Climate Change Initiatives and Response to the TCFD Recommendations

Climate Change Initiatives and Response to the TCFD Recommendations

Endorsement of the Recommendations of the Task Force on Climate-Related Financial Disclosures

On May 20, 2022, we announced our endorsement of the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Governance

The Group regards responding to climate change and realization of a sustainable society as important management issues. The Sustainability Promotion Council was established to discuss medium- and long-term initiatives and orientation related to materiality, as well as to promote specific measures across the Company to address ESG issues, promote CSR, achieve carbon neutrality, etc. The Sustainability Promotion Council meets quarterly.

The Sustainability Promotion Council is chaired by the President and its membership comprises executive officers. It reports to the Board of Directors for direction and supervision.

Governance
Governance

Risks and Opportunities

We examined “climate-related transition and physical risks” and “climate-related opportunities through climate change mitigation and adaptation solutions” according to the TCFD classifications.

Scenario analysis was conducted for 1.5℃ and 4℃ scenarios, with reference to the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC). We have conducted a scenario analysis as shown on the following page, and the results confirmed that our strategy has resilience with regard to the response to each risk and opportunity.

Risk Analysis Procedure
Risk Analysis Procedure
Scenario analysis (GHG emissions are in CO2 equivalent)

Prerequisites: - We examined risks and opportunities expected in 2030.
       - Financial impacts of climate change have been estimated.

Category of Risks and Opportunities Overview of Risks and Opportunities 1.5℃ Scenario 4℃ Scenario PACIFIC METALS’s Response
Financial
Impact
Possibility Financial
Impact
Possibility
Risks Transition Policies and regulations Higher energy costs for business operations (manufacturing and transportation) due to introduction of carbon tax Large High Small High
  1. •Process electrification
  2. •Transition to renewable energy use
  1. •Installation of microwave equipment in the raw material drying and burning process to reduce coal and fossil fuels as heat sources
  2. •Phased transition to the use of purchased renewable energy
Higher risks and costs of procuring various raw materials due to higher fossil fuel prices caused by changes in the supply-demand balance resulting from climate change, unstable supply due to unseasonable weather and other factors, and a higher renewable energy levy Small Low Large Medium
Market and technology transition Greater customer demand for decarbonization. Lower product competitiveness (e.g., declining market share) if the Company’s response to decarbonization is insufficient Large Medium Medium Low
  1. •LCCO2 evaluation
  1. •Transition to decarbonized manufacturing, followed by LCCO2 evaluation to meet customer demand
Higher Ni prices due to higher demand reflecting shift to EVs, leading to replacement of raw materials for stainless steel by less expensive alternative metals Large Low Large Low
  1. •Creation of new businesses
  1. •Restructuring of business portfolio, with an eye to creating new businesses in the long term
Reputation in the market Preference for ESG-responsive suppliers in the supply chain, leading to damage to corporate value and additional ESG-related costs Large Medium Small Medium
  1. •Commitment to decarbonization
  2. •Commitment to initiatives
  1. •Commitment to sustainability issues and active disclosure of implementation status (TCFD disclosure, response to CDP, etc.)
Declining value in capital markets (e.g., share price declines) because of failure to respond to climate change information disclosure requirements Large Medium Small Low
Physical Acute Physical damage to production sites and the supply chain, causing suspension of operations and logistics, resulting in lost profits and additional costs. Small Low Small Medium
  1. •Diversification of risks by diversifying raw material suppliers
  1. •Procurement risk diversification by diversifying the suppliers of raw materials, including recycled resources
Chronic Additional production costs due to changes in properties, such as increased moisture content of raw materials, because of longer rainy seasons in the regions where resources are procured. Small Medium Small High
Opportunities Resource efficiency Expanded use of recycled metal resources (alternative to metal resources), which produce less GHG emissions and show higher manufacturing efficiency than natural resources Large Medium Large Medium
  1. •Establishment of a system for resource recycling
  1. •Establishment of a new system for resource recycling by collecting and accepting a larger amount of recycled resources
Energy source Innovation in the manufacturing process, which results in a substantial decrease in fossil fuel use and a reduction in energy costs and in turn reduces GHG emissions and improves the impact of carbon pricing Large Medium Medium Medium
  1. •Process electrification
  2. •Transition to renewable energy use
  1. •Installation of microwave equipment in the raw material drying and burning process to reduce coal and fossil fuels as heat sources
  2. •Phased transition to the use of purchased renewable power
Products and services Innovation in the manufacturing process, which contributes to GHG emission reductions in customers’ supply chains and increases product competitiveness Medium Medium Small Low
  1. •Strengthening of sales capabilities and expansion of new customers
  1. •Sale of low-carbonization products, leading to better relationships with customers
  2. •Cultivation of new business partners, such as overseas manufacturers
Resilience More flexible and speedy response due to the transition of active engagement in ESG issues to company-wide strengthening of governance, leading to support and cooperation from investors and other stakeholders, increased corporate value, strengthening of business foundation, and further business expansion Medium Medium Small Medium
  1. •Strengthening of governance
  1. •Planning, implementation, and management of response to ESG issues

• 1.5℃ Scenario: A scenario where continued efforts are made to limit the average temperature increase to 1.5℃
• 4℃ Scenario: A scenario where no measures are taken and the situation takes its natural course.

Risk Management

The Group has established the Risk Management Committee for company-wide risk management, including risks related to climate change. The Risk Management Committee is chaired by a director appointed by the President and its membership comprises executive officers and general managers. It meets quarterly to conduct routine risk management (risk identification, evaluation, monitoring, etc.). For risk countermeasures, we prioritize risks based on likelihood and impact, and we engage in risk mitigation activities for priority risks and manage progress.

The Risk Management Committee reviews “climate-related risks and opportunities” annually and the status of activities is reported to the Board of Directors at least once a year for direction and supervision. Matters affecting important sustainability issues are reported to the Sustainability Promotion Council.

Goals and Indicators

In “PAMCO-2024” announced in May 2022, the Group set the following goals.

Initiatives to Achieve the Goals

• Reduction of GHG emissions (from PAMCO-2024 priority measures)
To achieve carbon neutrality by FY2050, we will implement measures with clear targets, including use of carbon-free energy and introduction of new technologies.

Result of GHG emissions (CO2 equivalent)

• Scope 1 and 2 emissions (non-consolidated)

Goals and Indicators
Goals and Indicators

• Scope 3
The Company has calculated Scope 3 emissions based on the “Basic Guidelines on Accounting for Greenhouse Gas Emissions Throughout the Supply Chain (Ver. 2.5)” provided by the Ministry of Economy, Trade and Industry and the Ministry of the Environment. The total of Scope 3 emissions in FY2022 was 260 kt-CO2. The category specific breakdown was Category 1: Purchased goods and services (16%), Category 3:Fuel-and energy-related activities not included in scope 1 or scope 2 (34%), Category 4:Upstream transportation and distribution (45%), and Category 13: Downstream leased assets (4%) accounted for about 99% of the total.

Supply chain emissions [1,000 t-CO2/year] Emissions
ratio (% *2)
FY2022
C1 Purchased goods and services 41 16%
C3 Fuel-and energy-related activities not included in scope 1 or scope 2 89 34%
C4 Upstream transportation and distribution 116 45%
C13 Downstream leased assets 10 4%
Other than the above categories (the total of C2, C5-C9, C12) 4 1%
Scope 3 total (*3) 260 100%

(*2)Emissions ratios are rounded to the nearest whole number.
(*3)C10, C11, C14, and C15 are not applicable.

Reference for emissions intensities:
1. the database on emissions intensities for calculating organizational greenhouse gas emissions, etc. through a supply chain (Ver. 3.3);
2. IDEA v2 (for supply chain greenhouse gas emissions calculations)