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Climate Change Countermeasures / Task Force on Climate-related Financial Disclosures (TCFD)

Recognizing climate change measure as one of its highest priority management issues, Mitsui O.S.K. Lines, Ltd. (MOL) has agreed with the Task Force on Climate-related Financial Disclosures (TCFD)* recommendations and moved ahead with initiatives required by TCFD.

MOL has always studied the impact of risks/opportunities related to climate change on our businesses. In FY2022, we have focused on analyzing physical risks and significantly expanded our disclosure (Please refer to 2. Strategy > (4)Detailed analysis of physical risks).

* TCFD: The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) at the request of G20 and issued recommendations on voluntary climate-related financial disclosures in June 2017 for the purpose of understanding and disclosing the potential financial impacts of climate-related risks and opportunities.

0. Overview

  Outline of Initiatives New initiatives in 2022 – 2023
1. Governance
  • Establishment of the Environment and Sustainability Committee with participation from President and other executives
  • Monitoring of the "MOL Group Environmental Vision"
  • 8 meetings of the Environment and Sustainability Committee in FY 2022
  • Formulation of environmental vision and implementation of discussion on transition plan (GHG reduction roadmap)
2. Strategy
  • Based on the three scenarios of "2.6 °C scenario," "2 °C or less scenario," and "1.5 °C scenario," the risk/opportunity of climate change is identified, and countermeasures are considered. In addition, a scenario of a temperature rise of 3.0°C or more is also considered in the physical risk analysis.
  • Quantitative assessment of financial impact to estimate changes in profit and loss for each scenario
  • Based on the transition plan in the Environmental Vision, a concrete path to the realization of environmental targets is presented.
  • Revised Environmental Vision to “Environmental Vision 2.2”
  • In addition to the GHG reduction medium- and long-term targets, sectoral KPIs and milestones to achieve these targets are established with specific dates.
  • Reviewing changes in cargo movements in 2050 and reflecting them in the financial impact
  • Scrutinize the physical risk impact and confirm the impact on our company
3. Risk Management
  • Map the major risks associated with the overall business based on impact and likelihood
  • Development of management systems and regulations for risk items
  • Development of a company-wide risk management system led by the Corporate Planning Department
4. Indicators and Targets
  • < Long-Term Target > Achieve Group-wide net zero emissions by 2050
  • < Medium-term target > Reduce GHG emissions intensity in transport by 45% by 2035 compared to 2019
  • < Short-term target > Reduction of GHG emissions intensity by 1.4% per year (every year starting in 2019)
  • Establish sectoral KPIs and milestones for achieving GHG reduction short-, medium-, and long-term targets with specific dates
  • Measures such as introduction of ICP and environment-related investment targets
  • GHG emissions FY 2022: 13.33 million t-CO2 (total Scope 1-3)
  • GHG emission intensity: 4.97% reduction compared to the base year (2019).
    =>1.66% reduction per year (target level)
  • Amount of environmental investment related to climate change measures: 206.6 billion yen
  • Completion of a ship equipped with a wind challenger whose investment decision was based on ICP

1. Governance

MOL has established an Environment & Sustainability Committee, which is attended by key officers such as the President and Chief Environment and Sustainability Officer (CESO). As a subordinate organization of the Executive Committee, the Environment & Sustainability Committee deliberates on material environmental issues such as climate change, preservation of marine environments, protection of biodiversity, and prevention of air pollution, as well as issues related to sustainability in general. Material matters are reported, deliberated and resolved at meetings of the Board of Directors and the Executive Committee following deliberation at the Environment & Sustainability Committee.

In FY2022, the Environment & Sustainability Committee met a total of 8 times and deliberated major sustainability issues focusing on climate change. For example, environmental policy-related topics of particular importance such as the establishment of MOL Group Environmental Vision 2.1 were reported and resolved at meetings of the Board of Directors and the Executive Committee following deliberation at the Environment & Sustainability Committee.

MOL newly established the Environment & Sustainability Strategy Division to execute initiatives on the group environmental strategies and sustainability issues in an integrated manner, and integrated sustainability initiatives into "BLUE ACTION 2035" (our management plan) to integrate the impact of climate change measure into our business strategies.
At the same time, in measures to address climate-related risks and opportunities, we established MOL Group Environmental Vision 2.1 and are implementing comprehensive initiatives to address environmental issues in general. The Environment & Sustainability Committee monitors progress towards the achievement of this vision on a regular basis.
We will also link strategies to our financial plan to ensure consistency between the two.

(as of April 2023)

* Chaired by the Vise President and attended by key executives including the President, Chairman, Director Generals of Headquarters, CFO, CDO and CTO The Committee met 8 times in FY2021.

2. Strategy

In response to the conclusion of the Paris Agreement in 2015, the IPCC Special Report on Global Warming of 1.5°C in 2018, and the results of scenario analysis conducted internally, MOL Group formulated an environmental vision as a long-term strategy and used this as the basis for its management strategies.

In terms of climate change mitigation measures, we will address transition risk by setting out in our environmental vision "Five Actions," hinging on the active adoption of clean alternative fuels, to achieve our medium-to-long term targets, including achieving "net zero GHG emissions throughout the entire value chain by 2050." As for adaptation measures, we will mitigate physical risks by ensuring multifaced actions both in terms of tangible and intangible factors, based on the organizational response of the Safety Operation Supporting Center providing support from the ground 24 hours a day, 365 days a year.

(1) Overall picture of climate change risks and opportunities

MOL strives to grasp various risks and opportunities expected to result from climate change, and monitors the status at the Environment & Sustainability Committee to identify the impact on our businesses from a long-term viewpoint.

Scope of verification:

  • Demand for the transportation of commodities (energy, automobiles, grain, etc.) related to the global shipping business
  • Business environment throughout the entire supply chain (including upstream and downstream) of the above commodities
  • Business environment of shipbuilding sector as supply chain of ocean transport business

Expected Timing of Materialization:
short-to-medium term: 2023 - 2028, long-term: 2028 - 2050

Main assumed risks and opportunities Category Events Specific examples of risks and opportunities Materialization timing
Transition risks Policy and legal risks Reinforcement of EEDI/EEXI* regulations Increase in capital investment Short and medium term
Carbon taxes and emissions trading Increase in cost resulting from introduction of carbon taxes and emissions trading (EU-ETS, etc.) Short and medium term
Technology Spread of new marine fuel engines Obsolescence of fossil fuel-powered vessels Long term
Markets Change in energy mix Decrease in fossil fuel transport volume and increase in business risks associated with this Short and medium term
Increased electrification Decrease in crude oil transport volume associated with decline in demand for gasoline Long term
Increase in newbuild vessel prices Pressure on shipyard operations from growing demand for alternative fuel-powered vessels accompanied by increase in newbuild vessel prices Long term
Physical risks Acute risks Flood/typhoon
  • Temporary obstacles to transport due to supply chain disruptions
  • Increased operation days and fuel consumption due to evacuation from typhoons
Short and medium term
Chronic risks Drought Changes in transport routes associated with changes in grain production areas Short and medium term
Opportunities Products/
Introduction of alternative fuel-powered vessels Increased demand from shippers seeking lower-carbon supply chains Short and medium term
Efficient operations and energy-saving facilities Spread of efficient operation technology and energy-saving facilities (wind propulsion devices, etc.) Short and medium term
Markets Increase of ocean transport demand Increase in transport volume of decarbonization-related cargos such as ammonia and hydrogen Long term
Increased electrification Increase in transport volume of raw materials used in EVs and their components such as lithium and copper Long term
Spread of clean energy Building supply chains for offshore wind power generation, ammonia, and hydrogen Short and medium term

* EEDI and EEXI: fuel efficiency regulation for new and existing vessels introduced by the International Maritime Organization (IMO)

(2) Overview of Scenario Analysis

①Scenario Assumptions

MOL specifically examine in detail the impacts of climate change risks and, especially with respect to changes in cargo movements, each sales division, under the initiative of the Corporate Planning Division has prepared long-term forecasts that take the impacts of climate change into consideration. More specifically, we assumed three scenarios targeting FY2050: "2.6°C scenario," "well-below 2°C scenario" and "1.5°C scenario."

In addition to the above, we use the scenarios with higher temperature rise assumptions (Assuming an increase of 3.0 °C or more, equivalent to RCP7.0) in the verification of physical risks, and conduct risk analysis under severe conditions.

  • 2.6°C scenario: governments materialize the environmental policies which have already been published; consistent with Stated Policies Scenario (STEPS) in IEA's World Energy Outlook 2021 (WEO2021).
  • Well-below 2°C scenario: assumes that nations cooperate to achieve the SDGs, resulting in good progress on climate change mitigation; consistent with IEA's Sustainable Development Scenario (SDS).
  • 1.5°C scenario: assumes that the net zero emissions are achieved globally by 2050; consistent with IEA's Net Zero Emission by 2050 Scenario (NZE).
  • In addition to the above, please refer to RCP7.0 for physical risk verification.

②Business environment assumed in each scenario

Scenario 2°C/1.5°C scenario 2.6°C scenario
Risks Materialization of transition risks predominantly
  • Cost increases due to tighter regulation
    Increase in costs such as carbon tax due to the further tightening of EEDI and EEXI regulation and the introduction of carbon pricing schemes. Capital expenditures also increase as action on alternative fuel-powered vessels becomes a matter of urgency
  • Decrease in transport volume of carbon-related cargoes
    Transport volume of carbon-related cargoes such as oil and coal decreases as a result of the mass adoption of renewable energy and increased electrification. Business risks increase as a result of the shorter duration of transport contracts
Materialization of physical risks predominantly
  • Supply chain disruptions caused by floods and typhoons
    Situations in which supply chains are temporarily disrupted by floods and typhoons occur more frequently
  • Changes in ports of loading due to the occurrence of droughts
    The occurrence of droughts leads to changes in the production areas of major agricultural products such as soybean, wheat and corn and changes in transport routes
  • Increase in clean energy business opportunities
    Increase in new business opportunities relating to the creation of new supply chains such as the offshore wind power supply chain and the ammonia and hydrogen transportation supply chain
  • Introduction of alternative fuel-powered vessels
    Market share increases due to quick response to needs of shippers who prefer low-carbon transport
  • Changes in supply chain structure
    Growing demand for ferrous scrap used to charge electric furnaces and EV-related components, driven by increased electrification, leads to increased transport volumes
  • Growing demand in existing business operations
  • We expect opportunities similar to those under the 2°C/1.5°C scenarios on the left (though materialized to a lesser extent than under the 2°C/1.5°C scenarios) 
Reference scenarios IEA: WEO2021 SDS and NZE IEA: WEO2021 STEPS

(3) Financial impact

MOL has identified the financial impacts of climate change-related risks and opportunities through scenario analysis as explained above. The results of scenario analysis suggest that increases in carbon tax and fuel cost would have a significant impact on the transportation business but we believe we can reduce this impact through the measures such as the introduction of alternative fuel-powered vessels, which is currently underway.
Please refer to the following section ("(4) Detailed analysis of physical risks") for the impact of physical risks such as floods, typhoons, and deforestation becoming more severe than they are today.

①Specific examples of risks and opportunities

Firstly, let us explain the impact of "rising carbon prices," which is a typical transition risk, by giving a concrete example.
In Europe, extension of the European Union Emissions Trading System (EU-ETS) to maritime transport from 2024 is currently being discussed. Our estimate of the impact that application of the EU-ETS to maritime transport would have on our fleet, assuming (i) the calculation of GHG emissions based on our actual operations in 2020; (ii) an EU-ETS carbon allowance price of US$100/t-CO2 and (iii) the application of charges to 100% of GHG emissions, indicates that we would be required to pay charges of around 8 billion yen per year.
These charges form part of the financial impact of carbon tax in the scenario analysis mentioned below. We also plan to take action to address such carbon fees in the future including reducing our CO2 emissions by encouraging the introduction of alternative fuel-powered vessels and explaining the cost of carbon pricing to shippers.

②Quantitative assessment of financial impact

Furthermore, we have evaluated the quantitative impact of the realization of each scenario on MOL businesses. In our evaluation, we focused specifically on (i) changes in cargo movements, (ii) fuel cost, (iii) carbon tax, (iv) the introduction of alternative fuel-powered vessels and (v) new business opportunities.

Our evaluation of the financial impact (in terms of ordinary profit) of specific factor between now and 2050 under each of the defined scenarios is as follows.

Under the 1.5°C scenario, carbon tax will be a major factor in worsening profitability (negative impact of 270 billion yen). However, we expect to be able to achieve a sufficient level of profit by significantly reducing carbon taxation through the active introduction of next-generation fuel-powered vessels (positive impact of 240 billion yen) and by taking appropriate countermeasures such as expanding new business opportunities that tap into growing demand in the clean energy business domains including offshore windfarms and hydrogen and ammonia transportation (positive impact of 30 billion yen) and initiatives to broadly share the increased costs of carbon tax beyond the industries (positive impact of 110 billion yen), efficient operations and other new business.

  • Factors affecting profit/loss from now to 2050 (1.5°C scenario, unit: JPY 100 million)

    Similarly, under the well-below 2°C scenario, carbon tax will squeeze profit due to the rising carbon tax rate (negative impact of 230 billion yen). However, we expect to be able to significantly reduce this cost increase through our own efforts to cut emissions via the introduction of next-generation fuel-powered vessels (positive impact of 190 billion yen). Additionally, higher fuel cost (a total negative impact of 90 billion yen attributable to the rising price of fossil fuels and the shift to alternative fuels) will be a factor worsening profit. However, as with carbon tax, we expect to be able to recoup most of this cost increase by recovering higher costs in our freight rates whilst still maintaining competitive terms (positive impact of 170 billion yen combined with carbon tax). In addition, we expect to ultimately succeed in generating a sufficient level of profit through the development of new business opportunities related to clean energy and efficient operations.

  • Factors affecting profit/loss from now to 2050 (well-below 2°C scenario, unit: JPY 100 million)

    Under the 2.6°C scenario, higher fuel costs due to rising fossil fuel prices (negative impact of 140 billion yen) will be a major pressure on earnings. However, we expect to be able to recover higher costs in our freight rates based on the principle of competition in line with conventional business practices. Compared with the other two scenarios, the cost increase due to the introduction of carbon tax will be kept at a low level (negative impact of 120 billion yen), However, we will continue our efforts to ensure that the cost increase will be shared broadly beyond the industries, based on the principle that reduction of our direct emissions is directly linked to reduction of emissions in customer supply chains. Looking at other factors, in addition to growth in cargo movements in existing business divisions (positive impact of 30 billion yen), we expect to be able to achieve sufficient profit through initiatives such as mitigation of the impact of rising costs through the introduction of next-generation fuel-powered vessels and the promotion of efficient operations.

  • Factors affecting profit/loss from now to 2050 (2.6°C scenario, unit: JPY 100 million)

③Prerequisites for each scenario

IEA's "World Energy Outlook 2021." is referenced and various conditions are quoted. For carbon tax and fuel prices, which are cost items with a particularly significant impact, we used the following values.

  • Carbon tax

      Present price
    2050 price
    2°C scenario
    Carbon tax (U$/t-CO2)* 0 90 200 250

    * Carbon prices in advanced economies indicated in the corresponding IEA scenario are adopted

  • Fossil fuel prices

      Present price
    2050 price
    2°C scenario
    Crude oil prices (U$/bbl) 42 88 50 24
    LNG prices (U$/ton)* 495 738 439 352

    * LNG equivalent of the average natural gas price in each region indicated in the corresponding IEA scenario

④New business opportunities related to climate change

Global expansion in demand for clean energy is generating a wide range of new business opportunities that have a high affinity with the expertise MOL has developed in its existing businesses. As one of the Five Actions in MOL Group Environmental Vision 2.2, MOL has adopted "Action 5 Expanding Decarbonization Projects through the collective efforts of the entire Group" and is working to develop new business domains with contributing to the reduction of society's GHG emissions.

As the world builds a new clean energy supply chain, MOL aims to increase value at each stage of the clean energy supply chain and contribute to the decarbonization of society via the social implementation of decarbonization projects.

Here we will highlight new business opportunities in the offshore wind power related business field and the ammonia and hydrogen transportation business field as typical examples.

⑤Transportation Demand Outlook for Existing Businesses

We have established a long-term outlook for cargo transport demand under each scenario as follows. Depending on the scenario, energy division (fossil fuel transport business) demand may decline significantly. However, if we also take growth of demand in other divisions such as the product transport into consideration, the fluctuation in cargo demand in existing businesses (in value terms) is expected to remain in the range of +17% to -5% between now and 2050 depending on the scenario and we expect that this fluctuation will not have a decisive financial impact.

  • Under the 2.6°C scenario, although demand for certain cargoes such as coal will weaken slightly, demand will increase in most cargo segments and cargo movements will increased by 17% in total between now and 2050.
  • Under the well-below 2°C scenario, demand for the transport of coal and oil cargoes will decrease significantly but, on the other hand, product transport and drybulk (grain, etc.) demand is expected to grow and cargo movements are expected to increase by 3% in total.
  • Under the 1.5°C scenario, transport demand for all fossil fuels including LNG will fall sharply but this decline will be offset by growth in product transport demand, and cargo movements will only fall by 5% in total.

(4) Detailed analysis of physical risks

①Basic approach to physical risk(Direct risk and indirect risk)

The physical risk assessment generally covers buildings, factories, and other real estate owned by companies. Since our main business is international maritime, the assessment covers vessels (movable property) that sail freely at sea. Movable goods such as ships are subject to two types of risks: direct risk, in which natural disasters such as floods and typhoons damage the ship itself, and indirect risk, in which disrupted supply chain of cargo for shipping would lead to reduced transportation demand.
Compared to land-based real estate, direct risk is inherently resistant due to its ability to navigate freely at sea. In addition to not being directly affected by acute risks on land such as floods, droughts, and wildfires, it is possible to avoid direct risks by avoiding severe weather even in the case of typhoons at sea. In addition, we can directly reduce risks by establishing a network that provides accurate forecasts of weather and sea conditions, instantly sharing the information with all operating vessels, and maintaining a business process to select the appropriate route. There is a possibility that this will be exposed in the form of an increase in marine insurance premiums over the long term, but the impact is currently considered to be limited.
On the other hand, indirect risk has the potential to manifest itself in various ways. In general shipping companies such as our company, the transported cargo spans a wide variety of industries, such as automobiles, steel raw materials, grains, and fossil fuels. The risk of supply chain fragmentation varies depending on the industry. Therefore, indirect risks are expected to have a wider range of risk events and require detailed consideration.

Type pf risks Overviews Impacts on our business
Direct risks
  • The risk that natural disasters such as floods and typhoons damage the ship itself in the form of disruptions to operating routes and damage to ships.
  • Risk of increased fuel consumption/GHG emissions due to typhoon evacuation.
Unlike land-based real estate, it is possible to avoid and minimize damage by moving based on appropriate weather and sea forecasts.
Indirect risks Risk of disrupting the supply chain of cargo for shipping, leading to reduced transport demand. Impact analysis is important because the impact varies depending on the characteristics of the cargo and uncertainty is high.

②Indirect risks that vary depending on the cargo

Since the impact of indirect risks on our business varies greatly depending on the cargo to be transported and the risks to be generated, we are conducting comprehensive analysis of major cargo and risk events.

We believe that the impact of indirect risks in each business can be determined by three characteristics: A. cargo, B. transport vessels, and C. transport contracts.
It can be considered that the following characteristics are likely to lead to supply chain disruption due to climate change: the production/demand base of the target cargo is biased (ubiquity), there is no alternative commercial material (lack of versatility), the vessels used can be applied only to specific cargo (rigidity), and the transportation contract is difficult to switch (rigidity).

  Overviews Examples of high indirect risk Examples of low indirect risk
A. Cargo
  • [Ubiquity of bases] If production and demand bases are biased to a specific region, one of the bases may malfunction due to a disruption in the supply chain caused by a natural disaster, thereby affecting transportation demand.
  • [Versatility of cargo] Grains such as rice and soybeans can be replaced in the event of a temporary supply chain disruption but the cargo that is difficult to be replaced such as automobiles may affect transportation demand.
Automobile Coal Grain
B. Transport vessels [Rigidity of vessels] When the transportation demand of the target cargo decreases, such as for LNG carriers, it is difficult to load the substitute cargo and the operation rate of vessels may decrease. LNG-fueled ocean-going vessel Dry bulk vessel
C. Transport contracts [Rigidity of contract] For LNG carriers and other vessels with long-term charter contracts, physical risk may reduce the utilization rate. Long-term ship contract Spot contract

A. Type of cargo
The higher the fluidity of the commodity is, the more flexible it is to respond to supply chain disruptions in general. Even if one production site is damaged, the supply chain is maintained by transferring the site to another. Shifting production base will affect shipping companies, but it is unlikely to lead to a complete supply disruption, and cargo movement, which is a demand for shipping companies, will be maintained above a certain level.
For commodities such as oil, coal, and grain which international market transactions are generally conducted, even if physical risks occur in certain regions, the impact on cargo movement is likely to be relatively minor as other regions substitute functions, and even if there is a temporary decrease in demand, it is unlikely to lead to a situation in which the operation of the ship itself stops (Risk of inactivity).
On the other hand, in the case of finished automobiles where a specific model is produced at a limited production site for a specific demand location, the impact of supply chain disruption is likely to lead directly to supply disruption, and the risk of temporary ship outage is higher than in the case of general-purpose commodities.

B. Type of transport vessels
If the supply chain of the target cargo is disrupted and the demand for freight transportation fluctuates, a versatile ship type (e.g., a dry bulk ship) can load cargo categories other than the relevant cargo to avoid non-operation.
As an example, the main target cargo of a dry bulk ship includes coal, grain, and ore. However, even if the ship temporarily loses its cargo due to damage to the coal supply chain, the ship can still carry other cargo.
Fluctuations in demand for target cargo naturally affect the shipping business, but the impact is limited because the availability of ships is kept at a certain level due to the presence of substitution demand.
On the other hand, in the case of an exclusive ship type with low versatility (e.g., an LNG carrier), there is no option to load an alternative cargo when the supply of the cargo is interrupted because the target cargo is limited to LNG. This type of ship is prone to the risk of non-operation, and the impact is significant.

C. Transport contracts
In addition to the type of freight, the impact of indirect risk varies depending on the type of transportation contract.
A vessel of a spot contract can immediately switch to another cargo even if the supply chain of one target cargo is interrupted. However, a vessel engaged in a long-term exclusive contract cannot flexibly and quickly change cargo.
Compared to ship types for which ship market with high fluidity has been formed, ship types for which the ratio of long-term exclusive contracts is large and generalization has not progressed (Some LNG carriers, methanol carriers, etc.) have a relatively large risk of non-operation.

③Effect of indirect risk - Combined and Two-sided Impact -

When an event such as a supply chain disruption occurs, the event often has a multifaceted impact with mixed results in the shipping industry and does not necessarily have a negative impact on our business.
As an example, if the supply chain of an item is disrupted, as long as the demand side is not damaged, an alternative supply will be developed over time, thereby restoring load movement. If the replacement supply comes from further afield than before, the realignment of the supply chain could increase the tonnage demand, leading to a surge in market conditions. In addition, if demurrage occurs due to supply disruptions, there may be a shortage of vessels to be sent to other ship demand areas, resulting in an increase in the unit cost of transportation due to tight transportation demand. Therefore, the impact can be both positive and negative.
As such, the unique situation in the shipping industry of operating assets that inherently move across regions can have multiple and double-sided consequences for risk events.

④Indirect Risk Case Study

Physical risk exposure in the shipping industry is very broad, and its impact is two-sided. In our company, case studies are conducted with reference to past cases and the IPCC RCP7.0 scenarios to assess the impact of indirect risks on our company.
Since the impact of chronic risks such as sea level rise is small due to the fact that the sea can be freely navigated, this case study focuses on acute risks only.

Risk Case (1) Major flooding in inland Thailand causes submergence of automobile production plants (acute risk)

Risk Case Summary
In July 2030, Thailand was hit by record torrential rains that caused massive flooding. Damage occurred in a wide area of Thailand, and 10 industrial parks in the surrounding area, especially in Bangkok, were submerged for 3 months over a wide area. In Thailand, flooding occurred frequently during the rainy season, and submergence happened by several centimeters which is equivalent to the height of a car. However, this time, many roads in Bangkok were interrupted, and railway operations starting from Bangkok were suspended, which had a significant impact on transportation and traffic in Thailand. The water completely receded around January of the following year, half a year after the disaster occurred.

Impact of Risks on our Business

  • Negative impact on our business: Reduction in transportation volume due to temporary production failure
    Automobile and parts factories located in the flooded industrial park were severely damaged and operations were suspended. In addition to the finished automobile, the equipment of the assembly plant was damaged, and the restoration requires the same investment as a new plant. Even if the factory itself is not damaged, production activities will not be able to continue as usual due to difficulties in parts procurement and shipment.
    In the short term, it will take about a year to restore the production base and resume production. During that period, finished automobiles will not be able to be shipped, resulting in a net reduction in sea transportation from Thailand. In addition, demand for the transportation of steel products to Thailand may be affected as well, and there are concerns that this will spread to related industries.
  • Positive Impact on our business: New Demand Due to Transport Route Changes
    In the shipping business, we believe that the relocation of production bases due to the fragmentation of supply chains would not have only a negative impact. In FY2022, Thailand produced approximately 1.7 million automobiles, with 950,000 exported and 750,000 sold in Thailand. Even after the suspension of production in Thailand, demand in Australia and other export destinations has remained unchanged, resulting in new shipping demand from alternative shippers. In addition, due to the malfunction of the production base, it is necessary to meet the demand for 750,000 units/year of sales in Thailand by importing before production resumes, thereby creating new shipping demand to Thailand from other production sites.
    In our company's finished automobile transportation business, it is expected that during the period of alternative shipments, the number of vehicles transported by alternative routes, such as those from the Far East to Australia, will increase.
  • Example of quantitative evaluation
    In our finished automobile transportation business, while there is a net decrease in the transportation of finished vehicles from Thailand in the short term, we will incorporate new transportation demand from Japan, South Korea, and China to Australia as an alternative demand to prevent a major drop in the number of vehicles transported throughout our company. As an example, when we estimate the impact on services from Thailand to Australia, the impact on our company's ordinary income would be + 100 million yen if approximately 50,000 vehicles were switched from Thailand to the Far East, and if we were able to change the shipping route efficiently.
    As such, due to the nature of the international maritime business, we believe that the impact of flooding on our business is not necessarily unidirectional, could be positive and negative, and we will continue to analyze the impact.
Risk Case (2) A large-scale typhoon in coastal China damages port infrastructure (acute risk)

Risk Case Summary
From August to September in 2040, one of the world's largest typhoons made landfall around Shanghai, maintaining its strength. More than 100,000 people were killed and major impacts occurred, including damage to port facilities necessary for shipping and major changes to navigation routes.
Shanghai Port, a major port in China, was badly damaged, and cargo handling facilities such as gantry cranes were damaged beyond repair, resulting in long-term effects that required one to two years to restore the port.

Impact of Risks on our business
As the port of Shanghai is severely damaged, it will be difficult to unload various types of cargo, especially dry bulk transportation such as iron ore vessels. However, it is possible to cope with this by changing the transportation route which means unloading at ports where unloading is possible, such as the nearby Ningbo Port, and carrying out land transportation.
Thus, there is a potential risk of alternative transportation via land and air transportation routes for the failure of port functions. However, we believe that China already has sufficient resilience against the risk of port dysfunction because there are many ports and it is possible to establish a new supply chain in which raw materials are unloaded from other ports and shipped ashore. Although there may be some loss due to the onshore route, it will be relatively small compared to the overall transportation revenue and the impact on our business is expected to be very limited.

(5) Examples of how to respond to risks and opportunities

In order to demonstrate resilience in all scenarios, we will take the following various measures.

* Timelines for implementation of countermeasures: All measures are to be implemented in a short period of 5 years or less unless otherwise stated.

①Examples of Measures to Address Migration Risks

Climate change risks and opportunities Impact on MOL businesses Countermeasures
Products impacted Overview
Change in energy mix LNG Under the 2.6°C scenario and well-below 2°C scenario, the level of demand will increase between now and 2050. Under the 1.5°C scenario, demand will trend down. Demand trends will differ from region to region. Based on the outlook for changes in the energy mix over a very long period through 2050, we prepare for scenarios for changes in demand by area, and the areas to focus on will be identified based on the scenarios.
(Reference: (1) Long-term megatrend analysis)
Crude oil
  • Decrease in demand for gasoline due mainly to the evolution of EVs → Decrease in transport volume
  • The risk of assets becoming stranded due to anticipated decline in transport volumes will increase worldwide. However, the increase or decrease in demand will vary depending on the area.
Thermal coal
  • Under all scenarios, transport volume is expected to decrease as a result of weaker demand.
  • Increase in business risks due to the short duration of contracts
  • Seek to shift away from specialized carriers towards general-purpose carriers.
  • Hedging risks by adjusting business portfolios as demand decreases
Transport volumes can be expected to increase as a result of the spread of hydrogen/ammonia mixed combustion Focused resources on ammonia and hydrogen transport business development by specialized departments
Steel raw materials
  • Demand for crude steel is expected to remain firm in the medium and long term.
  • The transport volume of ferrous scrap will increase due to the rising electric furnace ratio.
Quality of transportation demand may change in preparation for an increase of iron scrap transportation. Arrange systems to meet high frequency and short distance transportation needs.
Coking coal
  • Demand for coking coal used in steel works as a reducing agent may decrease in the long term.
  • Widespread use of hydrogen reduced iron could lead to changes in iron production bases depending on the area of hydrogen production → Possibility of changes to transport routes
Establish fleet planning that allows us to adapt to changes in reducing agents used at steel works (coking coal → hydrogen, etc.)
Electrification Automobiles
  • Increase in cargo movements due to spread of affordable EVs
    The spread of cheap EVs evident in China could be seen in other regions such as Africa in the future. Cargo movements on a volume basis are expected to increase.
  • Increased cargo movements due to the difference between combustion vehicles and EVs in terms of weight
    EVs are heavier than combustion vehicles, restricting the number of vehicles that can be loaded onto a single PCC → The number of voyages and the number of ton-miles may increase.
  • Depending on developments in terms of regulations and subsidies, sales volume could fall → Transport volume could also fall
    In the worst-case scenario, no subsidies are granted despite tighter regulation and EVs are not widely adopted. In this case, gasoline-powered vehicles would not sell well either and overall demand would fall.
Increased intelligence to ensure fuel transition trends in land transportation. Mainly monitoring regulatory and policy trends as key items in long-term megatrend analysis and developing operation systems in line with increases and decreases in the scale of operations.
Change in consumer preferences Grain
  • Demand for soybeans used to make vegan meat will increase.
  • Demand for corn as livestock feed will decrease as a result of decline in demand for livestock.
Monitor vegan meat development trends and establish fleet planning that allows us to adapt to changes in production areas/demand areas.
Reference (1) Long-term megatrend analysis

As the business environment surrounding our group continues to change rapidly, in the process of preparing our company's medium- to long-term management plan "BLUE ACTION 2035," which was announced in March 2023, we conducted a long-term megatrend analysis to imagine the world and society structure in the future and to identify future scenarios that we consider as a company-wide project.
The project aims to develop multiple scenarios for long-term macro-external environmental changes, such as population growth, changes in regional population ratios, slowing of global economic growth, responses to climate change issues, energy shifts (progress in electrification: expansion of renewable energy), and technological evolution, and analyze these impacts on our group's business environment, lead to strategic considerations. Specifically, the impact on our business that emerges in the form of stricter environmental regulations, improved energy efficiency, reduced demand for fossil energy and increased demand for new energy is grasped from multiple perspectives, widely shared at the management level, and used to verify the resilience of our strategy over a very long period of time.

For details, please refer to page 9 of MOL Group Management Plan "BLUEACTION 2035."

②Examples of Measures to Respond to Physical Risks

Climate change risks and opportunities Impact on MOL businesses Countermeasures
Products impacted Overview
Flood/typhoon Common
  • Acute risk of direct damage in the form of typhoon disruptions to routes and damage to ships
  • Acute risk of increased operation days, fuel consumption and GHG emissions due to typhoon evacuation

Risk reduction is possible by establishing a network in which accurate forecasts of weather and sea conditions are made and information is instantly shared by all operating vessels ⇒ developing a business process to select appropriate navigation routes

(Reference (1) - Refer to the explanation of the Safety Operation Supporting Center)
(Reference (2) - Refer to the explanation of risks associated with the operation and operation of ships, offshore plants, etc.)

Common Acute risk of disruption of instructions and support from land to ships due to damage to land sites

Formulation and implementation of emergency response systems and contingency plans in the event of a disaster

(Reference (3) - Refer to the explanation on risks related to natural disasters and epidemics)

Common Indirect acute risk that disrupts the freight supply chain and reduces transport demand
  • It depends on each type of ship, cargo, and contract. Strengthen business intelligence for each freight supply chain to better understand business risks
  • Risk diversification by maintaining and securing comprehensive transportation capacity and operating capacity that is not overly dependent on a single cargo
  • Regional risk diversification through the establishment of a global shipping network
  • Reduction of operational risk burden in transportation contracts
  • Insurance with non-operation loss insurance

(Reference (4) - Refer to the explanation on risk diversification)

Drought Dry bulk
Chronic risk of reduced load movement due to reduced grain yield Although there are concerns about a local reduction in cargo movements, the global impact is expected to be compounded due to the large trade patterns of grain. Responding to local impacts by maintaining and strengthening our overall ability to deal with other trades and freight.
Deforestation Dry bulk
(Wood chip)
Chronic risk of changes in trade structure due to changes in major timber supply areas

Maintaining and strengthening the global shipping network in response to changes in trade patterns

(Reference (5) - Refer to the explanation on the global shipping network)

Rising sea levels Common Chronic risks affecting port terms of use

There are possible spillover effects such as an increase in the loading capacity in ports with strict draft restrictions.
In the 2050 cross section, it is assumed that sea level rise will remain at a maximum of several tens of centimeters even in a scenario of increasing climate change, and no further decisive impact on the project is expected. However, the impact may become severe in a longer time span, and the situation will be closely monitored (Timeline of implementation of countermeasures: implementation over a longer time span of 10 years or more).

(Reference (6) - Refer to the explanation on the sea level rise scenario assumption)

Changes in ecosystems Common Chronic risks of intensified quarantine problems such as the stink bug problem on carboats

Refinement of operations to respond to stricter quarantine systems and differentiation through certification of response systems

(Reference (7) - Refer to the explanation on measures against stink bugs in our company)

Reference (1) Safety Operation Supporting Center
The Safety Operation Supporting Center (SOSC) was established in February 2007 with the motto "Do not leave captains alone" with 24 hours, 365 days support and help desk function. Currently, two people, including an actual captain are on duty all the time to keep track of the latest positions and weather and sea information of all operating vessels in real time and to provide information to the vessel. Keeping in mind the lessons learned from past accidents, we are making every effort to prevent serious accidents in order to achieve the world's highest level of safe operation.

For details, please refer to the corresponding page of the website (Organization to support Safe Operation).

Reference (2) Risks associated with the operation and operation of ships, offshore plants, etc.
In order to prevent marine accidents, our company has taken various measures in terms of software and hardware, including education and guidance for seafarers and the preparation of hull specifications to ensure safety, in close cooperation with the Safety Operation Headquarter, the respective sales headquarters, shipowners and ship management companies. In addition, in the event of damage to our company itself or any other party caused by an unavoidable accident despite our best efforts, we have provided the necessary amount of insurance (liability insurance, hull insurance, war insurance, non-working loss insurance) to avoid a significant impact on our business performance and to secure sufficient sources of compensation. Furthermore, in order to reduce reputation risk, we conduct emergency training once a year on how to respond to serious marine accidents and disseminate information in the event of an accident, and employ media consultants when necessary.

For details, please refer to the appropriate page of the website (Risk Management > Risks Associated with Operations of Vessels and Offshore Plants).

Reference (3) Risks related to natural disasters and epidemics
We have formulated a Business Continuity Plan (BCP) to prepare for the possibility that large-scale disasters, etc. may cause damage to our company's facilities, equipment, and employees, thereby interfering with our business activities. The BCP has developed a response organization, authority etc. for the implementation of operations related to the maintenance of safe operation of vessels, the performance of transport contracts and charter contracts, financial provision, and the securing of personnel, and has compiled specific implementation procedures into manuals. We also have a backup system for satellite offices and systems.

For details, please refer to the appropriate page of the website (Risk Management > Natural Disaster and Epidemic Risks).

Reference (4) Risk diversification
Our group operates dry bulk ships, oil carriers, LNG carriers, automobile carriers and container ships, and carries various types of cargo in a range from resources to finished products. Market conditions for freight rates or rents are formed for each type of cargo, ship type, and business. While some of these are highly correlated, some economic conditions cancel out each other's fluctuations. By expanding a wide range of ship types and businesses, we aim to achieve stable management that is not affected by market fluctuations in specific ship types or businesses.

For details, please refer to the appropriate page of the website (Risk Management > Dispersing risks).

Reference (5) Global shipping network
Our company has established sales offices in 41 cities in 29 countries and maintains a global ship-distribution network. The entire world is divided into five regions (Europe/Africa, East Asia, Southeast Asia/Oceania, South Asia/Middle East, Americas), each of which has a regional general representative in charge of the executive officer. Under this system, regional organizations with corporate, marketing, and sales functions are established to promote business development led by regional organizations.

For details, please refer to the corresponding page of the website (MOL Group > List by Location).

Reference (6) Sea level rise scenario assumption
The assumption of sea level rise, which is a prerequisite for risk analysis, is based on the description in the Sixth Assessment Report of the IPCC (Working Group I). In the 2050 section, the assessment is described in the above table. However, it is pointed out that the possibility of a significant sea level rise of about 2-5 m in some scenarios cannot be ruled out in the period up to 2150, although the degree of certainty is low (SSP5-8.5). In the case of sea level rise on such a scale, there are concerns about severe social and economic impacts on the world, and it cannot be ruled out that there will be huge impacts on the shipping industry beyond changes in port usage conditions. In this sense, we will keep a close eye on developments in related discussions not only on the TCFD's range of 2050, but also on its impact in the ultra-long term.

Reference (7) Measures against stink bugs in our company (Past case)
In order to prevent stink bugs from invading crops such as fruits and vegetables, the Australian Ministry of Agriculture has strengthened the quarantine of oceangoing vessels visiting Australia. In September 2020, after extensive consultations with agricultural pest experts, Australian authorities, and other stakeholders, our company became the first Japanese shipping company to obtain certification from the Australian Ministry of Agriculture to certify that the various activities carried out by its fleet on routes from Japan and Korea to Australia meet the standards set by the Australian Ministry of Agriculture. As a result, quarantine inspections at ports in Australia are smoother and the risk of delayed unloading of loaded vehicles has been reduced.

For details, refer to the corresponding page of the website (Press Release > MOL Becomes 1st Japanese Car Carrier Operator to Obtain VSPS Certificate from Australia's Department of Agriculture).

(6) Migration plan

①MOL Group Environmental Vision 2.2

MOL formulated a GHG emissions reduction scenario for achieving net zero GHG emissions by 2050 as part of Environmental Vision 2.2, and this scenario is consistent with the 1.5°C scenario. We will also monitor trends in matters which have a significant bearing on implementation of the transition plan such as carbon tax and GHG emission rules and periodically review the plan taking factors such as technology trends into consideration.

Reference Figure: MOL Group Pathway to Net Zero GHG Emissions

MOL has established an interim target of a 45% reduction in GHG emission intensity from transport by 2035 and indicated a specific pathway for achieving net zero GHG emissions by 2050.
We have established five specific actions for reducing GHG emissions, including the adoption of clean energy, enhancement of energy-saving technologies, and expanding decarbonization projects and have set a target of investing around 650 billion yen in the decarbonization field over the three years from 2023 to 2025 (reduction of our own GHG emissions: 350 billion yen; contribution to reduction of society's GHG emissions: 300 billion yen).

Composition of MOL's Ocean-Going Fleet by Fuel Type

More specifically, we recently finished developing net zero emission electrically powered coastal vessels and put them into operation in April 2022. We aim to put net zero emission oceangoing vessels into operation during the 2020s (late 2020s). In the medium term, we will implement initiatives, with the introduction of 90 LNG/Methanol powered vessels by 2030 and 130 net zero emission oceangoing vessels by 2035 as milestones.

②Five specific actions

5 Actions in Environmental Vision 2.2 Initiatives Related news
Action 1 Development and introduction of alternative fuel vessels
Procurement of alternative fuel
Action 2 Wind Challenger
Coal Carrier SHOFU MARU Equipped with 'Wind Challenger' Hard Sail Marks Maiden Call in Australia | Mitsui O.S.K. Lines (
Action 3 Efficient Operations
MOL Joins Blue Visby Consortium - Utilizing Digital Technology to Reduce CO2 Emissions from Vessels - | Mitsui O.S.K. Lines
Action 4 Initiatives for Negative Emissions
Involvement of policy makers and industry associations / Participation in international initiatives
Action 5
Preservation of marine environments/Protection of biodiversity Please refer to our website.
Prevention of Air Pollution Please refer to our website.
Others Introduction of natural refrigerant equipment (CFC-free refrigerators)
Our company has decided to completely transfer the refrigeration equipment in the cold storage building of the Osaka Nanko Distribution Center to the equipment that uses a non-fluorocarbon natural refrigerant which does not affect the ozone layer. We are currently working to complete the installation by the end of FY2023.

For details, please refer to "Environmental Vision 2.2."

3. Risk Management

Our company, which operates a wide range of businesses around the world, is exposed to various risks. As a company-wide risk management response system, each risk type has its own department in charge, and in accordance with prescribed rules and regulations, we take risk reduction measures, including identifying the amount of risk, reducing exposure through hedging, and transferring risk through insurance, etc. The status of risk management by each division is regularly reported to the Management Committee, and information is centrally managed and necessary decisions and actions are made.
Since climate change is positioned as one of the major risks, the Environment & Sustainability Division classifies and evaluates climate change-related risks identified by each department and conducts risk management on a group basis in accordance with the above process.

More specifically, we have classified the "introduction of carbon tax" and "changes in cargo movements" as high priority risks with both a high degree of impact and a high probability of occurrence.

Please refer "Risk Management" for details on our company-wide risk management system.

4. Indicators and Targets

(1) KPIs related to reducing GHG emissions

The MOL Group has set the following group-wide targets to reduce GHG emissions. The med-term and short-term targets were established as targets to achieve net zero GHG emissions in 2050, which is a long-term goal, and targets are calculated and set based on GHG emission reductions necessary and feasible to achieve net zero emissions.
The International Maritime Organization's (IMO) target for the ocean shipping industry is to "reduce GHG emissions from international shipping by at least 50% by 2050 (compared to 2008)," but our group has set an even more ambitious target: to achieve net zero GHG emissions by 2050. We regularly check the consistency between the policies and measures of member organizations and our group's initiatives, and if we find that any part of the policies and measures of the organizations is insufficient, we will proactively reach out to member organizations and work to strengthen our group's countermeasures.

  • <Long-term target> With the concerted effort throughout the Group, achieve net zero GHG emissions by 2050
    <Mid-term target> Reduce GHG emissions intensity by 45% by 2035 (versus 2019) *1
    <Short-term target> Reduce GHG emission intensity by 1.4% per year (versus 2019) *2
  • *1  In addition to Scope 1, part of Scope 3 covered (international marine transport operated by MOL). Scope2 emission reduction target was set in "MOL group Environmental Vision 2.2".
  • *2  In addition to Scope 1, part of Scope 3 covered (international marine transport operated by MOL). Average up to 2030.

For detailed GHG emissions results, please refer to "Sustainability Data."

①GHG emissions: Results and targets

  Results Target
FY2019 FY2020 FY2021 FY2050
GHG emissions
(thousand tons)
Scope 1 11,137 9,831 10,112 Net zero
*Scope 1, 2, 3
Scope 2 45 39 36
Scope 3 3,127 2,388 2,455
  • * Businesses covered: All businesses of MOL Group, MOL + consolidated subsidiaries
  • * Scope covered: All of Scope 1, 2, and 3 covered

②GHG emission intensity: Results and targets

  Results Target
FY2019 FY2020 FY2021 FY2035
GHG emission intensity
Standard method 10.86 10.46 10.46 5.97
(-45% reduction
against FY2019)
Reference method 10.86 9.90 10.74
  • * Businesses covered: International marine transport business, MOL + major consolidated subsidiaries
  • * Scope covered: In addition to Scope 1, part of Scope 3 covered
  • *For the methodology for calculating emissions and intensity, please refer to "MOL group Envionmental Vision 2.2"

③KPI List by Action

To achieve the group's GHG emission reduction targets, we will take five actions.
Also, to ensure the achievement of net-zero emissions, we have set quantitative KPIs and milestones for measuring progress for each action.

(2) Assets and businesses related to climate change risks and opportunities

Under proposed legislation (not yet enacted) to amend the EU-ETS currently being considered, vessels of 5,000 GT or above calling at an EU port will be subject to carbon tax, which is a major climate change risk, and 100% of all GHG emissions from the first fiscal year of introduction of the system (2024) will be subject to charges. Assuming that the system is implemented in accordance with the proposed legislation, approximately 6% of our shipping operations' emissions will be subject to taxation in EU-ETS, calculated based on our Scope 1 emissions in FY2020.

For details of other risks and their financial impact, please refer to the strategy part.

(3) Investments related to climate change risks

To address climate change risk, MOL plans to make investment of around 650 billion yen in the low-carbon and decarbonization field over the three years from 2023 to 2025 (with plans for 380 billion yen of new investment in addition to the 270 billion yen of investment already decided). For details, please refer to BLUE ACTION 2035 (management plan).

  • Positioning of environmental investment in BLUE ACTION 2035 (management plan)
    Financial Plan / Cash Allocation:Outlook in Phase1(FY2023-FY2025)
  • Excerpt from "Environmental Strategy" page of BLUE ACTION 2035 (management plan)
    Investments in Phase 1 aligned with Environmental Strategy
    (Cash out basis)
    (billions of yen) Already
    New Subtotal
    Reduction of our Group's GHG Emissions 190.0 160.0 350.0
    Low/Decarbonization Energy Business 190.0 110.0 300.0
    Total 380.0 270.0 650.0

(4) Internal Carbon Pricing (ICP)

MOL introduced internal carbon pricing from FY2021.

[Overview of rule]
A fixed amount per 1 ton of CO2 emitted is set as the internal carbon price based on forecast carbon price charges in the international marine transport business. This is then used as an economic indicator when making investment decisions. It is standard practice at MOL to conduct a profitability assessment that, together with the carbon price charges MOL will incur as expenses in the future, also takes the impact of such charges on the market into consideration, and considers changes in overall economic potential, including profitability.

[Target Businesses]
Applies to the approval of all investment projects relating to the international marine transport business (also applies to investment projects in businesses other than the international marine transport business based on case-by-case basis)

[CO2 price]
[From January 2023 to December 31, 2034 ] US$ 65 /t-CO2
[From January 2035 to December 31, 2044] US$ 175/t-CO2
[After January 2045 ] US$ 20 0/t-CO2

* Set with reference to IEA's Sustainable Development Scenario ("well below 2°C scenario")

This ICP has already been applied to more than 10 investment decisions since its introduction. ICP was used when approving projects for "adoption of LNG-powered vessels" and "adoption of Wind Challenger (energy-saving system)," which are key items among measures to mitigate climate change under the environmental vision.

Example) Installation of the Wind Challenger system in vessels requires additional capital expenditure (CAPEX) but at the same time reduces fuel costs and CO2 emissions due to the energy saving effects. Use of ICP necessitates sufficient evaluation of the economic benefits of reducing CO2 emissions and, as a result, the advantages of installation of the system increase and the payback period of capital expenditure becomes shorter.

We intend to review the price of ICP from time to time, referring to outlooks by external organizations such as the IEA and also the progress of carbon taxes discussion in the international shipping industry, such as the EU-ETS, whilst ensuring consistency with the various conditions assumed in the aforementioned scenario analysis.

(5) Climate-related executive compensation

MOL's executive remuneration system includes a mechanism for linking remuneration to climate-change related performance. More specifically, the evaluation of the Chief Executive Officer and other executive directors of the Board is determined based on the extent of progress on ESG-related initiatives including action on climate change.

Yardstick for composition of remuneration
(Model remuneration on achievement of performance targets)

For details, please refer to "Determination of executive remuneration."