For Kagome, which uses nature's bounty in its products, conservation of the natural environment is essential to the continuity of its business. We recognize that response to climate change is a particularly high priority issue. We conduct climate change scenario analysis and based on the results, we are actively working on response to climate change and conservation of water and biodiversity as priority issues.
Response to the New Framework for Climate Related Disclosures (TCFD)
The final report of the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the G20 Financial Stability Board, entitled "Recommendations of the Task Force on Climate-related Financial Disclosures" was released in June 2017. Following these recommendations, Kagome conducted climate change scenario analysis in 2019 to shed light on the risks and opportunities faced our business operations. Since 2020, we have begun reviewing our indicators and targets.
Information Disclosures Following the Four Thematic Areas of the TCFD Recommendations
|Governance||The Kagome Group recognizes that an interruption in the procurement of raw ingredients is the greatest risk facing its business operations. Climate change has caused unseasonable weather patterns, including massive typhoons and strong wind and rain, which have resulted in extensive damages in areas where raw ingredients are grown. To avoid this risk, Kagome has taken the lead in implementing the Paris Agreement. In April 2018, Kagome's Board of Directors approved medium- to long-term targets for CO2 reduction to ensure the company actively works to lower emissions of greenhouse gases.
Kagome's President & Representative Director is responsible for all of the company's environmental activities, including climate change response, under Kagome's ISO 14001 environmental management system. The President evaluates the effectiveness of the environmental management system through biannual management reviews, following the company's environmental policy, and maintains responsibility and authority to order improvements. The Three-year Environmental Management Plan launched in FY2019 undergoes issue setting, monitoring, revisions and additions as part of the management review.
|Strategy||The emergence of climate change represents a major risk for Kagome as a company that processes and sells agricultural produce. At the same time, however, it can also be an opportunity for harnessing our long-standing technologies. Short-term and medium-term risks include the growing intensity of extreme weather, such as strong wind and rain, along with water shortages, which have already emerged. Long-term risks include rising carbon prices, changing consumer behaviors, and declining biodiversity. In response to these risks, Kagome will use its long-standing breed development technologies to develop and market vegetable breads that can adapt to climate change. We will also globally roll out its tomato cultivation system that uses only small amounts of water. Such responses represent an opportunity for Kagome.
*See "Overview of Scenario Analysis Based on the TCFD Recommendations" below.
Climate change has had a direct and serious impact on our business strategy and financial standing. Previously, this included reduced revenue from production of tomatoes in Australia due to heavy rainfall and the destruction of tomato farms in Japan due to major typhoons.
The foregoing risks and opportunities related to climate change represent the risks and opportunities of Kagome's business operations. As such, response measures have been included in our business plan.
|Risk Management||Kagome established the Joint Risk Management Meeting as a body for supervising the company's risk management activities. The Joint Risk Management Meeting is chaired by the President & Representative Director and comprises members from the Management Meeting. It helps to speed up the decision-making process in terms of our risk response policy and response to material risk issues. This meeting body determines priority ranking of responses based on a holistic review of the extent of impacts on management.
Identified risks and opportunities in our businesses are incorporated into the Three-year Environmental Management Plan after grasping issues, stakeholder requests and expectations, and the results of environmental impact assessments on our businesses. These issues are then addressed on a company-wide basis.
|Indicators and Targets||Kagome has established medium- to long-term targets for reducing CO2 emissions in order to mitigate climate change.
■Scope 1 and 2 (compared to 2016)
Reduce CO2 emissions by at least 20% by 2030 and by at least 50% by 2050
Since most of our CO2 emissions are Category 1, we will work to understand the CO2 emissions reduction plans of principal suppliers by 2021 and work toward reducing emissions together beginning in 2022. Furthermore, to speed up initiatives to prevent global warming, we are reviewing our targets to ensure they are in line with SBT initiative certification standards.
In order to achieve our medium- to long-term targets, we are working on energy conservation measures with a long-term perspective covering all domestic plants, farms and overseas plants (review of production methods, upgrading to high efficiency equipment, etc.), and a CO2 reduction plan based on the use of renewable energy (solar, biomass, and renewable energy certificates, etc.).
Overview of Scenario Analysis Based on the TCFD Recommendations
Kagome conducted climate change scenario analysis in 2019 following the TFCD recommendations. The scenario assumed the worldwide temperature will increase by 2 degrees Celsius and 4 degrees Celsius centered on the procurement and production areas, which are where Kagome is expected to be most impacted by climate change. Based on this, Kagome identified risks and opportunities as well as examined countermeasures. As a result, in the 2-degree scenario, Kagome's business was greatly impacted by soaring costs for raw ingredients along with containers and packaging caused by the introduction of carbon taxes. In the 4-degree scenario, Kagome's business was impacted substantially by soaring water prices and the growing intensity of extreme weather including strong wind and rain. Going forward, we plan to expand the scope to analyze the situation by considering the impacts on products caused by changes in consumer behavior due to climate change.
Kagome Group's Risks and Business Impacts
|Risk items||Business impacts|
|Rising carbon taxes||Expenditures||Rising costs due to broad impacts on raw ingredients, containers, and packaging caused by the introduction of carbon taxes||Large|
|Stronger policies by each country on reduction of CO2 emissions||Expenditure
|Need to upgrade to higher efficiency manufacturing equipment because of tighter energy conservation policies||Medium|
|Reputation||Changing consumer behaviors||Revenue||Expanding purchasing behavior considering environmental impacts due to climate change||Large|
|Reputational changes among investors||Capital||Poorer reputation among investors and difficulty in capital procurement in case countermeasures against climate change are insufficient||Small|
|Physical risk||Chronic||Average temperature increase||Expenditure
|Degrading quality of crops and declining yield||Large|
|Changing rainfall and weather patterns||Expenditure
|Soaring raw ingredients prices caused by the negative impacts on crop production areas due to increased rainfall or drought||Large|
|Declining biodiversity||Expenditures||Difficulty pollinating crops due to fewer insects resulting in raw ingredients that cannot be procured||Large|
|Reduced production volume from the occurrence of pests||Expenditure
|Declining crop yield and quality due to the proliferation of pests resulting in unstable procurement||Medium|
|Declining productivity of farmers||Expenditure
|Declining labor productivity of farmers due to rising temperatures resulting in higher procurement costs||Small|
|Acute||Declining production yield caused by water stress||Expenditure
|Difficulty procuring water due to water shortages causing higher prices||Large|
|Growing intensity of extreme weather||Expenditure
|Frequent occurrence of extreme weather including strong wind and rain causing damage to a number of production areas||Large|
Kagome Group's Risk Countermeasures and Opportunities
|Risk items||Risk response measures||Opportunities|
|Rising carbon prices||●Achieve 50% reduction target of CO2 emissions by 2050 through the Kagome Group's energy conservation, energy creation, and energy purchasing
●Reduce CO2 through collaboration with suppliers
●Formulate and implement measures to pass on cost to product prices
●Hiking of Kagome's CO2 reduction target (50% cut → net zero)
|Changing consumer behaviors||●Understand consumer purchasing behavior and undertake accurate marketing activities
●Actively develop environmentally friendly products and certified products
|●Develop and sell products based on needs during extreme weather|
|Rising average temperature||●Address climate change with smart agriculture using data, etc.||●Roll out sales globally of vegetable varieties that can withstand climate change|
|Changing rainfall and weather patterns||●Acquire vegetable varieties that can withstand climate change (high temperature resistance and pest resistance)|
|Declining biodiversity||●Propose and promote agriculture in symbiosis with living organisms||●Promote cultivation of tomatoes that do not require bee pollination on the farm|
|Declining production yield caused by water stress||●Promote initiatives at plants to recycle and conserve water (membrane filtration, etc.)
●Develop and use tomato cultivation system that can produce tomatoes with the fewest amount of water
●Promote resource-recycling agriculture (use of plant effluent and rainwater for agriculture)
|●Globally expand tomato cultivation system that can produce tomatoes with the fewest amount of water|
|Growing intensity of extreme weather||●Upgrade procurement strategy (review production areas and diversify)
●Develop systems that enable cultivation even in strong wind and rain
●Upgrade BCP measures (using climate change as scenario)
|●Transition to service business (toward a service business unaffected by changes in costs of goods)|