Ongoing Initiatives to Address TCFD Recommendations

Governance Structure for Climate Change Response

At INPEX, we recognize that addressing climate change is an important management issue. Our Board of Directors maintains a supervisory role and is expanding its involvement in this area. In particular, matters that relate to our Corporate Position on Climate Change require a resolution of the Board of Directors. During meetings of the Board of Directors, we also report on assessment results of climate change risks and opportunities, as well as the progress of our five net zero businesses. In FY2023, proposals related to climate change response - including the five net zero businesses - were discussed at 14 of the total 16 Board of Directors meetings held. This resulted in three items for resolution and 18 items for deliberation and reporting. In addition, we have established a Sustainability Committee which is chaired by the President & CEO. The Committee’s advisory body, the Climate Change Strategy Working Group, assesses climate-related risks and opportunities. Matters assessed and discussed by the working group are reported to and deliberated by the Sustainability Committee, after which they are approved by the President & CEO, and then reported to the Executive Committee and the Board of Directors.

Our governance structure for climate change response has been highly evaluated both in Japan and overseas, and was listed in the TCFD’s 2022 Status Report as a case study.

Governance Structure for Climate Change Response

Roles

1. Board of Directors: Decisions on Corporate Position on Climate Change, and supervision of climate change responses
2. Executive Committee: Decisions on assessments of climate-related risks and opportunities, and decisions on important goals relating to climate change responses
3. Sustainability Committee: Deliberation of basic policies on sustainability and promotion of Group-wide, systematic sustainability activities
4. Climate Change Strategy Working Group: An advisory body to the Sustainability Committee, comprising about 30 cross-organizational members and responsible for assessing climate-related risks and opportunities
5. Corporate HSE Committee: Aggregation, analysis, and reporting of GHG emissions according to the Health, Safety and Environmental Policy (HSE Policy)

Climate Change Response and Officers’ Compensation

In FY2022, we revised our compensation system for all of our internal Directors, including Representative Directors. We adopted net carbon intensity—the indicator used in our Long-term Strategy and Medium-term Business Plan (INPEX Vision @2022) - as a key performance indicator for stock - based compensation. For the officer in charge of climate change response, qualitative targets are set each year to promote climate change response, including goals for addressing climate change, risk management, and information disclosure. The degree to which these targets have been achieved is evaluated and reflected in their compensation.

Strategy

Our business strategy is to attain net zero emissions by 2050. We will achieve this in two ways: by providing a stable supply of energy through ongoing clean and robust upstream businesses, and by accelerating initiatives for the five net zero businesses.

FY2023 Status of Climate-related Risks: Assessment Coverage, Expected Timing, and Action Plans

FY2023 Status of Climate-related Opportunities: Assessment Coverage, Expected Timing, Long-term Strategies, and Progress

Case Study: Promotion of forest conservation targeting net zero emissions

Importance of Forest Conservation and Afforestation in Tackling Climate Change

There is a growing interest in nature-based solutions as a way to tackle climate change, and as a responsible company with worldwide operations, we are also eager to increase our involvement in this area. Forest conservation and afforestation projects not only reduce CO₂ emissions by preventing deforestation and forest degradation and increase CO₂ absorption through afforestation, but also offer co-benefits by safeguarding critical biodiversity, conserving water sources, reducing soil erosion, and raising the living standards of local communities, thereby contributing to achieving the United Nations’ Sustainable Development Goals (SDGs).

INPEX’s Forest Conservation and Afforestation Initiatives

In our Long-term Strategy and Medium-term Business Plan of INPEX Vision @2022, we identified forest conservation as one of the five net zero businesses we plan to promote in pursuit of a net zero carbon society by 2050. The reason is that in accordance with the approach of a mitigation hierarchy¹, we are focusing on CO₂ absorption through forest conservation and afforestation as a complement to our initiatives to achieve our net zero goal through cleaner oil and gas businesses, a transition to natural gas, CCUS, and renewable energy. As the operator of the Ichthys LNG Project in Australia, we are implementing a savannah fire management program in the Northern Territory and a eucalyptus tree planting program in the South West region of Western Australia. Through the savannah fire management program, we are supporting development and operation of the project, and our project-related fire management technologies are contributing to reduced GHG emissions from fires. The eucalyptus tree planting program began in 2008, and to date, approximately 1.4 million eucalyptus seedlings have been planted. In addition to sequestering carbon, the program is helping prevent salinity and erosion-related soil degradation while creating windbreaks for neighboring land.

Through these two programs, we have accumulated 235,737 tons worth of Australian carbon credit units (ACCUs). (One ACCU represents one ton of carbon dioxide equivalent (tCO₂-e).)

Additionally, in 2023 we commenced tree planting for a carbon farming and renewable biofuel project - Wheatbelt Connect - in collaboration with Australia and New Zealand Banking Group Limited (ANZ) and Qantas Airways Limited.

¹ Mitigation hierarchy: The idea that after avoiding, minimizing, or taking steps to remedy negative impacts on the environment, the final measure should be an offset to compensate for any remaining impacts

INPEX’s Approach to Procuring and Utilizing Carbon Credits

For our carbon offsets on GHG emissions, we use carbon credits certified under highly trusted domestic and international schemes, which we receive in return for support and participation in forest conservation projects. We also track the latest developments in the carbon credit market such as initiatives in Japan and overseas and assess the medium- and long-term performance of our projects. Through these efforts, we work to procure high-quality credits. We select and use carbon credits certified under the following schemes:

Verified Carbon Standard (VCS): Verification standard established by Verra, an international body for setting carbon offset standards

Joint Crediting Mechanism (JCM): Japanese Government-led bilateral credit program for reduction and removal of GHG emissions in cooperation with developing countries, with both sides sharing the benefits of reduction and removal

J-Credit: Scheme designed to certify the amount of GHG emissions reduced and removed in Japan, with credits certified by the Japanese Government.

Australian carbon credit units (ACCUs): Australian carbon credits issued according to Australia’s emissions reduction act

Efforts to Procure High-quality Credits

1.  Internal Project Assessments
   To ensure acquisition of high-quality carbon credits from top-grade projects, we first assess projects before making a final selection and purchase. These assessments are designed to identify any permanence² concerns or potential issues with local communities and other stakeholders, and also to verify that land ownership and usage rights are unambiguous and guaranteed to extend beyond the life of the crediting period. We make a comprehensive judgment on projects by considering the results of these internal assessments alongside the results of credit evaluations by external assessment companies such as Calyx Global Inc.
2.  Priority on Projects with Co-benefits
   In addition to the effectiveness of reducing CO₂ emissions and absorbing CO₂, we give preference to projects that deliver co-benefits by contributing to the United Nations’ SDGs.
   • Sustainable Development Verified Impact Standard (SD VISta): framework for certifying a project’s contribution to the SDGs
   • Climate, Community & Biodiversity Standards (CCB Standards): A framework for certifying projects that simultaneously address climate change, support communities, and conserve biodiversity.

² Permanence: The concept that refers to the need to ensure that CO₂ reduction and absorption volumes are nonreversible, with no risk of release into the atmosphere

Financial Impact Assessment of Transition Risks

We use two methods to assess the potential financial impact of climate-related risks using scenarios in the International Energy Agency (IEA) World Energy Outlook (WEO) report.

The first method is an economic assessment of our projects using our internal carbon price. We employ this method because more than 150 countries and regions have already declared net zero targets by 2050, anticipating a growing number of countries to introduce carbon pricing as they bolster policies to tackle climate change. Each year, we update our internal carbon price with reference to the carbon prices in the Stated Policies Scenario (IEA-STEPS) in the WEO. Starting in FY2023, we reflect the IEA WEO carbon price forecast and, if there is a carbon price system in the country in which we operate, reference our quoted price based on factors such as estimates provided by external experts. If there is no carbon price system in the country in which we operate, we reference variable prices linked to the IEA-STEPS EU prices (2030: US$120/tCO₂e; 2040: US$129/tCO₂e; 2050: US$135/tCO₂e).

The second method is to assess the financial impact on our business portfolio. This is an evaluation of the impact on our portfolio from the oil and carbon prices in the STEPS, Announced Pledges Scenario (APS), and Net Zero Emissions by 2050 Scenario (NZE). We apply the oil and carbon prices under these three scenarios to the net present value (NPV) calculation for projects, and calculate the percentage of change from the NPV for the base case to assess the impact on our portfolio. We will continue to refine the implementation standards for this method to improve the competitiveness of our business portfolio as we factor in changes in the business environment.

Assessment of Physical Risks at Our Assets

We analyze physical risks to the Company as either acute risks or chronic risks, and we review them each year. In FY2018, we reviewed the process for assessing physical risks and developed a roadmap. In FY2019, we started assessing physical risks at the Ichthys LNG Project and our domestic assets in Niigata Prefecture, as major operator projects. Together, they account for 100% of our insurance coverage of operator projects in operation domestically and internationally. In FY2020 and FY2021, we also assessed physical risks at 11 non-operator projects. In FY2022, we reassessed physical risks at Naoetsu LNG Terminal, one of our major facilities, following a revision of a report that informs our assessments. This report provides observations and projections assessment, as issued by the Japan Meteorological Agency. The Representative Concentration Pathways 8.5 (RCP 8.5) scenario, discussed in this report, predicts an average sea level rise of approximately 0.19 meters. Our assessment showed that this facility structure can withstand a sea level rise of that magnitude. In FY2023, we hired an external assessment service to calculate the costs of direct damage and indirect damage to our domestic assets caused by potential riverine flooding and storm surges. As a result, limited potential damage was confirmed, as of 2030 and 2050, to the top 10 sites (domestic plants, domestic gas pipelines, and major subsidiary offices) covered by our comprehensive corporate indemnity insurance. For all these physical risk assessments, we used the same indices, such as mid-21st century average temperature rises and sea level rises, in the RCP 8.5 scenario outlined in the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5).

For chronic risks, the assessments indicate a low risk from floods at the Ichthys LNG Project and other major facilities located on the seaboard because they have been designed to withstand rising sea levels. Future temperature increases could conceivably impair operating efficiency, but because we conduct ongoing improvements to the facilities as required, we have concluded that no major damage is likely to occur through 2030.

For acute risks, we strive to ensure that our major operator projects are adequately prepared for typhoons, cyclones, and other extreme weather phenomena through appropriate planning, operational measures, training, and use of external information. At the LNG receiving pier of the Naoetsu LNG Terminal, we have installed an interconnection line linking to the neighboring power station. This setup ensures continuity in operations in the event of damage to our own facilities, enabling us to continue to receive LNG shipments via the pier. Insuring our major facilities against natural disaster is another way we strive to reduce financial losses associated with acute risks. We also assessed risks to our gas pipeline from natural disasters in Japan and considered counter­measures, from which we carried out replacement work on sections of the pipeline deemed to have a high natural disaster risk.

In the Hazard Identification (HAZID) guidelines, a HSE management system document, we have included a section on the impact of climate change in the introductory work for HAZID workshops. We are incorporating physical risk assessments into our risk management approach across all life cycles of business activities, including new projects. Cross-organizational teams will continue to conduct periodic physical risk assessments and make appropriate disclosures regarding physical risks. Simultaneously, we aim to diversify our analysis methods to conduct more comprehensive assessments.

INPEX’s Low-carbon Society Scenarios

In considering the outlook for the business environment, including energy demand and supply toward a low-carbon society by 2050³ , we refer to the STEPS, APS, and NZE of the IEA WEO as well as the Reference Scenario and Advanced Technologies Scenario of The Institute of Energy Economics, Japan (IEEJ).

Our Long-term Strategy and Medium-term Business Plan (INPEX Vision @2022) was developed based on these scenarios. We will continue to conduct scenario reviews to promptly identify changes in the business environment, and review management strategies and plans in line with social trends.

³ The IEA WEO sets out a panoramic view of the international energy situation through 2050.

Assessment and Management of Climate-related Risks and Opportunities

As a general rule, we assess and manage climate-related risks and opportunities on an annual basis. Our overall response to climate change is managed by the Climate Change Strategy Group that resides in the Corporate Strategy & Planning Unit of the Corporate Strategy & Planning Division.

The Climate Change Strategy Working Group - composed of some 30 representatives from each division of the company - conducts climate-related risk assessments and develops proposals for prevention or mitigation measures. These proposals are deliberated by the Sustainability Committee and reflected in annual plans.

Our climate-related risk assessment process follows the procedure outlined in ISO 31000:2009 (Figure A), an international risk management standard. We update external and internal factors and share information regarding the Company’s status among Working Group members. We then identify risks and analyze their causes, preventive measures, mitigation measures, and residual risks (Figure B). The residual risks are assessed using the Risk Assessment Matrix Based on TCFD Recommendations (Figure C), developed by the Company.

Our disclosure of climate-related risk assessments was featured as a best practice in the Guidance on Climate-Related Financial Disclosures 3.0 (Case Examples), published by the TCFD Consortium.

Figure A: ISO 31000 Process

Figure B: Risk Analysis Process

Figure C: Risk Assessment Matrix Based on TCFD Recommendations

As outlined in our Long-term Strategy and Medium-term Business Plan (INPEX Vision @2022), we adopt a Group-wide approach to climate-related opportunities, with a focus on the Innovation Division, Hydrogen & CCUS Development Division, and Renewable Energy Division.

INPEX’s Current Initiatives based on the Corporate Position on Climate Change further details initiatives related to the five net zero businesses, cleaner upstream businesses, and the transition to natural gas. This document undergoes deliberation by the Sustainability Committee, approval by the President & CEO, and subsequent reporting to the Executive Committee and the Board of Directors (Figure D).

Figure D: Process of Assessing and Managing Climate-related Risks

Metrics and Targets

Goals for Addressing Climate Change

We have set three goals to help realize a net zero carbon society in accordance with the objectives of the Paris Agreement.

The first goal is to achieve net zero emissions by 2050 pursuant to the Paris Agreement. The second is to achieve a reduction of at least 30% in net carbon intensity (compared to 2019) by 2030 in the process of fulfilling the first goal. The third is to cooperate with all relevant stakeholders across the value chain to reduce the Scope 3 emissions from combustion of the oil and gas we sell.

In our 2022 - 2024 Medium-term Business Plan, we added one further goal to reduce our net carbon intensity by 10% (4.1 kg-CO₂-e/boe) over that three-year time frame, in pursuit of our 2030 target.

Goals for Addressing Climate Change

Results

In FY2023, our GHG emissions (Scope 1 and 2) amounted to approximately 6.92 million tons-CO₂-e, which was an increase of approximately 0.1 million tons-CO₂-e on FY2022 levels. The main cause of this increase in GHG emissions was an increase in production at the Ichthys LNG Project.

INPEX's Net Carbon Intensity

The following table lists GHG emissions in FY2023 from businesses within our operational control.

Operational control: This scope includes our head office and Technical Research Center (both in Tokyo), overseas offices, and operational organizations in Japan and overseas.

Efforts to Reduce INPEX’s GHG Emissions

In order to reduce GHG emissions, as operator for projects in Japan and overseas, we implement energy-saving activities tailored to the site’s circumstances, and avoid continuous flaring and venting during routine operations.

At INPEX head office as well, we effectively use renewable energy for 100% of our energy needs.

In addition to using 100% clean power at our onshore facilities in Abu Dhabi, we are working with ADNOC to adopt clean power, including using onshore clean power to supply offshore facility power needs.

Efforts to Reduce Fugitive Methane Emissions

Our target is to maintain our methane emissions intensity at its existing low level (about 0.1%). In FY2023, our methane emissions intensity was 0.05%, which is below our target level.

In FY2023, we joined the Oil & Gas Methane Partnership 2.0 (OGMP 2.0), a reporting framework for methane reductions by oil and gas companies. OGMP 2.0 was established as an international reporting framework under the United Nations Environment Programme (UNEP), providing member companies with a framework for comprehensive, measurement-based reporting to promote methane reductions. By reporting methane emission reductions through the OGMP 2.0 framework, we are improving the accuracy and transparency of our methane emissions reporting. We are also actively sharing technological innovation and information on specific initiatives with other member companies with the aim of measuring and reducing methane emissions.

To manage and reduce methane emissions, we have been aggregating and reporting data on fugitive methane emissions based on international methods since FY2018.

In FY2019, we surveyed and identified fugitive emission inspection locations for equipment and facilities at our projects in Japan. We also established a structure for data aggregation and reporting. In FY2020, we brought in a laser methane detector to enable inspections at almost all applicable points. We also introduced vehicle-mounted methane detectors and drones with which we are able to inspect all 1,500 kilometers of our domestic gas pipelines. Fugitive emissions detected through this inspection process are rectified immediately.

For our overseas projects, we carried out fugitive emission inspections through a leak detection and repair (LDAR) program using infrared cameras. At the Ichthys LNG Project, we inspected the central processing facility (CPF) and floating production, storage, and offloading (FPSO) facility in FY2022, and the onshore gas liquefaction plant in FY2023. We are now investigating how to achieve the level of methane emission management required by OGMP 2.0 by using drones and other methods going forward.

We are exploring the possibility of implementing similar inspections at additional projects, and will continue to take further action to reduce fugitive methane emissions across the entire Group.

Efforts to Reduce Flaring

Having set a goal of zero routine flaring in our operator projects by 2030, relevant departments across the Company have been working together to study measures to reduce flaring.

In Japan, as part of our research and development of flaring reduction measures, we are studying the introduction of initiatives to reduce atmospheric CO₂ emissions by fixing carbon in flare gases through the use of methane pyrolysis technology (see the diagram below).

Since FY2022, we have also been managing our flaring along two lines - routine and non-routine flaring - in line with the Flaring Management Guidance for the Oil and Gas Industry developed by Ipieca, IOGP, and the Global Gas Flaring Reduction Partnership (GGFR).

Methane Reduction through Methane Pyrolysis

As small quantities of non-condensable gas from oil production fields encounter challenges in feasible utilization, such gas is often incinerated in the flare system with CO₂ emissions. The application of methane pyrolysis technology enables the extraction of solid carbon from flare gases and consequently, reduce CO₂ emissions by flaring.

Efforts to Reduce Emissions in Supply Chain—Towards Scope 3 Reduction

Efforts with Contractors and Suppliers

Our Health, Safety and Environmental Policy (HSE Policy) states that we will “pursue every effort to reduce Greenhouse Gas (GHG) emissions and adhere to the GHG emissions management process.” In line with our efforts to reduce emissions across the supply chain, our contractor and supplier agreements include a clause requiring compliance with our HSE Policy.

Our Supplier Code of Conduct established in July 2022 sets out specific expectations for our suppliers to undertake voluntary environmental initiatives, such as measures to reduce GHG emissions. In November 2023, we held a supplier forum for 75 suppliers in Japan. During the forum, we shared information on the procurement environment, our business plan, and discussed compliance with the Supplier Code of Conduct and ESG risks to the supply chain, including GHG emission reductions. We are considering expanding scope of forum discussions and introducing an awards system for future supplier forums, and will continue our efforts to reduce emissions throughout the entire supply chain.

Promotion of Carbon-neutral Product Sale

We promote the sale of carbon-neutral products⁴ to our customers. The total GHG emission reduction through the sales of such products so far exceeds 1.72 million tons of CO₂ equivalent. Carbon-neutral products comprise LNG, natural gas, LPG ,and jet fuel sold by the Company for which the GHG emissions produced across the life cycle - from extraction through transportation and combustion - are offset by the equivalent volume of carbon credits, resulting in net zero GHG emissions. By supplying these carbon-neutral products, we contribute to our customers’ efforts to reduce their supply chain carbon footprints.

⁴ Also called carbon offset products

Aggregation, Analysis, and Reporting of GHG Emissions

We regularly aggregate, analyze, and report our GHG emissions in accordance with procedures based on host country systems and international guidelines. In Japan, we properly manage and report in accordance with domestic laws and regulations, including the Act on Rationalizing Energy Use and Shifting to Non-fossil Energy and the Act on Promotion of Global Warming Countermeasures. We also obtain third-party assurance of our environmental data from SOCOTEC Certification Japan to ensure the reliability of our GHG emissions reporting.

In our domestic exploration and development operations, through our membership in the Japan Energy Resources Development Association, we participate in the Keidanren Carbon Neutrality Action Plan, a voluntary emissions reduction initiative. In FY2021, we reexamined our targets for reducing emissions by FY2030. In FY2023, we endorsed the concept and directions of GX as advocated by the Japanese government, and completed the steps for transitioning to participation in the GX League. Member companies of the GX League participate in the GX-ETS, a voluntary emissions trading scheme. Therefore, we will commence reporting in accordance with this scheme from FY2024.

Disclosures in Line with TCFD Recommendations