Climate-related disclosures in line with the Recommendations of the TCFD

In December 2020, Kobe Steel announced that it supports the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

TCFD

TCFD Consortium

Kobe Steel supports the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (December 10, 2020 Notice)

Our climate-related disclosures in line with the Recommendations of the TCFD is as follows.

Climate-related Governance

In our company, as an organization specialized in issues related to climate-related risks and opportunities, the CO₂ Reduction Promotion Subcommittee (Chairperson: Officer in charge of Corporate Planning Department) was established in the CSR Committee (Chairperson: Director, Senior Managing Executive Officer) to conduct strategic studies related to climate change, and the CO₂ Reduction Technology Working Group was established in the Research and Development Committee to conduct technical studies related to climate change. This put into place a structure for facilitating　Companywide activities to reduce CO₂ emissions.

Assessment and management of climate-related risks and opportunities are regarded as important management issues, and important decisions of the CO₂ Reduction Promotion Subcommittee are subject to the approval of the relevant Executive Steering Committee. The Steering Committee consists of directors and executive officers , as knowledge from a wide range of perspectives and viewpoints is required for climate-related issues, including business, management, legal, and technological development.

The results and activities of the CO₂ Reduction Promotion Subcommittee and the CO₂ Reduction Technology Study Working Group are reported to the Board of Directors once a quarter through the CSR Committee (Chairperson: Director, Senior Managing Executive Officer) and are supervised by the Board of Directors. In addition, important climate-related decisions are proposed to the Exectutive Council and the Board of Directors through the CSR Committee, deliberated by the Executive Council, and approved by the President and the Board of Directors.

Climate-Related governance structure

Climate-Related Strategy

Kobe Steel analyzes the medium- to long-term risks and opportunities associated with climate change based on consideration for the socio-economic scenarios proposed by the International Energy Agency; the long-term visions formulated and announced by the Japan Iron and Steel Federation, the Japan Aluminium Association, and other industry organizations; and the energy policies of Japan.

Climate-related risks:: As exemplified by the introduction of carbon pricing schemes, environmental regulations on climate change are becoming stricter and have the potential to significantly impact the Company’s performance and financial position. In addition, given the increasing severity of damages from floods and typhoons, it is anticipated that the increase of natural disasters due to climate change may cause declines in production volumes and disruptions of supply chains.
Climate-related opportunities:: As international concern for climate change-related issues rises, demand is growing for low-carbon products and services. We can expect that demand for the KOBELCO Group’s products and services that help reduce CO₂ emissions, such as materials for automotive weight reduction and the MIDREX® Process, will increase over the medium to long term.

Short-to-Medium- and Long-Term Climate-Related Risks and Opportunities

Responses to Risks and Opportunities (R&D)

Reduction of CO₂ Emissions in Production Processes:: Japan’s steelmaking technologies are already at the most advanced levels in the world. Kobe Steel is participating with other steelmakers in the three development projects outlined below that are being promoted by the New Energy and Industrial Technology Development Organization (NEDO) in a bid to further reduce CO₂ emissions in the blast furnace ironmaking process and to realize practical application of these developments. In addition, the Company is advancing research and development with the aim of increasing energy efficiency in its reduction and melting processes.

Reduction of CO<sub>2</sub> Emissions in Production Processes

Contribution to Reduction of CO₂ Emissions through Technologies, Products, and Services: The KOBELCO Group is engaged in ongoing R&D projects to realize further benefits of CO₂ emissions reductions in its existing lineup of products that contribute to emissions reductions, such as materials for automotive weight reduction and heat pumps. Midrex Technologies, Inc., has formed a joint-development agreement with ArcelorMittal, S.A., pertaining to a direct reduction ironmaking technology that utilizes hydrogen (see page 23). In addition, we are moving ahead with the development of an energy storage system using compressed air among other proactive efforts to develop new technologies, products, and services that help reduce CO₂ emissions.

ArcelorMittal commissions Midrex to design demonstration plant for hydrogen steel production in Hamburg (September 17, 2019 Press release)

Impacts on businesses, strategy and financial planning

According to the "Mandatory Greenhouse Gas Accounting and Reporting System of FY2016 (Ministry of the Environment)" Kobe Steel is the 3rd largest emitter of greenhouse gases in Japan.Our company also pays the Tax for Climate Change Mitigation (CO₂ emissions from the use of coal, oil, LPG and LNG: \289 per 1 ton), and in the future, if the Tax for Climate Change Mitigation is increased or a new carbon pricing is imposed, it is expected to have a significant impact on our business, so we always keep a close eye on these trends. If regulations or taxes are imposed on CO₂ and other emissions in the future, our group's business activities, particularly those related to steel, will be restricted, and there is a possibility that our group's business results will be affected by a decrease in sales or an increase in costs.

The KOBELCO group has been promoting energy conservation efforts as a measure to mitigate the impact of carbon pricing. Our group invested approximately 4.2 billion yen in energy conservation capital investments in fiscal 2019.

Examples of investments in fiscal 2019 included an increase in the output of a top pressure recovery turbine power plant (TRT) at the Kakogawa Works, the introduction of the latest high-efficiency compressors, and the strengthening of thermal insulation at the Moka Works. For other initiatives, please refer to the following link.

Supplementary Material for Integrated Report 2020　Initiatives to Reduce Energy and CO₂ Emissions

The KOBELCO group is also engaged in the development of various technologies related to "Reduction of CO₂ Emissions in Production Processes" and "Contribution to Reduction of CO₂ Emissions through Technologies, Products, and Services" in order to contribute to the reduction of CO₂ emissions by society as a whole. In fiscal 2019, we spent approximately 5.8 billion yen on research and development related to climate change.

Supplementary Material for Integrated Report 2020　Environmental Accounting

Scenario Analysis

In fiscal 2019, the Company began examining measures based on socio-economic scenarios. Examinations will be advanced in conjunction　with medium- to long-term strategies, and the appropriate analysis results will be disclosed.

Climate-Related Risk Management

In accordance with Risk Management Regulations, risk management activities identify factors that obstruct the sustainable development and the improvement of the corporate value of the KOBELCO Group, and we take measures accordingly against them. In terms of the scope of Companywide risk management, Top Risks and Significant Risks are defined as risks that would require a Groupwide action and that have a major impact on the Group and its stakeholders. Under this framework, the President is the person ultimately responsible for the Group's overall risk management, and the Director in charge of the Corporate Planning Department is the person responsible for overseeing risk management across the Group. Meanwhile, individual risks are managed by the relevant Directors in charge (the Risk Owners) as the persons responsible for Groupwide management activities, and the countermeasures to these risks are executed by the heads of businesses and the Directors in charge of the head offices to establish a risk management system that encompasses the entire organization.

With regard to climate-related risks, we identify and identify "Migration risks: Policy and legal regulations" and "Physical Risks — Natural Disaster Preparedness and Recovery" as risks that have a significant impact on our group and its stakeholders and that need to be addressed across the Group "Top Risk". Each risk owner is assigned to strengthen risk management.

Types and Definitions of Risk

Framework of Risk Management Activities across the Group

Climate-Related Metrics and Targets

Metrics

The KOBELCO Group sets specific metrics for CO₂ reduction activities, such as Reduction of CO₂ Emissions in Production Processes (Metric A) and Contribution to Reduction of CO₂ Emissions through Technologies, Products, and Services (Metric B), and sets and manages targets for each.

Kobe Steel positions these 2 metrics as non-financial KPIs of and manages them. non-financial KPIs including CO₂ reduction are discussed at the Executive Council as important items in the budget once a year, and then discussed and approved by the Board of Directors.

Greenhouse gas Emissions (Scope 1, 2, 3)

In response to global warming, the KOBELCO Group promotes rationalization and R&D to reduce energy consumption throughout its operations in an effort to decrease greenhouse gas emissions.

In fiscal 2019, the KOBELCO Group’s businesses generated 16.5 Mt of CO₂ emissions from Energy Use in total.

KOBELCO Group worldwide CO₂ emission data over the past three years

	Unit	FY 2017	FY 2018	FY 2019
CO₂ emissions from Energy Use (Scope 1 + 2)	Million t-CO₂	18.7	17.4	16.5 (16.3^*1 ✔)
CO₂ emissions from Energy Use (Scope1)	Million t-CO₂	17.7	16.4	15.6 (15.5^*1 ✔)
CO₂ emissions from Energy Use (Scope2)	Million t-CO₂	1.0	1.0	0.9 (0.8^*1 ✔)
Net sales	Million yen	1,881,158	1,971,869	1,869,835
CO₂ emission intensity from Energy Use per Net sales	t-CO₂/ Million yen	9.9	8.8	8.8
CO₂ emission intensity from Energy Use per Net sales	Compared to FY2017	-	-11%	-11%
Products (crude steel, aluminum rolled products, copper rolled products)	Million t	8.1	7.5	7.0
CO₂ emission intensity from Energy Use per t-Product	t-CO₂/ t-Product	2.3	2.3	2.3

*1 Kobe Steel, Ltd. and group companies in Japan

*2 The data above covers 99% of the environmental impact of the KOBELCO Group. Emissions from offices are not included.

*3 Emissions from the Iron & Steel Business include those from coke production.

*4 As emission factors from purchased power in fiscal 2019 have yet to be announced, results for fiscal 2018 were used.

*5 Emissions for past years have been recalculated due to revisions to electric power coefficients, etc.

✔: Items covered by third-party assurance. In order to improve the reliability and transparency of CO₂ emissions data, Kobe Steel receives a third-party assurance.
- Third Party Assurance

Estimated GHG Emissions (Kobe Steel, Ltd.) (Scope1)

Item	FY 2017	FY 2018	FY 2019
1. Energy-derived CO₂ emissions^*1	17,700,000 t-CO₂	16,400,000 t-CO₂	15,600,000 t-CO₂
2. Non-energy derived CO₂ emissions	624,000 t-CO₂	565,000 t-CO₂	574,000 t-CO₂
3. Methane (CH₄)	6,230 t-CO₂	5,750 t-CO₂	5,570 t-CO₂
4. Nitrous oxide (N₂O)	43,700 t-CO₂	40,500 t-CO₂	43,600 t-CO₂
5. Hydrofluorocarbons (HFCs)	0 t-CO₂	0 t-CO₂	0 t-CO₂
6. Perfluorocarbons (PFCs)	0 t-CO₂	0 t-CO₂	0 t-CO₂
7. Sulfur hexafluoride (SF₆)	12,900 t-CO₂	15,600 t-CO₂	16,900 t-CO₂
8. Nitrogen trifluoride (NF₃)	0 t-CO₂	0 t-CO₂	0 t-CO₂

*1 Includes emissions of Group companies in and outside Japan

Kobe Steel, Ltd. Scope 3 emissions over the past three years (unit: thousand t-CO₂) (Amended December, 2020)

Category	FY 2017	FY 2018	FY 2019	Calculation method
1. Purchased goods and services	5,805	5,353	5,214 ✔	Annual amount of iron ore, coking coal, aluminum and copper multiplied by CO₂ emissions unit values^*1
2. Capital goods	289	273	263 ✔	Capital investment cost multiplied by CO₂ emissions unit values^*1
3. Fuel- and energy-related activities	295	278	302 ✔	Annual consumption of electricity, steam and fuel etc. multiplied by CO₂ emissions unit values^*1
4. Upstream transportation and distribution	211	201	192 ✔	Using the calculation method for energy-derived CO₂ emissions related to freight transportation by shippers as stipulated in the Act^*2.
5. Waste generated in operations	41	34	39 ✔	The amount of industrial waste for each type multiplied by CO₂ emissions unit values^1 Figures for FY 2017 are estimated based on data from 2018.
6. Business travel	1	1	2 ✔	Number of employees multiplied by CO₂ emissions unit values^*1
7. Employee commuting	5	5	5 ✔	Number of employees multiplied by CO₂ emissions unit values^*1
8. Upstream leased assets	N/A	N/A	N/A	CO₂ emissions associated with the operation of assets leased to Kobe Steel are included in Scope 1 and Scope 2 emissions.
9. Downstream transportation and distribution	N/A	N/A	N/A	We have no applicable business activities.
10. Processing of sold products	3,131	2,946	2,713 ✔	Calculated by multiplying the volume of major steel products by the CO₂ emissions per unit of production for each type of steel product.
11. Use of sold products	-	-	24,702 ✔	Covers major products sold by Machinery business of Kobe Steel. Calculated based on the emissions associated with use for the duration of the service life.
12. End-of-life treatment of sold products	71	66	62 ✔	Calculated by multiplying CO₂ emissions unit values^*1 by the production volume of crude steel, aluminum and copper products
13. Downstream leased assets	N/A	N/A	N/A	We have no applicable business activities.
14. Franchises	N/A	N/A	N/A	We do not have franchises.
15. Investments	N/A	N/A	N/A	We have no applicable business activities.
Total^*3	9,850	9,157	33,494 ✔

*1 Green Value Chain Platform of Ministry of the Environment (Used Ver 2.6 for FY 2017 and FY 2018, and Ver 3.0 for FY 2019), etc.

*2 Act on the Rational Use of Energy

*3 As each category is rounded off to a whole number, the total of each category and the sum of categories 1 to 15 may not match.

✔: Items covered by third-party assurance. In order to improve the reliability and transparency of CO₂ emissions data, Kobe Steel receives a third-party assurance.
- Third Party Assurance

Energy Usage during Manufacturing Processes

In fiscal 2019, the KOBELCO Group worldwide used a total of 196 PJ of energy (equivalent to 5.06 million kl of crude oil) in all of its business divisions.

KOBELCO Group worldwide energy data over the past three years

	Unit	FY 2017	FY 2018	FY 2019
Energy usage	PJ	218	206	196
Net sales	Million yen	1,881,158	1,971,869	1,869,835
Energy intensity per Net sales	GJ/ Million yen	116	104	105
Energy intensity per Net sales	Compared to FY2017	-	-10%	-10%
Products (crude steel, aluminum rolled products, copper rolled products)	Million t	8.1	7.5	7.0
Energy intensity per t-product	GJ/ t-Product	27.1	27.5	27.8

Note:

1. Emissions for past years have been recalculated due to revisions to electric power coefficients, etc.

2. The data above covers 99% of the environmental impact of the KOBELCO Group.

Targets and Results on Risk and Opportunity

Metric A: Reduction of CO₂ Emissions in Production Processes

Targets:: In terms of CO₂ reduction in production processes, We aim to reduce 1.1 million tons of CO₂ by FY2030 (vs.BAU in FY2013).

Performances:

In fiscal 2019, CO₂ emissions from production processes decreased by 1.17 million tons (vs. BAU in fiscal 2013)^*1*2*3*4 due to reductions associated with temporary factors, such as the COVID-19 pandemic. Excluding these temporary factors, we achieved a reduction of 0.68 million tons of CO₂ (vs. BAU in fiscal 2013)^*1*2*3*4.
*1 Total of Scope 1 and Scope 2
*2 Scope: Business locations of Kobe Steel, Ltd., and Kobelco Construction Machinery Co., Ltd. (covers approximately 95% of CO₂ emissions of the entire Group)
*3 BAU (Business as usual): Emissions of greenhouse gases assuming no additional measures are taken
*4 Emission coefficients for fiscal 2018 used, as the emission coefficients for fiscal 2019 have yet to be published

Initiatives:

Following the oil crisis, which spanned from the 1970s to the 1990s, Japan’s steel industry moved to utilize energy more effectively by installing waste heat collection systems and conserving energy by switching to continuous processes and shorter processes. From the 1990s, the steel industry focused on upgrading waste heat collection systems and increasing the efficiency of equipment while taking steps to effectively use waste materials. In recent years, industry players have installed highly efficient gas turbine power plants.
Kobe Steel has maintained a consistent approach in advancing various energy conservation and CO₂ reduction measures through proactive capital investments. For example, highly efficient gas turbine power generation facilities that use gas from blast furnaces were installed at Kakogawa Works over the period from fiscal 2009 to fiscal 2014, resulting in a substantial reduction of CO₂ emissions.
With the goal of accomplishing its targets for fiscal 2030, the KOBELCO Group is engaging in thorough energy conservation efforts and capital investments. To this end, the Group is working to build and achieve a steelmaking industry with low CO₂ emissions through collaboration between the Steel & Aluminum Business, which belongs to the materials businesses, and the Engineering Business, which is part of the machinery businesses.

Metric B: Contribution to Reduction of CO₂ Emissions through Technologies, Products, and Services

The KOBELCO Group contributes to reduction of CO₂ emissions in various areas of society through its distinctive technologies, products, and services.

Targets:: In terms of our contribution to reduction of CO₂ emissions through technologies, products, and servicescontribution to reducing CO₂ emissions through technology, products and services, we aim to reduce 49 million tons of CO₂ emissions by 2030.

Performances:: The CO₂ Reduction Promotion Subcommittee estimates that the KOBELCO Group’s technologies, products, and services contributed to a reduction of CO₂ emissions totaling 32.62 million tons.

Past Contribution to Reduction of CO<sub>2</sub> Emissions

Initiatives:: Regarding the contributions to reduction of CO₂ emissions through technologies, products, and services, the Group has instituted an internal accreditation system. For the formulas used in accreditations, we receive advice from Kiyotaka Tahara, the laboratory leader of the Research Laboratory for IDEA at the Research Institute of Science for Safety and Sustainability at the National Institute of Advanced Industrial Science and Technology.

Accreditation Flow

Progress in qualitative and quantifiedquantitative targets, including the 2030 targets for indicatorsMetric A and B

Integrated Report 2020　Environmental medium- to long-term goals and their Initiatives

Initiatives for Implementation	Long-Term Policies	Medium-Term Targets	Fiscal 2019 Results Self-assessment ○: Progressing as planned / △: Some issues remaining / ×: Plan not achieved	Initiatives for Fiscal 2020
Measures against global warming	Save energy, reduce CO₂ emissions, and combat global warming in every aspect of the Group’s operations	Continue implementing energy-saving initiatives, working toward achievement of each industry’s Commitment to a Low Carbon Society	Established CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group; set fiscal 2030 target for reducing CO₂ emissions from production processes Steadily implemented energy conservation initiatives while conducting energy-saving investments to achieve targets Target for reducing CO₂ emissions from production processes: Fiscal 2030 target: Reduction of 1.1 million tons of CO₂ (vs. BAU in fiscal 2013) Fiscal 2019 performance: Reduction of 0.68 million tons of CO₂ (actual value, vs. BAU in fiscal 2013)	〇	Begin formulating a long-term vision centered on the CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group Steadily continue energy conservation initiatives while conducting energy-saving investments to achieve targets
Contributing to the environment through technologies, products, and services	Keep all product and technical development environmentally friendly, and create environmentally sustainable products and new businesses	Contribute to the creation of a low-carbon society through the efforts of the entire KOBELCO Group by working on issues in the environment and energy fields, such as weight reduction of transportation vehicles, the creation of a hydrogen-based society, and the diversification of power sources	Established CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group; set fiscal 2030 target for contribution to reduction of CO₂ emissions through technologies, products, and services Helped reduce CO₂ emissions by providing MIDREX^® Process, which uses raw materials with low CO₂ emissions, and by improving fuel economy with ultra-high-strength steel Targets for contribution to reduction of CO₂ emissions through technologies, products, and services: Fiscal 2030 target: Contribution to reduction of 49 million tons of CO₂ emissions Fiscal 2019 performance: Contribution to reduction of 32.62 million tons of CO₂ emissions	〇	By expanding sales of technologies, products, and services and conducting technical development of multi-materials, undertake measures to reach targets for reduction of CO₂ emissions and help reduce CO₂ emissions in society

Initiatives for Implementation

Long-Term Policies

Medium-Term Targets

Fiscal 2019 Results
Self-assessment
○: Progressing as planned / △: Some issues remaining / ×: Plan not achieved

Initiatives for Fiscal 2020

Measures against global warming

Save energy, reduce CO₂ emissions, and combat global warming in every aspect of the Group’s operations

Continue implementing energy-saving initiatives, working toward achievement of each industry’s Commitment to a Low Carbon Society

Established CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group; set fiscal 2030 target for reducing CO₂ emissions from production processes

Steadily implemented energy conservation initiatives while conducting energy-saving investments to achieve targets

Target for reducing CO₂ emissions from production processes:
Fiscal 2030 target: Reduction of 1.1 million tons of CO₂ (vs. BAU in fiscal 2013)
Fiscal 2019 performance: Reduction of 0.68 million tons of CO₂ (actual value, vs. BAU in fiscal 2013)

〇

Begin formulating a long-term vision centered on the CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group
Steadily continue energy conservation initiatives while conducting energy-saving investments to achieve targets

Contributing to the environment through technologies, products, and services

Keep all product and technical development environmentally friendly, and create environmentally sustainable products and new businesses

Contribute to the creation of a low-carbon society through the efforts of the entire KOBELCO Group by working on issues in the environment and energy fields, such as weight reduction of transportation vehicles, the creation of a hydrogen-based society, and the diversification of power sources

Established CO₂ Reduction Promotion Subcommittee and CO₂ Reduction Technology Study Working Group; set fiscal 2030 target for contribution to reduction of CO₂ emissions through technologies, products, and services

Helped reduce CO₂ emissions by providing MIDREX^® Process, which uses raw materials with low CO₂ emissions, and by improving fuel economy with ultra-high-strength steel

Targets for contribution to reduction of CO₂ emissions through technologies, products, and services:
Fiscal 2030 target: Contribution to reduction of 49 million tons of CO₂ emissions
Fiscal 2019 performance: Contribution to reduction of 32.62 million tons of CO₂ emissions

〇

By expanding sales of technologies, products, and services and conducting technical development of multi-materials, undertake measures to reach targets for reduction of CO₂ emissions and help reduce CO₂ emissions in society

Links:

Long-Term Initiatives to Address Climate Change
Other Initiatives / Climate-related Organizations to Which We Belong:
Initiatives to Reduce Energy and CO₂ Emissions
Adaptation to Climate Change: Please click
Disaster Prevention Initiatives—Handling of Wind and Flood Damage for more information.

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