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  4. Information Disclosure based on the TCFD Framework

Management Strategy and Sustainability

Information Disclosure based on the TCFD Framework

For Daikin, climate change represents one important issue affecting its business continuity. In May 2019, we endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD),* which aims to mitigate the risk of instability in financial markets caused by climate change. We reflect the risks and opportunities posed by climate change in management strategy and risk management. At the same time, we will disclose progress appropriately and aim for further growth while contributing to a carbon-free society.

*
TCFD was established in 2015 by the Financial Stability Board. It recommends that companies disclose information about the financial impacts of climate change after evaluating related business risks and opportunities.

Governance

The organization's governance around climate-related risks and opportunities

The Daikin Group's mainstay product of air conditioners is characterized by the large amount of CO2 emissions caused by energy consumption during use. In addition, fluorocarbons used as refrigerants for air conditioners have an effect on climate change. Recognizing the major impact on climate change attributed to our business activities, we believe climate change is an issue that largely affects our medium- to long-term business risks and opportunities.

Based on this, climate change issues are considered an important task to address in order for Daikin to develop sustainably and fulfill its social responsibilities; thus, they are managed by the CSR Committee. The CSR Committee was established by the Board of Directors to spearhead the company's corporate governance. The executive officer in charge of CSR serves as the chairman of the committee, which deliberates on risks and opportunities, policy on initiatives, and targets related to climate change, as well as monitors results and progress of initiatives, in addition to making proposals to the President and CEO, followed by reporting to the Board of Directors.

Strategy

The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy and financial planning

We have formulated strategies based on analysis of climate-related scenarios in The Future of Cooling published by the International Energy Agency in 2018, etc.

Demand for air conditioning is expected to triple from current levels by 2050. As demand increases, there is a possibility that each country will tighten their energy regulations on air conditioners and regulations to address refrigerants with a high global warming potential. Excessively strict regulations could pose a risk for Daikin. On the other hand, appropriate regulations can serve as an opportunity to expand our business as they push for the spread of products and services with greater environmental performance, which are our strength.
The popularization of our products and services in emerging countries with particular growth in demand for air conditioning is considered an effective measure to reduce greenhouse gas emissions resulting from air conditioners and contribute to our business growth. For this reason, we have reflected this in business strategies.

We established Environmental Vision 2050 for the final three-year plan of Fusion 20 Strategic Management Plan. Specifically, by expanding environmentally conscious products and services, we aim to achieve net zero greenhouse gas emissions throughout the entire lifecycle from our own business operations by 2050. The targets and measures for 2030 aimed at realizing this goal have been laid out in Fusion 25 Strategic Management Plan.

Details of scenario analysis

Scenarios referenced

  • IEA Sustainable Development Scenario
  • IEA Base line Scenario, Current Policies Scenario
  • IEA The Future of Cooling
  • IEEJ Reference Scenario

4-degree scenario with current policies unchanged

  • The number of regions requiring air conditioning for day-to-day living will increase due to higher summer temperatures. In addition, as winter temperatures rise, the number of areas suitable for heat pump heating with an outside temperature of about -20 degrees or higher will increase.
  • Demand for air conditioners will approximately double by 2030 and roughly triple by 2050.
  • Demand for air conditioners in non-OECD countries will increase five-fold from 2016 to 2030, but power generation will only increase by 2.4-fold. (Worldwide power generation will increase 1.4-fold compared the 1.9-fold increase in air conditioner demand.)

2-degree scenario with stricter regulations in each country from decarbonization policy

  • The progress of reducing use of refrigerants under the Montreal Protocol will be strictly managed and regulations could be tightened if the effectiveness is deemed insufficient.
  • In addition, countries that today do not have strong regulations will adopt strict energy conservation policies

2-degree and 4-degree scenario

As temperatures rise, the intensity and frequency of extreme weather will increase, which could increase instances of production shutdowns or postponements due to damages to our own plants or those of suppliers.

Risk Management

Process for identifying, assessing and managing climate-related risks

Risks and opportunities related to climate change can originate from the transition toward a decarbonized society, including stricter regulations, technology advancement, and market shift, as well as from physical influences, such as acute abnormal weather and chronic temperature increases. We have categorized the various external environmental changes accompanying climate change as "transition risks" and "physical risks," assessed their financial impacts as large, medium, and small, and identified important risks and opportunities.
Moreover, climate-related risks are integrated into the company-wide management process as they are considered to exert large influence on our business strategies. The management status of company-wide risks is monitored by the Internal Control Committee chaired by the President and CEO and reported to the Board of Directors.

Climate Related Risks and Opportunities and Potential Impacts

Category Impact on Daikin's business Probability ofoccurrence Potential financial impacts
Risks Transition Stricter regulations on refrigerants
If regulations on refrigerants become too strict, there is a possibility that existing air conditioners no longer compliant with these regulations will become obsolete.
High Large
Tight supply and demand for electricity
There is a possibility that the spread of air conditioners in emerging countries will increase electricity usage and make it difficult to increase sales of air conditioners due to electricity shortages.
High Large
Physical Damage to production bases
There is a possibility that flooding caused by typhoons could cause our plants to shut down or stop the supply of parts due to the shutdown of suppliers.
Medium Medium
Opportunities Transition Stricter regulations on refrigerants
Companies without technologies compliant with regulations on refrigerants will be weeded out, resulting in increased sales of air conditioners using refrigerants with lower global warming potential, which is our strength
High Large
Stricter regulations on energy efficiency
Companies without technologies compliant with stricter regulations on energy efficiency will be weeded out, resulting in increased sales of air conditioners with high energy efficiency, which is our strength
High Large
Stricter regulations on the use of fossil fuels
Regulations on the use of fossil fuels continue to become stricter, and since gas-combustion heaters will be subject to them, there will be an increase in sales on growing demand for heat-pump heaters, which is our strength
High Large

Identification, evaluation and management process of climate-related risks and opportunities

Identification, evaluation and management process of climate-related risks and opportunities

Metrics and Targets

The metrics and targets used to assess and manage relevant climate-related risks and opportunities

We manage the progress of our environmental activities including actions related to climate change by including the GHG reduction target following Environmental Vision 2050 in Fusion 25 Strategic Management Plan and formulating an environmental action plan in conjunction with Fusion Strategic Management Plan.

  • Scope 3: With the base year set at 2019, we plan to reduce net GHG emissions from our own business operations by 30% in 2025, 50% in 2030 and achieve net zero emissions in 2050, compared to a BAU scenario.
  • Scope 1 and 2: Reduce GHG emissions resulting from manufacturing activities of the entire Group by 38% in 2030 compared to 2015.
Sustainability

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