Scenario Analysis (TCFD)
Disclosure based on TCFD recommendations
Based on the recommendations released by the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB) in 2017, the Kirin Group assesses the impacts of climate change-related issues on society and businesses, as well as the resilience of its strategies, and has been working to disclose in line with the recommendations in approximately five years. We began disclosures in 2018, and the assessment results of 2019 serve as important input for our Environmental Vision 2050.
In December 2018, the Kirin Group became the first Japanese food company to support the recommendations of the TCFD.
Schedule for information disclosure
To support the proactive, self-driven CSV management by the individual Group companies, the Group CSV Committee meets once a year in principle, with the meeting attended by all executives of Kirin Holdings and the presidents of major operating companies, and discusses climate change-related issues. In 2019, based on the results of the scenario analysis, top management actively discussed the risks and opportunities related to climate change. In response, an environmental strategy project was launched with the director in charge of SCM as the project owner. The Environmental Vision 2050 was discussed and drafted as part of this project, followed by discussions by the Executive Committee and deliberation by the Board of Directors.
The Kirin Group formulated the Kirin Group Long-Term Environmental Vision in 2013 as the long-term strategy directed towards 2050 and has been working to realize that vision. However, the global trends surrounding the environment are changing dramatically, including the launch of international initiatives related to climate change originating from the Paris Agreement and the emergence of the problem of marine pollution caused by plastics. In addition, scenario analyses conducted in 2018 and 2019 have revealed the significant impacts of climate change on agricultural products, such as decline in yields of agricultural products that are key raw materials and increased water stress and risk of flooding in agricultural production regions. At the same time, they have uncovered the possibility of reducing such impacts and capturing opportunities by strengthening measures to mitigate and adapt to such impacts.
Accordingly, we revised our conventional strategy and established the Environmental Vision 2050, which was announced on February 10, 2020. The vision aims at enhancing the resilience of society and the company and providing positive impacts to society beyond the boundaries of our organization. The Environmental Vision 2050 is positioned as an important agenda item under our CSV Purpose and is incorporated in CSV management.
The Kirin Group facilitates risk management and has established a system to accurately recognize and steadily respond to risks that may seriously impede the accomplishment of business targets or impact business continuity. In particular, we focus on risks associated with new strategies and initiatives, as well as risks associated with significant changes in the external environment.
Kirin Group companies, in conformance with the group risk management policy, identify and examine important risks, including those related to climate change. The Administrative Office of the Kirin Group Risk and Compliance Committee, which comprises Kirin Holdings internal directors and executive officers, surveys and investigates these risks. The committee deliberates on risks that have a potentially significant impact and a high likelihood of occurring, and risks common to the Kirin Group, and manages them as material serious risks for the Group.
On the other hand, when we look at the occurrence of large-scale natural disasters that are thought to be caused by impacts of climate change, it is not sufficient to adopt only the conventional risk management methods that determine the level of materiality of risks based on the magnitude of impact and probability of occurrence. Regarding risks that would have an extremely significant impact on our business if they were to eventuate, even though we may not know the chances of their eventuating, we will introduce put in place new risk management systems that set scenarios and assess risks.
Metrics and targets
In the Kirin Group's Environmental Vision 2050 announced on February 10, 2020, we significantly raised our targets for climate change-related issues.
As for the reduction of greenhouse gas emissions, which is a mitigation measure, we have set a target to achieve net zero emissions throughout our value chains by 2050. Our adaptation measures include efforts to cultivate, expand and procure sustainable agricultural raw materials and to bring water, used as a raw material, to a sustainable state.
As for our medium-term KPIs, we plan to set numerical targets as CSV commitments and draw up a roadmap as soon as possible.
Target for total Scope 1 and Scope 2 emissions*
Target for total Scope 3 emissions*
- We calculated in the same range as the approved target to the Science Based Targets initiative(SBTi).
The Kirin Group began studying the TCFD final recommendations immediately after they were announced in 2017. In late June 2018, we promptly disclosed the trials, including the results of our scenario analysis, in accordance with the TCFD recommendations in the Kirin Group Environmental Report 2018. We have since been continuously striving to ensure that our disclosure complies with the recommendations.
Results of the 2018 analysis
In 2018, we adopted the IPCC’s Representation Concentration Pathways (RCP) as the main pathways, supplemented by the IPCC’s Shared Socioeconomic Pathways (SSP), to develop three Group Scenarios and analyzed the impact of climate change on agricultural products that are important ingredients for the Group’s businesses. As a result, we determined anew the potential for climate change to have a major impact on agricultural products.
In July 2018, immediately after the disclosure of trials, the 2018 West Japan Torrential Rain Disaster happened, causing extensive damage in the western region of Japan and disrupting the railway networks. As a result, Kirin Beverage, which had been actively pursuing the modal shift to reduce GHG emissions and address the shortage of truck drivers, experienced a significant impact on product delivery, which was also in the peak period. In September 2018, Kirin Brewery Hokkaido Chitose Plant suspended operations due to a blackout (total power failure) caused by the Hokkaido Eastern Iburi Earthquake. It was also in 2018 that the issue of ocean plastics attracted close attention.
Although the risks associated with such events had been recognized even under conventional risk management, they were judged to have a large impact but a low probability of occurrence, and while measures were taken in part to reduce such risks, most of them were treated as risks to hold. The emergence of a number of natural disasters and environmental problems in 2018 prompted us to once again recognize the effectiveness of the new risk management system, which sets up scenarios and evaluates risks that are unlikely to occur but would have an enormous impact on our business should they occur. Taking advantage of the experience of the torrential rains in western Japan, the Kirin Group immediately established a manual to follow in the advent of a similar disaster and put it into use. This has helped us avoid a major impact from typhoon No. 15 (Reiwa 1 Boso Peninsula Typhoon) and typhoon No. 19 (Typhoon Hagibis or Reiwa 1 East Japan Typhoon) in October 2019.
Results of the 2019 analysis
In recognition of the effectiveness of scenario analysis, in 2019 we conducted a more detailed analysis with the aim of assessing the resilience of our long-term strategy, the Kirin Group Long-Term Environmental Vision, formulated in 2013.
Specifically, we studied more than 25 research papers and analyzed the impact of climate change in the main individual supplier countries in 2050 and 2100, based on Group Scenario 1 (2°C scenario, SSP1, sustainable development) and Group Scenario 3 (4°C scenario, SSP3, unwanted world) that were developed in 2018.
In addition, we examined water stress and water risks in agricultural production regions, identified water risks in production and distribution sites, and evaluated the impact of carbon pricing. The previous page provides an excerpt of these initiatives. Please refer to the Kirin Group Environmental Report 2019 pages 14 to 16 for further results of our analysis. The scenario analysis has further clarified the significant impacts on agricultural products and water resources, but it also reveals the potential to reduce these impacts and capture opportunities by reinforcing measures to mitigate and adapt to climate change. The results of this analysis provide important input into our new vision, the Kirin Group's Environmental Vision 2050, announced on February 10, 2020, which is aimed at enhancing the resilience of society and the company.
Impacts of climate change on major agricultural yields/production regions (2019 disclosure)
Disruption of railway networks due to torrential rains in western Japan in July 2018
Assessment of impact of carbon pricing (Excerpt from the 2019 disclosure)
Results of the 2020 analysis
We estimated the financial impact based on the results of analyses in 2018 and 2019. Please note that the results of these estimations are based on the conditions of the scenarios developed to visualize the impacts on society and businesses. We performed calculations also on the problem of ocean plastics, although it is not a climate change issue.
As for the impact of decline in agricultural product yields, we estimated the cost impact associated with barley, hops, black tea leaves, and wine grapes, which are important ingredients for alcoholic and non-alcoholic beverages businesses in Japan, based on the calculation conditions disclosed in published papers. We found that the cost impact of raw materials was approximately 7 times greater in Group Scenario 3 (4°C scenario) compared with that in Group Scenario 1 (2°C scenario, SSP1, sustainable development). The results of the trial calculations show that in order to mitigate the financial impact of decline in agricultural yields, it is necessary to also take measures to mitigate the temperature rise at a high level.
In calculating estimates on water risks and water stresses associated with natural disasters, as well as on the impacts of infectious diseases on operations and logistics, since there is a lack of appropriate insights, we made assumptions based on past cases and other factors for each scenario and estimated the impact should such assumptions become a reality.
Regarding water risk, we performed calculations in Group Scenario 3 (4°C scenario) based on the assumption that damage equivalent to that of Kirin Brewery Sendai Plant, which was affected by the Great East Japan Earthquake, would occur. As for the impact of flooding on modal shift, we estimated based on the assumption that damage due to modal shift caused by flooding would occur in the same way as in the past under the same scenario. The impact of infectious diseases on operations was estimated based on the assumption that the brewery would cease production at its peak under the same scenario.
Negative impact on businesses
Impact of water stress was estimated based on the assumption that plants with high water stress in Australia would cease operations at their peak. Since there is a lack of appropriate insights about the difference in the degree of impact in Group Scenario 1 (2°C scenario) and Group Scenario 3, we performed calculations based on the assumption that the impact in Group Scenario 1 would be about one-third of that in Group Scenario 3.
In addition, negative impact on businesses graph shows the impact of carbon pricing estimated in 2019, and the results of estimating the external cost of the problem of ocean plastics based on the share in the domestic soft drinks market based on published papers.
The vertical axis shows the magnitude of difficulty for society and businesses to return to their original state when a risk occurs, the horizontal axis shows the magnitude of the negative impact on society, and the size of the circle reflects the approximate magnitude of the financial impact on the Kirin Group. As a result of the calculations, the cost impact was approximately 1 to 8% of operating revenues. However, the impact on the decline in agricultural yields is greater because it continues to be affected. Regarding the impact of the spread of infectious diseases due to climate change, we expect that depending on the outcomes of the impact of COVID-19 spreading in 2020, there will be a need to change the calculation method.
As for opportunities due to climate change, we performed calculations regarding “impact of infectious diseases,” “impact of heat stroke” and “cost reduction through investment in energy conservation and renewable energy.”
The effects of infectious diseases and heat stroke caused by climate change may lead to expanding the market for plasma lactic acid bacteria (Lactococcus lactis strain Plasma), which directly activates plasmacytoid dendritic cells that act like the “commander-in-chief” of the immune system, and “Kirin Sekai-no-Kitchen-Kara SALTY LITCHI,” a heat stroke prevention product.
The table below shows the results of an analysis of the impact of infectious diseases performed based on the Scenario *4 on WHO’s health impacts of climate change.
Increase rate of population at risk under Kirin Group Scenario 3 (4°C scenario) in 2050
|Summary||One of the three major infectious diseases in the world along with tuberculosis and AIDS. Main symptoms are fever, anemia, and splenomegaly.||An acute febrile infection caused by the dengue virus. Major symptoms include fever, headache, muscle aches, and skin rashes.|
|Occurrence status||Many infected people mainly in subtropical and tropical regions. It has been reported that approximately 220 million people worldwide are affected annually, and an estimated 435,000 people die each year. The mosquito vector, Anopheles mosquito, is also found in Japan. Cases of onset have also been noted in Japan.||It is endemic throughout the tropics and subtropics and has been reported most commonly in Southeast Asia, South Asia, and Central and South America, but also in Africa, Australia, and South Pacific islands. Cases of onset have been noted even in Japan in recent years. The main vector mosquito is Aedes aegypti (not normally resident in Japan), but it can also be transmitted by Aedes albopictus, which lives in the south of Honshu.|
|Analysis results Rate of increase in population at risk from present *1||Climate change +
GDP taken into consideration
|Only climate change taken into consideration||Aedes aegypti||Aedes albopictus|
|Asia Pacific high income countries *2||-4.0%||4.0%||0.4%||-1.2%|
|Southeast Asia *3||-76.8%||73.2%||0.4%||-1.1%|
- The data represents the rate of increase for malaria in the number of people at risk in 2050 from the base years (1961 to 1990), and the rate of increase for dengue fever in the number of people at risk in 2050 from the present. Both calculated at 4°C
- Japan, Korea, Singapore, Brunei
- ASEAN countries, Myanmar, Vietnam, etc.
We examined the effects of heat stroke using the National Institute for Environmental Studies' climate change observations and predictions data *5. According to the RCP 8.5 scenario (equivalent to Group Scenario 3, 4 °C scenario), the number of heat-related excess deaths in Japan between 2080 and 2100 is estimated to be nearly 4 to 10 times or more than in the base period of 1981 to 2000. In this estimation process, we calculated the number of persons taken to hospital by ambulance in Japan due to heat stroke, which is considered to be highly correlated to temperature.
In the RCP 8.5 scenario for 2050, the number of heat stroke sufferers taken to hospital by ambulance is expected to be approximately 2 to 4 times higher than that in the base years (1981 to 2000). Assuming, based on these results, under the Kirin Group's Scenario 3 (4°C scenario) that the market for heat stroke preventing non-alcoholic beverages would correlate accordingly, we estimated that the domestic market would expand by approximately 94.0 billion to 188.0 billion yen.
Regarding cost reduction through investment in energy conservation and renewable energy, we reflected the energy cost reduction of 1 billion yen-level disclosed in the news release dated June 25, 2019, on acceleration of efforts to reduce GHG emissions, promote further energy conservation, and shift energy to electricity, in our result.
Potential to capture business opportunities
The graph above shows these results. The vertical axis shows the degree of contribution to increasing the resilience of society, the horizontal axis shows the size of positive impact on society, including customers and local communities, and the size of the circle reflects the approximate magnitude of the financial impact on the Kirin Group.
- World Health Organization (2014) Quantitative risk assessment of the effects of climate change on selected causes of death, 2030s and 2050s.
- S-8 Comprehensive Research on Impact Assessment and Adaptation for Climate Change 2014 Report (Japanese Only)
Assessment of resilience in our long-term environmental strategy
Based on the scenario analysis described above, we conducted an assessment of resilience for our long-term strategy Kirin Group Long-Term Environmental Vision announced in 2013, and the results are reflected in the Kirin Group's Environmental Vision 2050 announced in 2020.
In the Kirin Group Long-Term Environmental Vision announced in 2013, we defined the goal to be achieved in 2050 as “Make sustainable use of biological resources.” In our CSV Commitment, we continued to work on supporting Sri Lanka tea farms to obtain the Rainforest Alliance certification on top of responding to FSC and RSPO.
The results of the scenario analyses conducted in 2018 and 2019 predicted significant reductions in barley and hop yields in both Group Scenario 1 and Group Scenario 3. As for wine grapes, while some production regions are expected to see a significant decline in agricultural yields, there are new areas where a yield increase is expected. We found that there is a possibility of black tea leaves also being affected. The expected increase in procurement costs due to changes in the yields of these major raw materials came out to be about 5% in Scenario 1 and over 30% in Scenario 3. However, if global warming continues, it will be difficult to recover the condition.
We believe that our mass plant propagation technology in addition to our accomplishments and brewing technologies that do not rely on barley and use alternative sugars in categories such as happo-shu (low-malt beer) and new genres will be a major strength for the Kirin Group. This technology has the potential to contribute to the expansion of cropping areas in a short period of time if agricultural breeds resistant to global warming are developed.
Social impact of supporting the acquisition of
Rainforest Alliance certification
Moreover, our support for farms to obtain sustainability certification, which we have been promoting in Sri Lanka since 2013, is characterized by the fact that it aims to improve the sustainability of agricultural production areas from where we procure raw materials on the whole through support for farms to acquire the certification. Considering that the impact of global warming will lead to a decrease in agricultural yields in the entire production area, we can say that this is an initiative that enhances the resilience of society and the company, compared with activities that merely procure certified products.
The above graph shows the social impact estimated for a certain farm that acquired the Rainforest Alliance certification in Sri Lanka. This farm began training in 2013 and acquired the certification in 2014. We can see from the graph that, along with the acquisition of certification, the profit per unit of tea leaf weight and the salaries of farm workers increase, while the morbidity rate of farm workers decreases. While this is data from the specific farm, it shows that support for acquiring the certification has positive financial and social impacts on the farms and their workers, making raw material production areas more sustainable.
As a result, it was confirmed that the initiatives under our Long-Term Environmental Vision demonstrate a certain level of resilience. At the same time, we have determined that in order to further enhance resilience and bring about a positive impact on society, we need to strategically work on our initiatives by also incorporating into our vision such activities as contributions by leveraging our strength in mass plant propagation technologies, efforts to reduce food waste, which is our KPI added after the announcement of the Long-Term Environmental Vision, and our support for farms to obtain sustainability certification that contributes not only to enabling the Kirin Group to secure sustainable procurement but also to giving a positive social impact to agricultural production regions. These activities are reflected in our targets: “Cultivate, expand and procure sustainable agricultural raw materials” and “Stand by the side of farmers to make raw material production areas sustainable” under the Environmental Vision 2050.
In the Kirin Group Long-Term Environmental Vision announced in 2013, we set our goal for 2050 as “We make sustainable use of water together with our communities,” and have implemented various examinations and initiatives toward achieving this goal.
In an effort to identify the water risk to production sites, we conducted detailed surveys on three elements - water stress, water risk, and water pollution - based on WRI Aqueduct and other tools and information released by the government twice in 2014 and 2017. The results of these surveys showed that while there was no significant water stress in Japan and Myanmar, serious water shortages would continue into the future in Australia. Furthermore, in the scenario analysis performed in 2019, assessments were made around 2040 based on Group Scenario 3. As a result, we found that water stress and water risk would rise in many ingredient agricultural production regions.
In Japan, we have been pioneering the initiative and leading the industry in carrying out Water Source Forestation Activities in the catchment areas of our production bases since 1999. At the same time, our breweries have managed to reduce water consumption rates by nearly 50% (compared to 1990 levels). Also, in Australia, we have been reducing water consumption by a remarkably high rate.
Furthermore, as a measure to deal with water resources in agricultural production areas, we launched an initiative in Sri Lanka in 2018 with the aim of protecting water sources on tea farms in five locations. We have also been running an education program to teach the approximately 15,000 residents living in the vicinity of these water sources about the importance of water and why we need to protect them.
On the other hand, Australia faced serious water shortages in various parts of the country in 2018 and 2019. In Japan, the country’s logistics networks were significantly affected by the torrential rains in western Japan in 2018. Also in Sri Lanka, which is a production region for tea leaves, record rainfall in 2017 caused landslides and massive flooding in urban areas, killing a number of people. Some tea farms from which we procure tea leaves also suffered serious damage. Natural disasters such as drought and heavy rain, which are considered to be caused by climate change, are becoming more common all over the country.
Given these circumstances, we have determined that, in order to further increase resilience, we must work on our initiatives in a strategic manner by also incorporating more concrete initiatives, such as our measures to reduce the impact of natural disasters on the logistics networks and our efforts to conserve water resources inraw material production regions, in our vision. These efforts are reflected in our goals of “Bring water, used as a raw material, to a sustainable state” and “Solve problems with water in a way that suits the characteristics of basin regions where our business bases are located” under the Environmental Vision 2050.
In the Kirin Group Long-Term Environmental Vision announced in 2013, we stated, “We keep the CO2 emissions of the value chain within the Earth’s natural CO2 absorption ability in cooperation with all the people associated with our value chain,” and set our KPI to reduce the GHG emissions from the entire value chain by half from the 1990 level by 2050. In the CSV Commitment, the Kirin Group set reduction targets (GHG emission reduction of 30% compared to 2015 levels for combined Scope 1 and Scope 2 emissions and the same 30% reduction for Scope 3 emissions by 2030) that were the first targets by a Japanese food producer to be approved by the Science Based Targets initiative (SBTi), and our operating companies have been steadily reducing GHG emissions to achieve the targets.
Scenario analyses in 2018 and 2019 have revealed that climate change has a significant impact on biological and water resources and a negative financial impact on the Kirin Group. As global warming progresses it will be difficult to restore temperatures and the impact will continue. It is necessary not only to reduce the financial impact through “adaptation” measures for biological and water resources, but also to actively contribute to “mitigation.” On the other hand, findings from the scenario analysis in 2020 have indicated that we can anticipate future cost reductions by investing in renewable energy and expansion of businesses related to health foods that can help to prevent infectious diseases and heat stroke caused by climate change.
Based on the above, we have concluded that in order to contribute to mitigating global warming, it is necessary to set even more stringent targets and implement measures to reduce GHG emissions, and that we need to lead a decarbonized society in order to expand the potential of business opportunities in response to climate change and to ensure the trust of society and customers in the Kirin Group.
These initiatives are reflected in our goals of “Realize Net-Zero GHG in the entire value chain” and “Take the lead in building a decarbonized society” in the Environmental Vision 2050.
Trends in greenhouse gas emissions from entire value chain*
Trends against medium-term greenhouse gas emissions reduction targets
- We calculated in the same range as the approved target to the Science Based Targets initiative(SBTi).
In the scenario analysis conducted last year, we confirmed that our goals, targets, and directions for initiatives set under the conventional Long-Term Environmental Vision are effective and have a certain level of resilience. However, the circumstances surrounding the environment, such as climate change and the issue of ocean plastics, have changed significantly since the time we established the Long-Term Environmental Vision and the areas in which we must exercise corporate responsibility have also expanded significantly. The results of the scenario analysis also show that issues faced by society and businesses are interrelated in a complex manner, and that it is necessary to aim for the sustainability of both society and businesses by transcending the simple dichotomy between the environment and economy.
Against this backdrop, in 2020 we formulated the Environmental Vision 2050 in a way that considerably stretches our targets from our previous long-term strategy. We believe that our efforts to realize our Environmental Vision 2050 will enable us to minimize the risks and financial impacts identified in the scenario analysis, enhance resilience by having a positive impact on society and businesses, and develop our businesses in a sustainable manner. Specific performance indicators will be set in the CSV Commitment going forward.