Climate Strategy (Response to TCFD)

Yokogawa’s initiatives

As the world’s population continues to grow, our society faces the challenge of reducing GHG emissions while continuing to provide the energy and resources needed by society. Yokogawa has set net-zero emissions as the vision for society in 2050 and listed “Achieving carbon neutrality” as one of the six contribution areas promoted in the medium-term business plan GS2028. Viewing curbing GHG emissions and switching to inexpensive, reliable, and sustainable energy as priority issues, we are reducing GHG emissions from our own operations and contributing to the spread of renewable energy and more efficient energy use through our business.

Yokogawa is determined to proactively address climate change and prepare itself for the future, and it has expressed its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB) to promote the disclosure of climate-related financial information (February 2019).

Governance　＜Governance regarding climate-related risks and opportunities＞

Recommended disclosures：a）Board of Directors’ monitoring structure　b）The role of management

 

The Role of the Board of Directors

The Board of Directors formulates basic policies for addressing climate change and basic policies regarding the improvement of the system for managing risks and opportunities, monitors and supervises the effective operation of the system and appropriate response to sustainability issues. The Board considers the climate-related impacts while discussing business strategies and plans.
In appointing Directors, we consider the overall balance of their knowledge, experience, and competences that are required to effectively fulfill the roles and responsibilities, and keeping a balance between diversity including gender, internationality, careers inside and outside the Company, and age, and an appropriate constituent number.

The Role of Management and Execution

Executive officers take into account the impact of climate change in terms of both risks and opportunities when formulating business strategies and plans. Progress toward the sustainability targets, including those related to climate change under the medium-term business plan, is reported regularly to the Board of Directors.
Yokogawa has established the Risk Management Committee to address group-wide risks, including those related to climate change. The committee deliberates and determines priority management risks that should be managed preferentially at the Group level, monitors the management of these risks, and reports to the Board of Directors. As the chair of the Risk Management Committee, the President & CEO, Representative Executive Officer is responsible for overseeing all matters related to risk management.From fiscal year 2022, Yokogawa established the Sustainability Committee with the aim of identifying priority issues from both corporate and social value perspectives, and formulating strategies to address sustainability issues and set the medium to long term direction of management. The Sustainability Committee is positioned as an advisory body to the President & CEO, Representative Executive Officer. With the President acting as the chairperson and executive officers serving as members, the committee functions as a forum for intensive discussions on sustainability-related topics from a management perspective.
The Sustainability Committee conducts materiality analysis covering various issues related to climate change and GHG emissions, and discusses risks and opportunities related to climate change. The matters discussed by the Sustainability Committee are reported to the Board of Directors.

 

Strategy　＜Impact of climate-related risks and opportunities on businesses, strategy, and financial planning＞

Recommended disclosures：a）Medium to long term risks　b）Impact on businesses, strategy, and financial planning　c）Resilience of climate scenario strategies

 

Strategy Overview

The clientele of Yokogawa's businesses is energy, chemical, and other manufacturing industries that greatly influence global GHG emissions. Yokogawa helps its customers reduce GHG emissions through its solutions that achieve stable operations, higher energy efficiency, and greater comprehensive business efficiency. In addition, we see it as opportunities to expand value provision in the renewable energy market, as well as to support utilization of clean energy (low-carbon hydrogen and ammonia), working to expand our businesses.

Medium to Long term Changes of the Business Environment

Yokogawa analyzed the changes in the business environment around 10 years later regarding climate change from the perspectives of politics, economics, society, and technology. From the perspective of politics, we predict that laws and regulations will become more strict to respond to climate change and increased geopolitical risk caused by energy shortages due to a larger population. From the economics perspective, we predict a diversification of energy sources assuming the increased use of renewable energy, a shortage of food and water, and resource depletion. From the perspective of society, we predict that global warming will continue and that environmental pollution will be aggravated because of consumption rise along with economic growth. Also, from the perspective of technology, we predict that the structure of society will drastically change due to AI, IoT, and other digital technologies and that biomass materials contributing to resource recirculation will widely spread. Against those environmental changes, our customers are transforming into companies that operate lowcarbon businesses, including renewable energy, or that produce materials with little environmental impact, such as biomaterials, thereby increasing their business opportunities in those areas.

Long-term Business Framework and Medium-term Business Plan

Based on the drastically accelerating change in the business environment, we aim for growth through the provision of shared value based on actions such as our response to climate change in the long-term business framework and are working to expand business by seizing business opportunities created by the transformation of our customers’ business strategies based on renewable energy-related market growth and climate-related issues in the GS2028 plan. Yokogawa also helps its customers reduce GHG emissions through its solutions that achieve stable operations, higher energy efficiency and greater comprehensive business efficiency. In pursuit of GS2028, we have conducted a double materiality analysis, and defined our sustainability indicators based on the analysis results.
To achieve the sustainability targets, we are operating our main business, the Industrial Automation and Control Business, in three business segments—Energy & Sustainability, Materials, and Life—and steadily expanding our business in these areas.
In the Energy & Sustainability business, we are working to expand value provision in the renewable energy market and to support utilization of clean energy. In the Materials business, we are supporting decarbonization of materials industries. In the Life business, we contribute to productivity improvements throughout the value chains in pharmaceutical and food areas, as well as safe and secure supplies of pharmaceuticals and food that are necessary for adaptation to climate change. In the measuring instruments business, we support the improvement of the spread and efficiency of renewable energy and electric vehicles.
In addition, aiming at carbon neutrality, we have set net-zero targets of reducing GHG emissions (Scope 1, 2 and 3) to net zero. These are ambitious long-term targets of reducing Scope 1 and 2 GHG emissions to net zero by fiscal year 2030, and Scope 3 GHG emissions to net zero by fiscal year 2050.

Implementation of Internal Carbon Pricing (ICP)

Since fiscal year 2022, we began operating the ICP to advance economically rational GHG emissions reduction initiatives. We make decisions based on the impact of GHG emissions by incorporating the expected changes in emissions into our financial evaluation when planning GHG and energy reduction measures.
We set a carbon price (ICP type: implicit price; price: 2,000 yen/t-CO₂) across the entire group to promote renewable electricity procurement that significantly contribute to reducing Scope 2 emissions. The ICP policy and carbon price are approved after deliberation by the Sustainability Committee.
We will progressively apply the ICP by setting carbon prices for Scope 1, Scope 3, and business planning processes such as capital investment decisions.

Assumed Climate Change Scenarios

To address the uncertainty surrounding the effects of climate change, we are considering the form that society should take on by 2030, including our response in the 4°C scenario with severe, pervasive, and irreversible global impacts and the 1.5°C scenario where even stricter reductions in GHG emissions than the 2°C scenario and other efforts will be required.

Resilience of Climate Scenario Strategies

When developing the long-term business framework and the previous medium-term business plan AG2023, we evaluated risks and opportunities and planned measures to address them in the 1.5°C and 4°C scenarios that we had established internally. In the GS2028 plan, although we made minor adjustments to assumptions of the scenarios, there are no changes in our fundamental strategies. In the 1.5°C scenario, along with the acceleration of the transition in energy caused by the increasingly strict carbon-free policies of each country, we predict the need for renewable energy and energy-conserving businesses, etc., will grow while fossil fuel business will shrink. In the 4°C scenario, we predict the expansion of disaster prevention solutions and pharmaceutical and food production-related businesses due to physical risks such as damage to business sites and supply chains in conjunction with increased flooding and other natural disasters and reduced yields of agricultural products and increase of diseases resulting from an abnormal climate. We have dug into these climate change-related risks and opportunities by business segment and risk type, developed response direction, and incorporated them into our business strategies.

Main opportunities related to climate change

Classification	Business segment	Business strategies in GS2028	Business opportunities
Opportunities	Energy & Sustainability business	■ Expanding value delivery for renewable energy market  ・Creating new business opportunities in waste and biomass power plants by leveraging products and technologies of acquired companies such as Bax Energy ・Providing comprehensive solutions, including Level3 solutions , and expanding business into solar power, wind power, and batteries  ■ Supporting utilization of clean energy (low-carbon hydrogen and ammonia) ・Supporting EX (Energy Transformation) for customers in the oil & gas industry ・Applying technologies developed in the LNG supply chain to hydrogen and ammonia ・Cultivating business growth in the low-carbon hydrogen and hydrogen derivatives areas	・Diversification of regions, customers, applications, and so forth ・Demand for integrated management of diverse renewable energy power sources ・Expanding business into the electricity trading market ・Achievement of low-carbon in the oil & gas sector ・Expanding demand for low-carbon hydrogen, including green hydrogen and ammonia ・ Focus on the adoption of CCS/CCUS technologies for capturing, utilizing, and storing CO2
	Materials business	■Supporting decarbonization of materials industry (chemicals, steel) ・Calculating product- and organization-specific emissions based on primary data (actual measurement data) and offering real-time monitoring ・Identifying and analyzing causes based on industry knowledge and providing reduction simulations ■Supporting optimization of mobility supply chain ・Supporting energy saving and productivity improvement across the entire supply chain and lifecycle, from mining control for battery materials to material development, manufacturing processes, reuse, and recycling ・Providing value through Yokogawa’s unique real-time solutions and services	・Achieving low-carbon production processes and contributing to the achievement of customers’ CO2 emissions reduction targets ・Supporting initiatives for visualizing and reducing CO2 emissions ・Optimization of production in response to rapid growth in demand for electric vehicles (EVs) ・Energy saving, optimization, and automation throughout the supply chains for lithium-ion batteries, fuel batteries, and more
	Life business	■Improving productivity and quality for pharmaceutical, food & beverage, biotechnology and industries ・Realizing of a Smart Factory through improved productivity, cost reduction, and the provision of a safe and secure work environment in the pharmaceutical and food industries ・Providing value through problem-solving solutions centering on manufacturing execution systems (MES) ・Developing solutions and knowledge that have been successfully demonstrated in Japan to overseas markets	・Understanding and reducing GHG emissions ・Reducing energy consumption to reduce costs
	Measuring Instruments business	■Supporting the adoption and improvement of efficiency improvement of renewable energy and electric vehicles ・Providing solutions for measuring the energy efficiency of entire systems, targeting renewable energy equipment and EVs, etc. ・Supporting operation control of distributed power sources and technology for connecting and interconnecting with power networks  ■Supporting improved efficiency of next-gen communication systems ・Supporting the early practical application of photonics-electronics convergence communication technology by leveraging the Company’s strengths in synchronizing optical and electrical measurements ・Providing optimal measurement solutions for the production of optical communication devices	・High-efficiency system design to realize decarbonization ・Reducing CO2 emissions through the use of renewable energy and the electrification of mobility, such as EVs ・Rapid expansion of data traffic due to the increase in generative AI and cloud applications ・Next-generation communications innovation aimed at expanding communication bandwidth and reducing heat loss

Main risks related to climate change

Initiatives to Promote the Use of Sustainable Aviation Fuel (SAF)

As part of its efforts to address climate change, Yokogawa is promoting the early adoption of Sustainable Aviation Fuel (SAF). Through its control business, Yokogawa contributes to expanding the production and supply of SAF, while also working to reduce GHG emissions associated with employee air travel by utilizing SAF.

< Utilization of SAF in Collaboration with Airlines >
Yokogawa is participating in the JAL Group’s JAL Corporate SAF Program and is advancing the use of SAF through partnerships with airlines. Under this program, the JAL Group certifies and issues credits for the environmental value of CO₂ emission reductions achieved through SAF use, which are then provided to participating companies. By actively taking part in airline SAF programs, Yokogawa aims to utilize SAF for business travel, reduce the environmental impact of its corporate activities, promote the widespread use of sustainable aviation fuel, and contribute to the realization of a decarbonized society.

Risk Management　＜Processes for the identification, assessment, and management of climate-related risks＞

Recommended disclosures：a）Risk identification and assessment processes　b）Risk management process　c）Process for integrating climate-related risks into overall risk management

 

Risk Management Structure

Yokogawa has established an Enterprise Risk Management (ERM) system in accordance with ISO31000, the international standard for risk management. To comprehensively discuss risks related to business execution and their management, the Risk Management Committee has been established and convenes three times a year. The committee serves as an advisory body to the President & CEO, Representative Executive Officer, who also chairs the committee, and is composed of all Executive Officers. The Risk Management Committee identifies risks that could have a significant impact on the Yokogawa Group, deliberates on risk mitigation plans, and reviews risk countermeasures, thereby supporting management decision-making on risk-related matters. The outcomes of the committee’s deliberations and decisions are reported to and reviewed by the Board of Directors. Advice from the Board on risks requiring particular attention and on measures for specific risks is utilized to formulate risk countermeasures and improve risk management activities. The objective evaluation of risk management is conducted by the Department in charge of internal audits. This department assesses the effectiveness of the system and processes and reports important matters annually to the Audit Committee and the Board of Directors.
Subsidiaries and Affiliates, which are responsible for implementing risk management, strive to manage risks autonomously. For these implementing entities, the Headquarters/Business Divisions and the department responsible for risk management (the Department in charge of ERM and the Risk Management Committee Secretariat) promote and support various activities, focusing on risks that could have a significant impact. In the event that a risk materializes and causes a serious impact on management, the Crisis Management Committee, chaired by the President & CEO, Representative Executive Officer, takes the lead in initial response measures and ensuring business continuity.

Risk Management Process

At Yokogawa, we conduct a comprehensive global risk assessment every year, which involves identifying, analyzing, and evaluating risks surrounding our business. We define risks as uncertainties that may affect the corporate value of the Yokogawa Group. This definition encompasses not only negative impacts but also positive opportunities.
Risks are classified into two main categories: business opportunities-uncertainties associated with strategic management decisions-and compliance and crisis events-uncertainties related to the proper and efficient execution of operations. Business opportunities are further divided into external environment and strategy, while compliance and crisis events are subdivided into operations and crisis events. Altogether, we classify 57 key risks to ensure comprehensive risk coverage.
Based on these key risks, our headquarters, business divisions, and group companies identify relevant risks in the operations. The identified risks are analyzed from the perspectives of both impact and likelihood. The impact analysis considers not only financial and human aspects but also potential effects on external stakeholders, including social and environmental dimensions.
The analyzed risks are then plotted on a risk map. Risks are evaluated in six grades, from AAA to D, according to the level of tolerance. Those assessed as AAA to A are defined as intolerable risks. Taking into account management strategies, business challenges, changes in the external environment, and the adequacy of risk countermeasures, we select candidates for materials risks, which require focused management attention.
Materials risks are determined by the Risk Management Committee and reported to the Board of Directors twice a year. For each risk, a responsible department (risk owner) is designated to implement countermeasures based on the management plan. The progress of these measures is monitored quarterly, using methods tailored to each risk category. The Risk Management Committee reviews changes and countermeasures based on monitoring results and reports its findings to the Board of Directors. Furthermore, advice from the Board, discussions held by the Risk Management Committee, and instructions from the President and CEO are reflected in the selection of material risks for the following year. Through continuous review and improvement of the risk management process and countermeasures, Yokogawa operates a PDCA (Plan–Do–Check–Act) management cycle to ensure more effective risk management across the organization.

Metrics and Targets　＜Metrics and targets for assessing and managing climate-related risks and opportunities＞

Recommended disclosures：a）Metrics for assessment　b）GHG emissions and related risks　c）Targets and performance

 

Metrics and Targets

Yokogawa has set the achievement of carbon neutrality through the reduction of GHG emissions and the transition to affordable reliable, and sustainable energy as a contribution area with the goal of achieving it by 2030.
We have set the target of reducing the CO₂ emissions from our customers’ businesses by 1 billion tons (fiscal year 2018 to fiscal year 2030). It is a target we will work together with customers to achieve. We aggregate the difference between customers’ CO₂ emissions from renewable energy-related business or low-carbon energy production, and average CO₂ emissions from fossil fuels usage, then record it as a contributing volume. We have set indicators and targets (for fiscal year 2028) to track progress and drive initiatives in our business activities for the renewable energy industry.
In addition, regarding GHG emissions at our business sites, we have established ambitious long-term targets to achieve net-zero emissions: Scope 1 and 2 by fiscal year 2030, and Scope 3 by fiscal year 2050. The GHG emission reduction targets that the Yokogawa Group set in 2021 have been certified by the Science Based Targets initiative (SBTi)^*1, an international environmental body, as science-based near-term targets consistent with the Paris Agreement goal of holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C. In fiscal year 2024, we committed to the SBTi Net-Zero standard by updating our net-zero targets and bringing forward the target year. Yokogawa aims to achieve net-zero by fiscal year 2050 in line with the SBTi Net-Zero standard targeting to reduce a 90% in the GHG emissions across its value chain, and studying the utilization of carbon credits to address the remaining 10%.

*1 The SBTi was established jointly by the international not-for-profit environmental group CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). It aims to achieve the goal of the Paris Agreement by encouraging companies to set science based GHG emission reduction targets.

Fiscal year 2030 target and result

Indicator	Fiscal year 2030 (2050) target	Fiscal year 2024 result
CO2 emissions control amount through customers	1 billion t-CO2 (FY2018 to FY2030 cumulative total)	0.43 billion t-CO2 (FY2018 to FY2024)
GHG emissions (Scope 1, 2)	100% reduction by FY2030 (base year: FY2019)	41.7％ reduction
GHG emissions (Scope3)	30% reduction by FY2030 (base year: FY2019)*2 100% reduction by FY2050 (base year: FY2019) *2 Emissions from purchased goods and services (Category 1) and emissions from the use of sold products (Category 11)	3.8％ reduction*2
Energy consumption (Intensity per sales)	30% reduction by FY2030 (base year: FY2023)	14.3% reduction

Performance

In fiscal year 2024, the reduction in CO₂ emissions from our customers’ businesses increased mainly due to contributions to wind power, reaching a cumulative total of 0.43 billion tons since fiscal year 2018. GHG emissions (Scope 1 and 2) were reduced by 41.7% compared with fiscal year 2019, thanks to initiatives such as energy-saving measures, the conclusion of large-scale solar power PPA contracts at production sites, and the promotion of switching to electricity derived from renewable energy.
Regarding GHG emissions from the supply chain (Scope 3), we achieved a 3.8% reduction in total emissions from Category 1 and Category 11 compared to the baseline year of fiscal year 2019. This represents a 10.9% decrease from the previous fiscal year. We have focused on collaborative initiatives with suppliers to mitigate the increase in emissions. At Yokogawa, approximately 87% of overall Scope 3 GHG emissions are from Category 1 and Category 11, addressing these areas is essential to achieving carbon neutrality goals.
To achieve our fiscal year 2050 targets, we are advancing initiatives to reduce GHG emissions through cooperate with suppliers, reduce the power consumption of existing products, and develop low-emission products and solutions. Since Scope 3 reductions are difficult to achieve in a short term, we will formulate a roadmap and work with a long-term perspective to achieve our targets.