The financial impact and urgency of individual risks were reevaluated this fiscal year by performing a scenario analysis. With regard to carbon taxes and emissions trading systems applied to suppliers, we have changed our evaluation of the urgency of this risk based on the global systematization of emissions trading systems and Japan’s moves to introduce carbon pricing. Regarding the rising number of natural disasters, we have reevaluated the risks to our supply chain, including our sites. We have decided to invest in concrete measures to address, in particular, flooding risks in Japan, prioritizing major manufacturing sites with high levels of flooding risk.
Natural disaster risks are highly urgent risks which, if countermeasures are deferred until later, could have a major business impact. Although the urgency for the risks of infectious diseases caused by climate change is low, if these risks manifest themselves, they could have a major financial impact. We will therefore strive to continuously enhance our BCP to manage them. We have reconfirmed that actively working to mitigate and adapt to climate change has tremendous potential to produce future financial benefits.
We annually carry out analysis and evaluation according to the scenario analysis review processes. The scope of the analysis includes our own operations, upstream and downstream activities. As for the analysis on our own operations, we evaluated the impact on major assets.
In examining transition risks, we referred to the International Energy Agency (IEA) report, as we are aiming for the SBT 2°C /1.5°C target. Energy Agency) report, as we are aiming for a 2°C SBT / 1.5°C target. We selected the IEA SDS (Sustainable Development Scenario), which is a scenario that is consistent with the Paris Agreement and has a 50% probability of limiting emissions to 1.65°C. We also referred to the NDCs (Greenhouse Gas Emission Reduction Targets under the Paris Agreement) submitted by each country.
In order to be prepared for an uncertain future, we must select and develop scenarios for multiple temperature zones, including a below 2°C scenario. In this regard, we have referenced information from the United Nations Intergovernmental Panel on Climate Change (IPCC) and selected two scenarios: the 2°C /1.5°C scenario (RCP2.6) [Scenario 1] and the 4°C scenario (RCP8.5) [Scenario 2]. We believed that dividing the scenario into two extreme cases, with the lowest and highest average temperature increase, would help eliminate the unexpected. In order to sustain our existing two key businesses, Printing and Thermal, it is necessary that we make assumptions about the changes in forest and paper resource supply and the scale and frequency of natural disasters such as typhoons, severe rains, and floods in our supply chain, including our production sites, which could potentially have a significant impact on our business due to future climate change up to 2050. We have used the "Shared Socioeconomic Pathways (SSP)," a new socio-economic scenario, as a baseline for the social and economic environment below 2°C, referring to the world of growth and equality with an emphasis on sustainability (SSP1: Sustainability) storyline. In addition, in the 4°C scenario, countries do not promote climate protection policies, corporate voluntary activities on global warming issues are limited, a transition to a zero-carbon society will not progress, global warming will not be mitigated, and more serious extreme weather conditions will frequently occur (SSP3: Regional Rivalry).
According to the IPCC Fifth Assessment Report, there is no significant difference between the two scenarios in terms of global warming in 2030 (see *1 graph).
Therefore, we have assessed mainly the risk of transition to a decarbonized society in "Scenario 1" and the geophysical risk due to the intensification of climate change in "Scenario 2".