.

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