Response to Climate Change

The KOBELCO Group recognizes CO₂ reduction as a top management priority. As such, we announced our aim to increase corporate value through a transition to carbon neutrality that we aim to achieve by 2050 in the KOBELCO Group MediumTerm Management Plan (fiscal 2021–2023) announced in May 2021.

Going forward, the KOBELCO Group will continue to pursue reduction of CO₂ emissions in order to contribute to realization of “a world in which people, now and in the future, can fulfill their hopes and dreams while enjoying safe, secure, and prosperous lives” as envisioned in KOBELCO’s View of the Future.

We established the CO₂ Reduction Promotion Subcommittee under the Sustainability Management Committee (chaired by a director and executive officer) as an organization that specializes in dealing with issues related to the risks and opportunities associated with climate change. The subcommittee, tasked with conducting strategic reviews of climate change, studies and implements Companywide activities to address the risks and opportunities of climate change.

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 activities of the CO₂ Reduction Promotion Subcommittee and its study outcomes are reported through the Sustainability Management Committee to the Board of Directors quarterly for supervision and guidance from the Board of Directors. Important decision-making related to climate change involves a system of direct governance by senior management. Under this system, recommendations are made to the Executive Council through the Sustainability Management Committee, with the matter then approved by the President and CEO or a resolution of the Board of Directors following deliberation by the Executive Council.

The KOBELCO Group analyzes the medium- to long-term risks and opportunities associated with climate change considering various guidelines, including the social scenarios presented 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. Based on the analysis results, we evaluate the appropriateness of our Group’s activities.

Innovative technology to reduce CO₂ emissions by approximately 20% from blast furnace operations successfully verified

The Group successfully demonstrated the technology that can reduce a significant amount of CO₂ emissions from blast furnace operations, combining the MIDREX^® technologies in the engineering business and the blast furnace operation technology in the iron and steel business. This achievement is a result of the integrated efforts of the KOBELCO Group leveraging its diverse businesses.

The quantity of CO₂ emissions from the blast furnace is determined by the reducing agent rate (RAR)¹, namely the quantity of carbon fuel used in blast furnace ironmaking. In the demonstration test, it was verified that RAR could be stably reduced from 518 kg/tHM (ton hot metal) to 415 kg/tHM by charging a large amount of hot briquetted iron (HBI) produced by the MIDREX^® Process. The results indicate that this technology can reduce CO₂ emissions by approximately 20% compared to a conventional method².

In addition, the world’s lowest level of coke rate (239 kg/tHM) has been achieved in the demonstration test of this technology. The Company sees it as a promising solution that could become readily available in the near future at a lower additional cost compared to other CO₂ reduction measures.

The key technologies that led to this achievement are two proprietary technologies developed by the KOBELCO Group, which are commonly available for other companies’ blast furnaces.

According to the “Mandatory Greenhouse Gas Accounting and Reporting System (published by the Ministry of the Environment)” Kobe Steel is one of the largest emitters of greenhouse gases in Japan. Our Company pays the carbon tax, Tax for Climate Change Mitigation (289 yen per ton of CO₂ emissions from the use of coal, oil, LPG, and LNG), and in the future, if the carbon tax is increased or new taxes are imposed with the introduction of carbon pricing, it is expected to have a significant impact on our business, so we are constantly monitoring 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, which may have an impact on our Group’s business performance with a decrease in sales, an increase in costs, etc

The KOBELCO Group has been promoting energy conservation efforts as a measure to mitigate the impact of carbon pricing. Our Group invested approximately 0.55 billion yen in energy conservation capital investments in fiscal 2021.
One of the example of such investments in fiscal 2021 is the investment for the renewal of dust collectors and power transformers at the Saijo Plant. For other initiatives, please refer to “Initiatives to Save Energy and Reduce CO₂ Emissions” on page 27.

In addition, the KOBELCO Group is engaged in the development of various technologies related to the 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 2021, we spent approximately 4.8 billion yen on research and development related to climate change.

• Environmental Accounting

In order to better understand future climate-related risks and opportunities, we carried out medium-term (2030) and longterm (2050) scenario analysis. Our scenario analysis is based on the International Energy Agency (IEA)’s 2°C scenario (SDS: Sustainable Development Scenario) and 1.5°C senario (Net Zero by 2050) as well as the 4°C senario presented by the Intergovernmental Panel on Climate Change (IPCC) in its Sixth Assessment Report. For our analyses and evaluations, we also refer to long-term visions published by industry organizations to which we belong, such as the Japan Iron and Steel Federation (JISF) and the Japan Aluminium Association. For the electric power business, which is closely related to Japan’s energy policy, we conduct scenario analysis based on the energy policy of the national government. We also regularly review our analysis and evaluation of risks and opportunities based on changes in the external environment.

Targets and Vision Announced in the KOBELCO Group Medium-Term Management (Fiscal 2021–2023)

Roadmap for Carbon Neutrality in the Ironmaking Process

Roadmap for Carbon Neutrality in the Electric Power Business

Roadmap for CO₂ Reduction through the MIDREX^® Process

In regard to climate-related risks, we have identified (1) transition risks (policies and regulations) and (2) physical risks (preparations for and recovery from natural disasters) as Top Risks, which are risks that may have a material impact on the Group and its stakeholders and require a Groupwide response. We are working to strengthen risk management by appointing risk owners to each risk category.

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 two metrics as non-financial key performance indicators (KPIs) and manages them. Nonfinancial KPIs including CO₂ reduction are discussed annually at the Executive Council as important items in the budget, and then they are discussed and approved by the Board of Directors.

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

In fiscal 2021, the KOBELCO Group’s businesses generated 16.1 million tons of CO₂ emissions from energy use in total.

	Unit	Fiscal 2019	Fiscal 2020	Fiscal 2021
CO2 emissions from energy use (Scope 1 and 2)	Million t-CO2	16.5	15.3	16.1
CO2 emissions from energy use (Scope 1) ✔	Million t-CO2	15.6	14.5	15.3
CO2 emissions from energy use (Scope 2) ✔	Million t-CO2	0.9	0.8	0.8
Net sales	Million yen	1,869,835	1,705,566	2,082,582
CO2 emission intensity from energy use per net sales	t-CO2 / Million yen	8.8	9.0	7.7
Products (crude steel, aluminum rolled products, copper rolled products)	Million t	7.0	6.3	7.2
CO2 emission intensity from energy use	t-CO2 / t-Product	2.3	2.4	2.2

Item	Fiscal 2019	Fiscal 2020	Fiscal 2021
1. Energy-derived CO2 emissions*1	15,600,000 t-CO2	14,500,000 t-CO2	15,300,000 t-CO2
2. Non-energy derived CO2 emissions	574,000 t-CO2	498,000 t-CO2	568,000 t-CO2
3. Methane (CH4)	5,570 t-CO2	5,210 t-CO2	5,840 t-CO2
4. Nitrous oxide (N2O)	43,600 t-CO2	49,600 t-CO2	6,610 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)	16,900 t-CO2	18,000 t-CO2	17,800 t-CO2
8. Nitrogen trifluoride (NF3)	0 t-CO2	0 t-CO2	0 t-CO2

Category	Fiscal 2019	Fiscal 2020	Fiscal 2021	Calculation Method
1. Purchased goods and services ✔	4,688	4,429	5,108	The Company’s usage of main raw materials (annual amount of iron ore, coking coal, aluminum, and copper) multiplied by CO2 emissions unit values
2. Capital goods ✔	263	262	113	Capital investment cost multiplied by CO2 emissions unit values
3. Fuel- and energy-related activities except scope 1 and 2 ✔	307	305	299	Annual consumption of electricity, steam, fuel etc., multiplied by CO2 emissions unit values
4. Upstream transportation and distribution ✔	192	180	217	Using the calculation method for energy-derived CO2 emissions related to freight transportation by shippers as stipulated in the Act
5. Waste generated in operations ✔	39	30	30	The amount of industrial waste for each type multiplied by CO2 emissions unit values
6. Business travel ✔	2	2	1	Number of employees multiplied by CO2 emissions unit values
7. Employee commuting ✔	5	5	5	Number of employees multiplied by CO2 emissions unit values
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 ✔	2,713	2,622	2,854	Calculated by multiplying the production volume of main steel products by the CO2 emissions unit values at the time of processing each type of steel product.
11. Use of sold products ✔	24,702	36,985	21,478	Lifetime emissions for the main machinery products sold by the Company (energy used during use: electricity) are calculated based on units sold, expected average life, average power consumption, and CO2 emissions unit value for electricity.
12. End-of-life treatment of sold products ✔	62	56	63	Calculated by multiplying CO2 emissions unit values 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 ✔	32,972	44,876	30,168

In fiscal 2021, the KOBELCO Group worldwide used a total of 192 PJ of energy in all of its business divisions.

	Unit	Fiscal 2019	Fiscal 2020	Fiscal 2021
Energy consumption ✔	PJ	196	182	192
Net sales	Million yen	1,869,835	1,705,566	2,082,582
Energy intensity per net sales	GJ / Million yen	105	107	92
Products (crude steel, aluminum rolled products, copper rolled products)	Million t	7.0	6.3	7.2
Energy intensity per t-product	GJ / t-Product	27.8	28.7	26.6

In May 2021, the KOBELCO Group announced, in its Medium-Term Management Plan (Fiscal 2021–2023), that it would take on the challenge of realizing carbon neutrality by 2050 and aim to increase corporate value through this transition. The KOBELCO Group has set targets for 2030 and a vision for 2050 from two angles: (1) reducing CO₂ emissions in the Group’s own production processes, and (2) contributing to the reduction of CO₂ emissions through the Group’s distinctive technologies, products, and services.

2050 Vision:

Taking on the challenge of achieving carbon neutrality

2030 Target:

Reducing CO₂ emissions in production processes 30–40%^{1 2} reduction (compared with fiscal 2013)

Result：

Our CO₂ emissions in fiscal 2021 increased compared to fiscal 2020, owing to the recovery in production volume following the easing of impacts from the COVID-19 pandemic. As a result, the reduction rate^{1 2} stood at 16% compared to fiscal 2013.

• 1 Total of Scope 1 and Scope 2
• 2 Covered range for reduction target: Major business locations of Kobe Steel, Ltd. and Kobelco Construction Machinery Co., Ltd., together representing around 95% of CO₂ emissions of the entire Group (Fiscal 2021 performance)

Fiscal 2013 emissions in covered range:

18.2 million

Fiscal 2021 emissions in covered range:

15.3 million tons

Initiatives：

• In the wake of 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 recovery systems and conserving energy while switching to continuous process flows and streamlined processes. From the 1990s, the steel industry took steps to effectively use waste materials, focused on upgrading waste heat recovery systems and increasing the efficiency of equipment. In recent years, industry players have installed highly efficient gas turbine power plants.
• The KOBELO Group also has maintained a consistent approach in advancing various energy conservation and CO₂ reduction measures through proactive capital investments. For example, we installed highly efficient gas turbine power generation facilities that use gas from blast furnaces at Kakogawa Works over the period of fiscal 2009−2014, resulting in a substantial reduction of CO₂ emissions.
• In the ironmaking process, we verified through a demonstration test that we can reduce CO₂ emissions in the blast furnace process by approximately 20% by charging a large quantity of hot briquetted iron (HBI—a compacted form of direct reduced iron) manufactured using the MIDREX® Process into our blast furnaces. Going forward, we will further pursue the potential of HBI charging technology and AI-based blast furnace operation technology to reduce CO₂ emissions from blast furnaces and reach our target for fiscal 2030. In addition, as part of our efforts to realize carbon neutrality by 2050, we will take a two-track approach to reduce CO₂ emissions through utilizing blast furnaces and manufacturing high-grade steel in large electric furnaces.

The Group has a variety of products and services that contribute to CO₂ reduction. By expanding sales of these, we will contribute to the reduction of CO₂ during use.

2050 Vision:

CO₂ reduction contribution: 100 million tons or more

2030 Target:

CO₂ reduction contribution: 61 million tons

Result:

The Group’s technologies, products, and services are estimated to have contributed to the reduction of CO₂ emissions totaling 44.9 million tons in fiscal 2021.

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 Director of the Research Laboratory for IDEA at the Research Institute of Science for Safety and Sustainability, Department of Energy and Environment, the National Institute of Advanced Industrial Science and Technology (AIST), which ensures their fairness and objectiveness.

Technologies, Products, and Services		Concept behind Reduction
Automotive/transportation field	Fuel-cell separator materials, titanium for aircraft components	Improvement of fuel economy by reducing weight of automobiles and transportation equipment, effects of replacing gasoline-powered automobiles for next-generation vehicles
Hydrogen utilization field	High-purity Hydrogen Oxygen Generator (HHOG)	Effects of reducing fossil resource consumption through hydrogen utilization
Power generation/storage field	Conversion of sludge to fuel and its utilization at coalfired thermal power plants (planned)	Reducing fossil resource use through the use of resources that contribute to carbon neutrality

Initiatives for Implementation	Long-Term Policies	Initiatives to Achieve Medium-Term Targets	Fiscal 2021 Results Self-assessment 〇: Progressing as planned △: Some issues remaining ×: Plan not achieved
Measures against global warming	Contribute to preventing global warming by promoting energy conservation and CO2 reduction in all business activities ＜Target for 2030＞ Reduce CO2 emissions from production processes by 30- 40% (compared with fiscal 2013) ＜Vision for 2050＞ Taking on the challenge of achieving carbon neutrality	Promote medium- to long-term technological development based on the roadmap and continue working on energy conservation initiatives, in order to achieve the targets for 2030 and vision for 2050	Implement initiatives and reviews following the Roadmap toward Carbon Neutrality in the Ironmaking Process and Power Generation Business. Fiscal 2021 results: 16% reduction (compared to fiscal 2013)	〇
Contributing to the environment through technologies, products, and services	Create environmentally sustainable products and new businesses with due consideration to the environment in all technological and product development ＜Target for 2030＞ Contribution to CO2 emission reduction: 61 million tons (including at least 45 million tons of MIDREX®) ＜Vision for 2050＞ Contribution to CO2 emission reduction: 100 million tons or more	Contribute to the creation of a low-carbon society through the efforts of the entire KOBELCO Group by working on issues related to 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	Fiscal 2021 results: Contribution to CO2 reduction of 44.9 million tons	〇

As a member of the Global CCS Institute and the Carbon Recycling Fund Institute, we actively acquire the latest information on Carbon Capture, Utilization, and Storage (CCUS) technology and work on technological development and research on CO₂ separation, capture, recycling, and sequestration for future practical use.