Increased occurrence of abnormal weather conditions and natural disasters due to global warming will have various effects on the ITO EN Group's business activities, including poor crop growth, disruptions to procurement, and suspension of operations due to weather-related disasters. In April 2022, the Group declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and is working to strengthen initiatives, with addressing climate change positioned as one of the key issues in its management strategy.
In FY2020, we began analyzing the impact of climate change on green tea, our main raw ingredient, and in FY2021, the scope of these scenario-based analyses was expanded to include the entire ITO EN value chain.
Response to the TCFD Recommendations (Summary)
Theme
Summary
Governance
The Sustainability Promotion Committee, which is chaired by the President, discusses policies, strategies, and measures to address climate change issues.
Key matters are reported and deliberated on by the Executive Board and Board of Directors.
ITO EN has appointed an officer in charge of sustainability to strengthen the promotion system for environmental issues, primarily climate change.
The results of ESG ratings by external rating agencies, which cover climate change, are reflected in assessments of directors' compensation.
Strategy
In FY2020, we conducted scenario analysis for green tea.
In FY2021, the scope of scenario analysis was expanded to include the entire value chain, and we extracted climate risks and opportunities for each scenario, analyzed the medium- to long-term impact on our business, and considered countermeasures.
Overview and results of scenario analysis
With reference to the scenarios of the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA), we established two scenarios—the 1.5/2°C and 4°C scenarios—and analyzed the medium- to long-term impact on our business in the target years 2030 and 2050.
Under the 1.5/2°C scenario, increased costs due to the introduction of carbon tax were recognized as a transition risk (risk from shifting toward decarbonization) likely to have a major impact on business operations. Under the 4°C scenario, crop procurement risks due to rising temperatures and water risks such suspension of operations due to drought and flood damage were recognized as physical risks from climate change likely to have a major impact.
We are decarbonizing the entire value chain and strengthening BCP as countermeasures to prevent and mitigate risks and gain opportunities.
Risk management
The Risk Management Committee (chaired by the President), an advisory body to the Board of Directors, manages climate risks, which are recognized as one of the Group's material risks, by integrating them into the company-wide risk management system.
Metrics and targets
CO2 emissions reduction targets
FY2030 Scopes 1 & 2: 50% reduction in total*, Scope 3: 20% reduction in total**(Compared with FY2018)
FY2050 Carbon neutral
KPIs
FY2030 Ratio of power derived from renewable energy 100%
FY2030 Ratio of electric vehicles* used by the company 50%
*"Electric vehicles" refers to four vehicle types: hybrid, plug-in hybrid, electric vehicle, and fuel cell vehicle.
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Governance
The ITO EN Group positions action on climate change as a key issue in its management strategy and the Sustainability Promotion Committee, an advisory body to the Executive Board which convenes four times a year, discusses policies, strategies, and measures to address climate change issues as its key themes.
Membership of the committee, which is chaired by the President, consists of the director in charge of sustainability, who is also responsible for measures to address environmental issues (primarily climate change), the director in charge of production, logistics, marketing, sales, international business, administration, etc., and the heads of major divisions. Key matters considered by the Sustainability Promotion Committee are reported and deliberated on by the Executive Board and Board of Directors, and reflected in subsequent management strategies.
In FY2021, against the backdrop of growing awareness of environmental issues such as global warming, the Board of Directors resolved to revise targets for reducing CO2 emissions upward to 50% overall reduction in total emissions for Scope 1 and 2 and 20% reduction in total emissions for Scope 3 with respect to CO2 emissions in FY2018 by FY2030, and to achieve carbon neutrality throughout the value chain by FY2050.
In FY2021, the ITO EN Group set two scenarios—the 1.5/2°C and 4°C scenarios—based on the scenarios created by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA), extended the scope of its analysis to include the entire ITO EN value chain and analyzed the impact of medium- to long-term climate change on our business in the target years 2030 and 2050.
In implementing these scenario analyses, subcommittees linked to the Sustainability Promotion Committee and other related departments within the company also participated in considering the impacts, and the analysis results were reported to and discussed by the Sustainability Promotion Committee, Executive Board and Board of Directors, and reflected in the Group's medium- to long-term management plan and business plans.
1. Identification of key risks and opportunities
Based on the categories for risks and opportunities identified in the TCFD recommendations, we broadly listed risks and opportunities associated with climate change for the entire value chain, based on various assumptions regarding the society surrounding our business environment in 2030 and 2050.
We also conducted an assessment of the importance of risks and opportunities with consideration for the probability of occurrence, the degree of impact, and the structure of our business.
2. Scenario definitions
To prepare for a wide range of climate change scenarios, we established two scenarios: the 1.5/2°C scenario in which society as a whole transforms, shifting toward decarbonization, and succeeds in curbing the rise in temperature and the 4°C scenario in which society prioritizes economic growth, temperatures continue to rise and impacts continue to worsen. We referred to IPCC RCP2.6* and IEA NZE/SDS for the 1.5/2°C scenario and IPCC RCP8.5 and IEA STEPS for the 4°C scenario.
We referred to IPCC RCP4.5 for some parts of the analysis.
3. Evaluation of business impact
We evaluated risks and opportunities extracted across the entire value chain based on the evaluation criteria(*) "occurrence period" i.e. when the risk or opportunity is likely to materialize and "level of impact" i.e. impact on our business, assuming the 1.5/2°C scenario and the 4°CC scenario respectively.
Evaluation criteria
Occurrence period (when the risk or opportunity is likely to materialize)
Short term: 2022–2024
Medium term: 2025–2030
Long term: 2031–2050
Level of impact (degree of impact on our business in the event of materialization of the risk or opportunity)
Major: Has a significant impact on business operations and requires a response to issues that are already apparent, or in readiness for issues that may become apparent in the future.
Medium: Does not have a significant impact on business operations, but requires a response to issues that are already apparent, or in readiness for issues that may become apparent in the future.
Minor: Has no impact or a limited impact on business operations and a response to issues that are already apparent or in readiness for issues that may become apparent in the future is not required ro-> or low priority.
4. Consideration of response measures
After evaluating the "occurrence period" and "level of impact" of the identified risks and opportunities, we then considered the response measures required to mitigate or prevent risks and gain opportunities. When implementing response measures, we will make a robust response, implementing measures quickly, starting with high priorities based on our evaluation of the business impact.
Transition risk (Cost impact of introduction of carbon tax)
We calculated the impact based on the assumption of the introduction of carbon tax and the incurrence of costs due to taxes paid according to CO2 emissions.
To address this issue, we are introducing energy-saving and renewable-energy equipment with the aims of reducing Scope 1 and 2 CO2 emissions by 50% by FY2030 (in comparison with FY2018), and achieving carbon neutrality by FY2050. If these measures achieve their targets, we expect to see tax savings of approximately 330 million yen in FY2030 and approximately 1,290 million yen in FY2050.
Carbon tax price (price per t-CO2): independently estimated and set from the unit price forecast of developed countries in the IEA World Energy Outlook 2021 NZE scenario.
Scope 1&2
FY2030
FY2050
CO2 emissions
Carbon tax
Impact
CO2 emissions
Carbon tax
Impact
Thousand t-CO2
Thousand yen/tCO2
Million yen
Thousand t-CO2
Thousand yen/tCO2
Million yen
When no measures are taken to reduce CO2 (FY2018 emissions)
39
17
660
39
33
1,290
When CO2 reduction targets are achieved
19
17
330
-
33
-
Reduction
-
-
330
-
-
1,290
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Financial impact of carbon tax
Physical risk (impact on crops)
We analyzed procurement risk for green tea, which is our main raw material, and also for coffee beans and barley, which are some of our other main raw ingredient crops.
Procurement risk for green tea
Analysis prior to FY2021
ITO EN procures around one quarter of the total volume of crude tea produced in Japan as raw materials for its mainstay products. Recognizing, therefore, that the effects of climate change on tea leaves and harvest volumes could have a major impact on our business operations, we conducted climate change scenario analyses using the Aqua Crop model*1 in FY2020.
We selected RCP scenarios*2 from the IPCC’s Fifth Assessment Report (RCP2.6, RCP4.5, RCP6.0 and RCP8.5), and conducted both quantitative and qualitative analyses of the impact of climate change on tea leaf harvest volume and quality by tea tree variety and picking season under the conditions of each scenario in major tea producing regions in Japan (the Kyushu region and Shizuoka Prefecture).
Results
Although there were variations by production region, it was found that tea leaf harvest volumes would increase by around 4–7% for RCP2.6, around 14–23% for RCP4.5, around 29–36% for RCP6.0, and around 41–54% for RCP8.5.
In our qualitative analysis—based on various research theses and other literature—it was found that there was a risk that various exotic pests and disease-inducing bacteria would move northward causing a negative impact on the growth and quality of tea trees.
Simulations were conducted using the IPCC Representative Concentration Pathways (RCP) scenarios
RCP scenario
[RCP 2.6] Low-level stabilization scenario
[RCP 4.5] Intermediate stabilization scenario
[RCP 6.0] High-level stabilization scenario
[RCP 8.5] High-level reference scenario
Maximum temperature increase value *3 (end of 21st century)
+1.7℃
+2.6℃
+3.1℃
+4.8℃
CO2 *4
422ppm（+13.79）
537ppm（+128.79）
663ppm（+254.79）
917ppm（+508.79）
Kagoshima Prefecture (annual average temperature 18.4°C)
20.1℃（+1.7℃）
21.0℃（+2.6℃）
21.5℃（+3.1℃）
23.2℃（+4.8℃）
Change in average yield
Soo district
+7.4%
+23.3%
+36.4%
+54.4%
Shizuoka (annual average temperature 14.8°C)
16.5℃（+1.7℃）
17.4℃（+2.6℃）
17.9℃（+3.1℃）
19.6℃（+4.8℃）
Change in average yield
Fukuroi district
+4.2%
+14.5%
+29.7%
+41.2%
Fuji district
+7.2%
+22.8%
+35.4%
+51.7%
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*1
A produce growth model developed by the Food and Agriculture Organization of the United Nations (FAO) to evaluate the impact of climate, soil and other environmental conditions and cultivation management conditions on productivity for agricultural produce.
*2
Representative Concentration Pathway scenarios from the Fifth Report (AR5) by the Intergovernmental Panel on Climate Change (IPCC). The scenarios predict climatic conditions and their impact at the end of the century based on greenhouse gas concentrations.
High-level reference scenario. Scenario in which greenhouse gas emissions are at their maximum level in 2100. (Temperature levels rise by a maximum of 4.8°C by 2100 with respect to average temperatures between 1986 and 2005.)
High-level stabilization scenario. Radiative forcing of 6.0W/m3 by the end of the century. (Temperature levels rise by a maximum of 3.1°C by 2100.)
Intermediate stabilization scenario. Radiative forcing of 4.5W/m3 by the end of the century. (Temperature levels rise by a maximum of 2.6°C by 2100.)
Low-level stabilization scenario. Scenario in which greenhouse gas emissions are at their minimum level in the future. (Temperature levels rise by a maximum of 1.7°C by 2100.)
*3
Reference period: 1986–2005
*4
Reference value: 408.21ppm
Analysis in FY2021
We further deepened the level of our qualitative analysis of the impact of climate change on tea growth based on research papers and other literature(*).
Reference literature
Project 'Technology development for circulatory food production systems responsive to climate change' published by Agriculture, Forestry and Fisheries Research Council Secretariat of the Ministry of Agriculture, Forestry and Fisheries, Japan (2016)
FY2019 Regional Adaptation Consortium Kanto Regional Project Commissioned Business Report published by Pacific Consultants Co., Ltd. (2020)
Results
With regard to the impact on yield and quality of tea due to climate change, due to the nature of tea (warm climate is preferential to growth), no significant decrease in yield or impact on quality is expected.
However, it has been pointed out that there is a possibility that a shortage of the number of cold days required for breaking dormancy may occur in the Kyushu and Okinawa regions, and that the yield of the first flush tea may decrease in those areas.
In the Shizuoka and Kanto regions, the first tea picking season is predicted to begin earlier, and if this change is not handled appropriately it may lead to a decrease in yield.
Although the impact of high temperature and little rain in summer on tea trees is not known in quantitative terms, there have been cases in the past where defoliation and leaf blight caused by drought has led to a poor harvest of the first flush tea the following year and future climate change may have a similar impact.
Under the 4°C scenario, the northern limit of suitable areas for tea cultivation may rise to some parts of the Tohoku region by around 2050.
Rise in the northern limit of areas suitable for tea cultivation
Reference : Created by ITO EN based on information from the Climate Change Adaptation Information Platform (A-PLAT)
Future action
The Tea-Producing Region Development Project—a sustainable agriculture model that we implement in collaboration with tea farmers—is characterized by contract farming as well as the conversion of dilapidated farmland into new tea farms, leading to the stable procurement of high-quality raw tea leaves. We are also working to develop technologies to reduce the use of agrochemicals and promote organic farming, such as the practical application of steam pest control machines that can control pests and eliminate weeds using steam, without the use of pesticides.
In the future, we will work to develop new production regions and establish new cultivation management methods to counter the effects of climate change.
Procurement risk for other raw materials
We conducted a risk analysis of the yield forecast, impact amount, and impact on quality of coffee beans and barley, which are some of our other main raw ingredient crops. Going forward, we will continue to analyze procurement risk and disclosure information as appropriate.
Forecast of changes in yield
Forecast decrease in production of coffee beans and barley (Units : %)
2030
2050
1.5/2℃
4℃
1.5/2℃
4℃
Coffee beans
(0.4%)
(5%)
(4.7%)
(9.5%)
Barley
-
-
(2.6%)
(13.5%)
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Analysis results and future action
Coffee beans
As a result of analyzing literature focusing on the main coffee bean production areas in Brazil for the RCP4.5 and RCP8.5 scenarios in order to forecast yields in 2030 and 2050, we found that there is a possibility of a significant decrease in yield, especially under the 4°C scenario.
We will seek to distribute risks by diversifying the production areas of our suppliers, share risks with suppliers, and work together to consider and implement appropriate countermeasures.
Barley
As a result of analyzing literature and surveys including data such as average yields by country over the past 15 years and forecast yields by country and region under the RCP2.6 and RCP8.5 scenarios in order to forecast yields in 2050, we found that there is a possibility of a significant decrease in yield, especially under the 4°Cscenario.
We will seek to distribute risks by diversifying the production areas of our suppliers, share risks with suppliers, and work together to consider and implement appropriate countermeasures.
Representative Concentration Pathway scenarios from the Sixth Report (AR6) by the Intergovernmental Panel on Climate Change (IPCC). Predicted global temperature change is +1.6°C (0.9–2.4°C) under RCP2.6, +2.5°C (1.7–3.3°C) under RCP4.5, and +4.3°C (3.2–5.4°C) under RCP8.5.
Reference literature for coffee beans
Tavares, P.d.S., Giarolla, A., Chou, S.C. et al. Climate change impact on the potential yield of Arabica coffee in southeast Brazil. Reg Environ Change 18, 873-883 (2018): Rate of decrease in yield
Reference literature for barley
FAO STAT (database of the Food and Agriculture Organization of the United Nations): Average yield by country over the past 15 years
Xie, W., Cui, Q., Ali, T. The Economic Impacts of Climate Change on Grain Production and Policy Implications: A CGE Model Analysis. In: Okuyama, Y., Rose, A. (eds) Advances in Spatial and Economic Modeling of Disaster Impacts. Advances in Spatial Science. Springer, Cham., 359-373 (2019): Reference literature for barley
Physical risk (changes in precipitation and weather patterns)
Risks related to drought, storm and flood damage
Focusing on drought and flood risks, we used the World Resources Institute's Aqueduct* tool to conduct analyses and assess the impact of shutdowns / suspension of operations at our own plants and outsourced plants due to the decrease in precipitation and damage caused by storm and flood damage, and the impact of product loss and recovery due to the intensification and frequency of storm and flood damage.
* World Resources Institute Aqueduct：
A world map and information on water risks provided by the World Resources Institute (WRI). Water risk indicators include physical water stress, water quality, legal and regulatory risks relating to water resources, and reputation risks. The map can be accessed and used by anyone via the website. Information can be viewed by specifying the country, region, or field of business locations and suppliers.
Risk of shutdowns / suspension of operations at ITO EN's own plants and outsourced plants due to drought caused by reduced precipitation
Upon analyzing drought risks at our own plants and outsourced plants, we found that some plants are expected to incur drought risks, mainly at our own plants. We recognize that we need to take measures for these plants.
Analysis of water stress
Aqueduct Water Risk Atlas was used to analyze drought risks by selecting the target time periods (2030 / 2040) and scenarios (RCP4.5 / RCP8.5). We identified which of our bases and plants and which of our outsourced plants fall under high drought risk.
Number of plants expected to incur drought risks
2030
2050
1.5/2°C
4°C
1.5/2°C
4°C
3 plants
4 plants
3 plants
3 plants
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Risk of shutdowns / suspension of operations, product loss, and recovery costs due to intensification of storm and flood damage
Upon analyzing flood risks at our own / outsourced plants and our business sites, we found that some plants and business sites are expected to incur flood risks, mainly due to river flooding. We recognize that we need to review our BCP and also review BCPs in collaboration with outsourced plants.
Flood risk analysis
Aqueduct Floods was used to analyze flood risks by selecting the target time periods (2030 / 2050), scenarios (RCP4.5 / RCP8.5) and factors (river flooding / coastal storm surge). We identified which of our bases and plants and which of our outsourced plants fall under high flood risk.
Number of plants expected to incur drought risks
2030
2050
River
Coastal
River
Coastal
1.5/2°C
4°C
1.5/2°C
4°C
1.5/2°C
4°C
1.5/2°C
4°C
24 sites 7 plants
25 sites 7 plants
1 sites
1 sites
24 sites 7 plants
25 sites 7 plants
2 sites
2 sites
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Future action
We will promote stronger BCP measures, focusing on bases likely to face drought or flood risks, and we will also regularly assess risks for our own plants and outsourced plants and our business sites and devise countermeasures.
Risk management
Based on the ITO EN Group Risk Management Policy, the Group has established a Risk Management Committee chaired by the President, and has established a company-wide risk management system to recognize and evaluate risks and take appropriate measures to address them, in cooperation with the main departments and committees in charge of risks. In particular, we recognize climate change risk as one of the key risks.
Risks in climate change scenario analyses are reviewed by the Sustainability Promotion Committee and reported to the Executive Board and Board of Directors. Risks that are most important in terms of impact and probability of occurrence are also reported to the Risk Management Committee, which is an advisory body to the Board of Directors. The Risk Management Committee confirms the progress and effectiveness of measures to address key risks, and works to enhance company-wide risk management by continual verification and improvement every fiscal year.
The ITO EN Group has set Medium-to Long-term Environmental Goals and is now aiming to achieve carbon neutrality throughout the value chain by FY2050. Our medium-term targets for FY2030 are as follows.
We have set KPIs as climate-related performance indicators and a roadmap and are implementing initiatives to achieve the targets.
Climate-related KPIs
Indicators
FY2030 targets
CO2 emissions: Scope 1 & 2 (Direct emissions from the use of fuels within the company, and indirect emissions associated with the use of electricity purchased by the company)
-50%
CO2 emissions: Scope 3 (Other emissions relating to business activities, aside from those covered by Scope 1 and 2)
-20%
Ratio of power derived from renewable energy
100%
Ratio of electric vehicles* used by the company
*"Electric vehicles" refers to four vehicle types: hybrid, plug-in hybrid, electric vehicle, and fuel cell vehicle.
50%
Reduction in water usage intensity (water usage per 1 kl of product produced)
-16%
Ratio of recycled materials (including bio-derived materials) used for PET bottles
