Scenario Analysis (TCFD)

Endorsing the Recommendations of the TCFD

The Asahi Group understands that evaluating the impact of climate change-related risks and opportunities on its businesses and drafting appropriate response measures are important matters in terms of realizing a sustainable society and ensuring business continuity. To that end, the Group endorses the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
We conducted a scenario analysis in the beer businesses in 2019 and expanded the scope of this analysis to the soft drinks business and all alcohol beverages business, including beer businesses, in 2020. In 2021, we are moving forward with plans to conduct a scenario analysis in all major businesses, including the food business. Clarifying the impact of climate-related issues on our business operations and taking measures against it will help make our business operations more sustainable and, through dialogues with investors, enhance our corporate value.

Governance

Viewing climate change as an important issue pertaining to sustainability, the Asahi Group's Global Sustainability Committee, chaired by the CEO, formulates climate change strategies. At the same time, the Committee submits reports to the Board of Directors and works to strengthen a PDCA cycle under the Board's supervision. At the Global Sustainability Committee meeting held in December 2020, members including the CEOs of each regional headquarters (RHQ) held lively discussions regarding the Group's 2030 goals for reducing CO2 emissions. As a result, we decided to upwardly revise our target values and committed to actively promoting initiatives to achieve these new values.

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Strategies

Summary of Scenario Analysis Results

The Asahi Group conducted a scenario analysis on its beer business in 2019. In 2020, a similar analysis was also performed on the soft drink and non-beer alcohol beverages businesses. The objective of these analyses is to determine the impact of climate change risks and opportunities on our business operations and to discuss measures. The analyses refer to RCP2.6 (under 2°C) and RCP8.5 (4°C) scenarios developed by the Intergovernmental Panel on Climate Change (hereinafter “IPCC”) and the scenario created by the International Energy Agency (hereinafter “IEA”).

2019 Analysis Results

The scenario analysis in 2019 was about the Group's beer business. Climate change clearly had a major impact, such as a drop in the yields of farm produce which is important for our businesses, a rise in manufacturing costs after the introduction of carbon tax and the aggravation of risks of water stress and flooding in farms and manufacturing locations. As we discuss measures against these impacts, we are beginning to see the possibility that we can control the impacts and seize opportunities by reinforcing mitigation and adaptation measures.

2020 Analysis Results

In 2020, the scope of analysis was expanded to include the soft drink and non-beer alcohol beverages businesses. Moreover, our analysis on the beer business in 2019 was deepened to assess the impact of climate change on our business operations and to discuss measures.

Overview of 2020 Scenario Analysis Activities

Details of the Scenario Analysis

We are implementing scenario analysis using the flowing steps with the aim of examining the impact of climate change-related risks and opportunities on our alcohol beverages and soft drink businesses (in terms of the entire agricultural ingredients and product value chain).

*These scenarios make reference to the IPCC RCP2.6 (2°C) and RCP8.5 (4°C) scenarios and IEA scenarios.
*Source: created by the Asahi Group based on the IPCC's Fifth Assessment Report Summary for Policymakers (Figure SPM.7)

STEP 1: Evaluating the Significance of Each Risk

Climate change entails various risks and opportunities such as transition risks and physical risks. Among these, the risks and opportunities shown in the table below are particularly important for the Asahi Group's alcohol beverages and soft drink businesses.

Risk category Business risks and opportunities Reasons for selection as an important risk/opportunity
Political and Legal Carbon Tax Production (In-House) Risks Under Asahi Group Environmental Vision 2050, we are taking steps to achieve Asahi Carbon Zero, an initiative that aims for zero CO2 emissions within our value chain. However, while circumstances vary by country and region, we anticipate a significant financial impact from the introduction of a carbon tax.
Plastic (PET) Risks PET bottles, main containers for use in our soft drink business, are made from fossil fuel. For this reason, it is estimated that the introduction of carbon tax would significantly affect our procurement costs.
Regulations on Water Use Risks Since water is indispensable to our raw material production and factory operation, we anticipate that (the introduction of additional) regulations on water use will have a significant impact on our business continuity and financial position.
Market changes and technology changes Changes in customer behaviors OpportunitiesRisks Risks and opportunities stemming from the heightened environmental awareness of consumers have the potential to become a new factor that impacts net sales.
Physical risks Rising Price of Raw Materials Risks If a rise in raw material prices and the resultant transition to alternative raw materials become necessary, we will undergo a great deal of financial impact and this may affect the continuity of our business operations.
Rise in Global Average Temperature Opportunities Temperature increases are expected to have a major impact on beer and beverage consumption during the summer.
Changes in Precipitation Patterns Risks If our agricultural land and production bases were impacted by severe water shortages, it could potentially become difficult to continue our business operations.
Intensification of Abnormal Weather Risks In the event that damage from heavy rains and typhoons, which are occurring more frequently in recent years, were to become more severe, our value chain may suffer significant harm, making it difficult to continue our business operations.

STEP 3: Business Impact Evaluations

Among the important risks identified in 2019 and 2020, the increase of raw material prices due to the reduction of agricultural materials' harvest yields and the increases in costs due to the introduction of a carbon tax may have a particularly significant impact. The Asahi Group implemented following analysis and business impact evaluations.

Main Items
  1. Research into factors affecting agricultural materials
    • (1) Prediction of changes affecting the harvest of main agricultural materials
    • (2) Experimental calculation of the potential financial cost of high-risk agricultural materials for the Asahi Group's soft drink business and its impact on its financial position.
  2. Experimental calculation of the financial impact of the introduction of a carbon tax on the Asahi Group's financial position
    • (1) Production (in-house)
    • (2) PET bottles (value chain)
1. Research Into Factors Affecting Agricultural Materials Harvests
(1) Predictions of Change in Main Agricultural Materials Harvests by Production Area

In 2019, the first year, the Asahi Group analyzed the impact of climate change on the main agricultural materials (barley, hop, corn and rice) used in the Group's japan and overseas beer business and learned that climate change created the risks of a reduction of harvest yields. In 2020, the scope of analysis was expanded to include materials for making coffee, milk and sugar for use in the Group's soft drink business (e.g., carbonated beverages, dairy beverages, coffee-based beverages) and non-beer alcoholic beverages business (e.g., western liquors, shochu). To predict harvests in 2050, the Asahi Group analyzed multiple books on the impact of climate change on farm produce and experimentally calculated impacts by agricultural product type and production area to carefully identify changes in harvest yields. It was learned that the 4°C climate change scenario would significantly reduce harvest yields in many production areas, particularly of corn and coffee.

(2) Experimental Calculation of the Potential Financial Cost of High-Risk Agricultural Materials for the Asahi Group's Soft Drink Business and Its Impact on Its Financial Position.

The Asahi Group estimated the future prices of coffee and corn, which are high-risk agricultural materials used in the group's soft drink business, to experimentally calculate their financial impact on the position of the Group.
The Asahi Group experimentally calculated the price impact of climate change based on the amount of raw materials purchased in the current japan and overseas soft drink business. This revealed a potential 1.97 billion yen increase in the cost of corn, and a roughly 2.66 billion yen potential increase in the cost of coffee.*

*Basis of calculation: From historical price trends, we derived a formula to identify variables (balance of production and consumption, GDP per capita, previous year's market price and the proportion of ethanol raw materials (corn only)) and used regression analysis to reproduce past prices. Predictions of future production and consumption, GDP per capita and the proportion of ethanol raw materials (corn only) were entered into the formula to estimate future prices.

2. Experimental Calculation of the Financial Impact of the Introduction of a Carbon Tax on the Asahi Group's Financial Position
(1) Production (In-House)

The Asahi Group calculated the impact of the introduction of a carbon tax on our production operations for 2030 and 2050. Assuming the carbon tax would be 100 dollars/ton in 2030 and 144 dollars/ton in 2050, the carbon tax liability of the alcohol beverages and soft drink businesses combined would be 6.47 billion yen in 2030 and 6.43 billion yen in 2050.* The increasing use of renewable energy leads the Asahi Group to expect that the goal of zero CO2 emissions from electric power will be achieved by 2050. However, the total carbon tax liability will be nearly unchanged due to the increase of the carbon tax.

*Basis of calculation: The financial impact of the introduction of a carbon tax on the Asahi Group's financial position is calculated from the amount of CO2 emissions during manufacturing. The scope 2 emission factor is based on the IEA World Energy Outlook 2020. The amount of the carbon tax was estimated by the Group from predictions in the IEA World Energy Outlook, and the Group calculated it would be 100 dollars in 2030 and 144 dollars in 2050.

(2) PET Bottles (Value Chain)

It has been estimated that, more than other materials in the soft drink business's supply chain, PET bottles will be affected by the introduction of a carbon tax. The Asahi Group experimentally calculated the financial impact of the introduction of a carbon tax on the PET bottles that the Asahi Group uses. Assuming that the impact of a carbon tax on the processes from the extraction of raw materials to the manufacturing of PET resin is included entirely in the purchase price, the cost increase would be 6.23 billion yen according to the experimental calculation.*

*Basis of calculation: The Asahi Group's own estimate calculates the carbon tax to be 144 dollars/ton in 2050 based on predictions in the IEA World Energy Outlook.

STEP 4: Discussion of Measures

1. Direction of Measures to Address Reduced Agricultural Material Harvest Yields

The Asahi Group is committed to the following measures to address the risk of reduced harvest yields of the main agricultural materials it purchases.

(1) Cooperating with Suppliers

We share the risks associated with agricultural products with our suppliers, and we are considering ways to enhance crop varieties so that they can cope with climate change. We are also examining the development of alternatives to materials that we currently use. Furthermore, going forward, we will reinforce the partnership that the Group has with suppliers and implement various policies in order to respond to further reduced yields in the future.

Sharing the Results of Research into Environmental Risks Impacting Important Raw Materials (Climate Change, Water and Biodiversity) and Taking Measures Accordingly

The Asahi Group believes that the sustainable use of raw materials is one activity it must conduct in line with the Asahi Group Environmental Vision 2050 as it implements activities related to the sustainability of raw materials. In this context, from 2020, the Group has been surveying risks affecting main agricultural materials in terms of climate change, water and biodiversity and, if a potential risk has been identified, it is shared with suppliers to discuss measures.

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(2) Supporting Farmers

The Asahi Group is undertaking a number of initiatives, such as supporting barley farmers in Italy who create the main ingredient for our products and conducting a pilot test in the Czech Republic to promote smart farming for hop cultivation.

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(3) Utilizing In-House Technology
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The Asahi Group is developing an agricultural material that utilizes the cell walls of brewer's yeast. This material promotes the growth of plant roots and, through its utilization, we hope to improve the ability of agricultural products to cope with environmental changes due to climate change. We have already achieved results with various agricultural products and, going forward, will expand the use of this agricultural material and promote research geared toward its practical application.

2. Direction of Response Measures for Increased Production Costs Due to Carbon Tax Introduction

The Asahi Group has been striving ambitiously to set high goals for reducing CO2 emissions.

(1) Upwardly Revising 2030 Goals for Reduction of CO2 Emissions

In order to accelerate initiatives for achieving carbon neutrality by 2050, we upwardly revised our 2030 goal values from the current 30% reduction to a 50% reduction. We have confirmed that this revised target would result in a reduction of 2.23 billion yen in CO2 costs in 2030 and the full cost amount of 6.43 billion yen in 2050. We recognize that the strategies we are currently striving toward are highly resilient to the rising costs of climate change and are appropriate from a resilience perspective.

(2) Utilizing In-House Technology
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The System to Generate Power from Biomethane Gas-powered Fuel Cells at Asahi Breweries, Ltd. Ibaraki Plant.

As part of our decarbonization initiatives, we have begun a demonstration project at the Ibaraki Brewery of Asahi Breweries, Ltd. to generate electricity using fuel cells powered by biomethane gas derived from brewery wastewater, which could serve as a new model for reducing CO2 emissions.

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3. Response Measures: Direction of Response Measures for Fluctuating PET Bottle Prices Due to Carbon Tax Introduction

We have adopted the Groupwide goal of 3R + Innovation, and are striving to lower our environmental burden through sustainable containers and packaging.

(1) Switching to Recycled PET Bottles

In Australia, we have launched Cool Ridge, a mineral water with a bottle made from 100% recycled PET. In Japan, we began using recycled PET for Calpis Water and other beverage bottles from July 2019. Going forward, in addition to its 3R initiatives, we will minimize our negative environmental impacts by reinforcing our alliances with other companies.

(2) Reducing the Weight of PET Bottles

Asahi Group operating companies will continue efforts to reduce the weight of PET bottles, and are also considering utilizing alternative containers and expanding the use of PET bottles made from biomass materials.

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Summary: Measures Against Important Risks and Related Opportunities

We will continue to accelerate our existing response measures to important risks. At the same time, as a crucial management task, we will adopt the following direction for our risk response measures going forward. In addition, we will also examine measures to respond to opportunities.

Risk Existing Measures Direction of Response Measures Going Forward Opportunities
Rising Price of Raw Materials
  • Risk dispersion through multi-sourcing
  • Share results of research into risks of agricultural materials (climate change, water and biodiversity) with suppliers and improve communication for addressing the risks
  • Support of farmers (e.g. barley in Italy and hop in Czech)
  • Apply to agricultural materials the function of beer yeast cell walls to mitigate the impact of climate change
  • Cooperate with suppliers in evaluating new varieties adaptable to environmental changes and continuously discussing whether to use them
  • Choose recipients for support and discuss scaling up to facilitate the sustainable procurement of raw materials
  • Start activities for research and development, including collaborative research aimed at securing reasonably priced, high-quality raw materials
  • Expand the business of materials for beer yeast cell walls
Carbon Tax (production)
  • Raise the 2030 target value in Asahi Carbon Zero
  • Take part in RE100
  • Acquire the SBT1.5 degrees C certification
  • Introduce co-generation systems
  • Promote a modal shift
  • Introduce renewable energy provided by wind power generation in Poland and the Netherlands
  • Install highly efficient refrigeration systems
  • Further utilize renewable energy
  • Establish technology for fuel cell power generation with the use of methane gas
  • Contribute to making the global environment sustainable, by developing technologies for methane gas fuel cells and facilitating their spread
Carbon tax (PET bottles)
  • In Australia, we have launched Cool Ridge, a mineral water with a bottle made from 100% recycled PET
  • Establish the 3R+Innovation principles on plastics
  • Cooperate and form joint ventures with recyclers in pursuit of the introduction of recyclable PET bottles
  • Introduce guidelines for containers and packaging
  • Cooperate with suppliers in pursuit of higher rates of introduction of recycled PET
  • Activities for making PET bottles lighter in weight
  • Accelerate activities for encouraging procurement in pursuit of higher rates of introduction of recycled PET
  • Discuss and choose alternative containers
  • Discuss increasing the use of PET bottles made of biomass materials
  • Reduce the costs of recycled PET in collaboration with recyclers
Regulations on Water Use
  • Achieve 100% utilization of sustainable water resources by 2050
  • Achieve water neutrality at our beer breweries in Japan by 2025
  • Reduce water consumption (reduce water consumption in the processes of cleaning and sterilization and encourage the efficient use of collected water)
  • Continue to streamline water use (introduce large-scale recycling systems)
  • Discuss action based on the understanding and analysis of water risks in the places of origin of our main raw materials
Changes in Customers Behavior
  • Include the Green Energy Mark logo in the labels of 350-milliliter cans and gift sets of Asahi Super Dry and Asahi Dry Zero
  • Launch Victoria Bitter, a brand of beer 100% brewed with photovoltaic power, in Australia
  • Launch Lech, a brand of beer 100% brewed with wind power, in Poland
  • Adapt our businesses to the growth of ethical consumption (e.g. develop products for ethical consumption, use certified raw materials)
  • Expand sale of Asahi Super Dry and other products 100% brewed with renewable energy
Intensification of Abnormal Weather
  • Expand sale of Asahi Super Dry and other products 100% brewed with renewable energy
  • Consider the mid- and long-term impact of climate change on the transfer and addition of our business locations

Risk Management

In the Asahi Group Risk Appetite Statement, which was formulated in 2020, the Asahi Group has announced its policy of promoting efforts to reduce risks that impact the natural environment.
Accordingly, climate change has been adopted as a main risk for the Group within our enterprise risk management (ERM) system. While working to set in motion a PDCA cycle under this management system, we are pursuing risk management on a Groupwide basis through collaboration between our sustainability management system, renewed in 2020, and the ERM system.

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Indices and Targets

We formulated our medium- to long-term goal for climate change, Asahi Carbon Zero, with the aim of achieving zero CO2 emissions by 2050. In order to increase the probability of achieving this target, in December 2020 we upwardly revised our 2030 goal to a 50% reduction (compared with 2019). At the same time, we renewed our road map toward realizing Asahi Carbon Zero by promoting initiatives such as participating in RE100 and acquiring Science Based Targets (SBT) 1.5°C verification. In addition, we are establishing and implementing initiatives to realize the use of sustainable materials, such as agricultural raw materials, packaging, and water.

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