Ongoing Initiatives to Address TCFD Recommendations

Governance Structure for Climate Change Response

Our Board of Directors maintains its supervisory role and has expanded its involvement in our climate change response. Specifically, matters relating to the Company’s basic policy on climate change response require a resolution of the Board of Directors. In FY2022, proposals related to climate change response—including the five net zero businesses—were discussed at 14 of the 15 Board of Directors meetings held. This resulted in six items for resolution and 16 items for deliberation and reporting.

In January 2021, we announced our goals for tackling climate change based around our corporate target of net zero emissions by 2050 (Scope 1 and 2). In February 2022, we released our Long-term Strategy and Medium-term Business Plan (INPEX Vision @2022), which calls for accelerated expansion of each of our five net zero businesses as a path towards net zero emissions in 2050. Aligned to this, we revised and disclosed our Corporate Position on Climate Change¹ in March 2022. We also update and disclose, in principle once a year, INPEX’s Current Initiatives,¹ a document that details progress in implementing measures to address climate change based on the Corporate Position on Climate Change.

The governance structure for our climate change responses has been highly evaluated both in Japan and overseas, and was listed in the TCFD 2022 Status Report² as a case study.

¹ “Corporate Position on Climate Change” and “INPEX’s Current Initiatives”

² TCFD2022 Status Report

Climate Change Response and Officers’ Compensation

In FY2022, we revised our compensation system for all of our internal Directors, including the Representative Director. 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.

Governance Framework for Climate Change Response

Roles

¹ Supervision of Corporate Position on Climate Change, and monitoring of climate change responses

² Decisions on assessments of climate-related risks and opportunities, and decisions on important goals relating to climate change

³ An advisory body to the Sustainability Promotion Committee, comprising about 30 cross-organizational members and responsible for assessing climate-related risks and opportunities.

⁴ Collection, analysis, and reporting of GHG emissions according to the Health, Safety and Environmental (HSE) Policy

Assessment and Management of Climate-related Risks and Opportunities

As a general rule, we assess and manage climate-related risks and opportunities in an annual cycle. Our overall response to climate change is handled 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 (WG)—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 in Sustainability Committee. These measures are discussed in Sustainability Committee meetings 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 WG 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 INPEX.

In FY2022, our disclosure of climate-related risk assessments was featured as a good example in the Guidance on Climate-Related Financial Disclosures 3.0 (Case Examples)³ published by the TCFD Consortium.

³ Guidance on Climate-Related Financial Disclosures 3.0 (Case Examples)

Figure A. ISO31000 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 take a Company-wide approach to climate-related opportunities, with the Hydrogen & CCUS Development Division and Renewable Energy & New Business Division at the core.

INPEX’s Current Initiatives based on the Corporate Position on Climate Change additionally details initiatives related to the five net zero businesses, cleaner upstream businesses, and the transition to natural gas. This document is deliberated on by the Sustainability Committee, approved by the President & CEO, and then reported to the Executive Committee and the Board of Directors (Figure D).

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

Development of Physical Risk Assessment Process

In FY2018, we reviewed the process for assessing physical climate-related risks and drew up a roadmap. The following year, we began rolling out physical risk assessments for our major operator projects and non-operator projects, including at our Naoetsu LNG Terminal. In FY2022 we carried out a reassessment at this facility due to an update to the scenario on which the original assessment was based. Here, as in other assessments, we used indices such as mid-21st century average temperature rises or sea level rise in the Representative Concentration Pathways 8.5 (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 Ichthys LNG 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 natural disasters through appropriate planning, operational measures, training, and use of external information. Insuring our major facilities against natural disaster is another way we strive to reduce financial losses associated with acute risks. With respect to natural disasters in Japan, as the national government upgrades infrastructure, we have also conducted pipeline risk assessments and studied countermeasures against natural disasters. Based on these reviews, we have carried out replacement work on sections of the pipeline deemed to have a high natural disaster risk.

Moreover, we revised our HAZID (Hazard Identification) Guidelines the document for the HSE management system—adding a new section about the effects of climate change to the introductory work when holding a HAZID workshop. Physical risk assessment is thus being incorporated into our risk management approach throughout the lifecycle of our business activities.

Cross-organizational teams will continue to conduct periodic physical risk assessments and make appropriate disclosures regarding physical risks. At the same time, we will diversify our analysis methods to carry out more multifaceted assessments.

Physical Risk Assessment Roadmap