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2023

Sustainability Report 2022 (for FY2021)

Sustainability Report 2022 (for FY2021)

Ongoing Initiatives to Address TCFD Recommendations

Governance System for Climate Change Response

INPEX’s Board of Directors maintains its oversight role and has expanded its involvement in our climate change response. Specifically, matters relating to the company’s position on climate change require a resolution of the Board of Directors. In January 2021, we announced our goals for tackling climate change based around our corporate target of net zero emissions by 2050 (Scope 1+2). In February 2022, we released our Long-term Strategy and Medium-term Business Plan (INPEX VISION @2022), which envisions accelerated expansion of our five net zero businesses as we head towards net zero in 2050. Accordingly, we revised and disclosed our Corporate Position on Climate Change8 in March 2022. We also update and disclose, in principle once a year, INPEX’s Current Initiatives8, a document that details progress in implementing climate change measures based on the Corporate Position on Climate Change.

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

Climate Change Response and Directors’ Compensation

In February 2022, we revised our compensation system in relation to bonuses for all of the company’s representative directors and other internal directors. We adopted GHG emissions 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, which serves as a medium- to long-term form of incentive.

Further to this, for the directors in charge, qualitative targets are set each year to promote climate change response, risk management and information disclosure. The degree to which these targets have been achieved is evaluated and reflected in the director’s remuneration.

Governance Framework for Climate Change Response (graphic)

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

Assessing and Managing Climate-related Risks and Opportunities

As a general rule, INPEX assesses and manages climate-related risks and opportunities in an annual cycle. Our overall response to climate change is handled by the Climate Change Strategy Group within Corporate Strategy & Planning Unit, Corporate Strategy & Planning Division.

For climate-related risks, the Climate Change Strategy Working Group (WG), composed of some 30 members representing each of the divisions, conducts assessments and devises preventive and mitigation measures. These measures are discussed in Sustainability Committee meetings and reflected in annual plans.

The process of risk assessment follows the procedure outlined in ISO31000 (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), created by INPEX.

Figure A. ISO31000 Process

Figure A. ISO31000 Process (graphic)

Figure B. Risk Analysis Process

Figure B. Risk Analysis Process (graphic)

Figure C. Risk Assessment Matrix based on TCFD Recommendations

Figure C. Risk Assessment Matrix based on TCFD Recommendations (graphic)

FY2021 Workshop for Assessing Climate-related Risks and Opportunities

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 our Hydrogen & CCUS Development and Renewable Energy and New Business divisions at the core.

In addition, INPEX’s Current Initiatives based on the Corporate Position on Climate Change includes initiatives related to the five net zero businesses, the transition to natural gas, and making upstream operations cleaner. These initiatives are considered by the Sustainability Committee, approved by the CEO, and then reported to the Executive Committee and the Board of Directors.

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

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

FY2022 Status of Climate-related Risks: Assessment Coverage, Expected Timing and Action Plans

Transition risks

Risk category

Risk description

Expected risk timing

Action plan

Policies and
regulations
(Scope 1 emissions)

Risk of increased costs due to the introduction and strengthening of a carbon price system

Short-
term

Medium-
term

  • Monitor carbon pricing policy trends
  • Increase internal carbon price from US$40/tCO2-e to US$65/tCO2-e and establish this as a base case to assess the economic impact

Technologies
and markets
(Reduced demand
and lower prices
for oil and gas)

Risk of reduced demand and lower prices for oil and gas due to a decline in the cost of renewable energy, electric vehicles and/or storage batteries, or market preference for low-carbon energy

Medium-
term

Long-
term

  • Scenario-based monitoring of market and technology trends
  • Financial assessment of portfolio based on oil and carbon prices used in the IEA WEO Sustainable Development Scenario (SDS)

Reputation
(Scope 1 emissions)

Stakeholder concerns about Scope 1 emissions

Short-term

  • Net zero by 2050, and at least 30% reduction in net carbon intensity by 2030
  • Promote technological development and commercialization with the goal of achieving an annual CO2 injection amount of 2.5 million tons or more around 2030.
  • Maintain methane emissions intensity (methane emissions/natural gas production) at its current low level (about 0.1%)
  • Zero routine flaring by 2030

Reputation
(Scope 3 emissions)

Risk that attention attracted by Scope 3 emissions will cause the image of oil and gas companies to deteriorate

Short-
term

Medium-
term

  • Engage with stakeholders to reduce Scope 3 emissions
  • Promote development and greater use of natural gas
  • Sell carbon-neutral LNG

Financing

Potential adverse impact on financing activities if investors and financial institutions regard disclosure as inadequate

Short-
term

Medium-
term

  • Disclose information in line with TCFD Recommendations

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

Physical risks

Risk category

Risk description

Expected risk timing

Action plan

Acute risks

Risk of impairment to operating facilities from extreme weather events

Short-
term

Medium-
term

  • Regular assessment of physical risks

Chronic risks

Risk of impairment to operating facilities from long-term increase in average temperatures, changing precipitation patterns, and rising sea levels

Medium-
term

Long-
term

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

Climate Change Opportunities to Be Assessed in FY2022, Proposed Timing and Progress Status

Opportunities related to resource efficiency

Opportunities to be assessed

Timing

Long-term strategy and progress status

Energy efficiency improvements in production processes

Short-term

  • Design facilities with high energy efficiency and follow through with a rigorous maintenance plan and routine maintenance activities

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

Opportunities related to energy sources

Opportunities to be assessed

Timing

Long-term strategy and progress status

Utilization of renewable energy sources in production processes

Short-
term

Medium-
term

  • Deepen knowledge of clean energy technology by supplying clean power to offshore production facilities by floating offshore wind power generation at INPEX’s newly acquired Norwegian project

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

Opportunities related to products and services

Opportunities to be assessed

Timing

Long-term strategy and progress status

Promotion of CCUS business

Medium-term

  • Aim to inject at least 2.5 million tons of CO2 annually in around 2030
  • Verify CO2-EOR* viability in Minami-aga, Abu Dhabi and elsewhere
  • Study possibility of employing CCS at Ichthys LNG

Development of hydrogen business

Medium-
term

Long-
term

  • Aim to produce and supply at least 100,000 tons of hydrogen and ammonia annually by 2030
  • Build blue hydrogen/ammonia pilot plant in Kashiwazaki, Niigata, targeting start-up in 2024
  • Conduct joint research on clean ammonia business in Abu Dhabi

Expansion of renewable energy businesses

Short-
term

Medium-
term

  • Aim for installed capacity of 1-2 GW primarily in offshore wind and geothermal generation businesses
  • Participate in offshore wind-power projects in the Netherlands and Nagasaki
  • Participate in Muara Laboh geothermal-power project in Indonesia

Promotion of carbon recycling

Medium-
term

Long-
term

  • Build a 400 Nm3/h methanation facility in Nagaoka with verification tests scheduled to start in 2025
  • Install artificial photosynthesis panels in Darwin, Australia, with a view to developing practical applications

Cultivating new business opportunities

Medium-
term

Long-
term

  • Evaluate possibilities for drone utilization, methane pyrolysis, direct air capture (DAC), and blue carbon

Promoting sale of carbon-neutral products

Short-
term

  • Further expand sales of carbon-neutral products and broaden carbon credit portfolio

Promotion of forest conservation

Medium-
term

  • Aim for steady acquisition of 2 million tons worth of carbon credits annually from Rimba Raya Biodiversity Reserve REDD+ and other high-quality forest conservation projects

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

*

Enhanced oil recovery, including enhanced gas recovery

Market opportunities

Opportunities to be
assessed

Timing

Long-term strategy and progress status

Diversification of energy supplies

Medium-term

  • Establishment of Asian gas value chain through investment in LNG bunkering, receiving terminals, small-lot distribution and midstream/downstream businesses such as power generation

Development of cleaner natural gas

Medium-
term

Long-
term

  • Increase production capacity at Ichthys LNG. Pursue business opportunities in Southeast Asia. Promote projects, including introduction of CCS, at the Abadi LNG Project in Indonesia

Short-termup to one yearMedium-termone to five yearsLong-termlonger than five years

Development of Physical Risk Assessment Process

In 2018, we reviewed the process of assessing physical risks and drew up a roadmap covering the facilities at both operator and non-operator projects. In 2019, we conducted a trial physical risk assessment for our major operator facilities. To determine climate variables, including the increase in average temperature and sea-level rises in the mid-21st century, we started with external data from the RCP8.5 (Representative Concentration Pathways 8.5) scenario outlined in the IPCC Fifth Assessment Report (AR5), which assumes the highest level of global warming. Using the data, we identified the risks for our major facilities in Niigata Prefecture, Japan and in Darwin, Australia. In 2021, we completed trial assessments for almost all facilities in the eleven major projects with which INPEX is involved as a non-operator after confirming the status of physical risk assessments. We will also analyze gaps between the IPCC Fifth Assessment Report and the subsequently published Sixth Assessment Report (Working Group I).

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. 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 endeavor to ensure that our major operator projects are adequately prepared for typhoons, cyclones and other natural disasters through planning, operational measures, training and use of external information. Insuring our property 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, INPEX has also conducted pipeline risk assessments and studied countermeasures against natural disasters. Based on these reviews, we have carried out replacement work on portions of the pipeline deemed to have a high natural disaster risk.

Going forward, cross-organizational teams will conduct periodic physical risk assessments and make appropriate disclosures regarding physical risks.

Physical Risk Assessment Roadmap

Physical Risk Assessment Roadmap (graphic)

Assessment of Financial Impact of Climate-related Risks

INPEX uses two methods to assess the potential financial impact of climate-related risks. The first method is an economic assessment of each of our projects using internal carbon pricing. This assessment forms our base case. The reason we use this is because more than 130 countries have already declared net zero targets by 2050, and we expect a growing number of countries to introduce carbon pricing as they bolster efforts to tackle climate change. INPEX’s internal carbon price is reviewed each year with reference to the carbon prices in the IEA WEO Stated Policies Scenario (STEPS). In FY2022, we adjusted our internal carbon price from US$40/tCO2-e to US$65/tCO2-e to reflect the IEA WEO carbon price forecast.

The second method is to assess the financial impact on our business portfolio. This is a financial assessment of the market risks to our portfolio resulting from the oil and carbon prices in the IEA WEO Sustainable Development Scenario (SDS: scenario consistent with the Paris Agreement’s goals). By applying oil and carbon prices shown in the IEA WEO SDS to the net present value (NPV) calculation for projects, we calculate the extent of change against a base-case NPV as the impact on our portfolio. Despite difficulties in formulating assumptions, we adopt this as one of the methods to assess the financial impact on our portfolio. We will continue to refine the implementation standards for this method and to improve the competitiveness of our portfolio as we factor in changes in the business environment.

Two Approaches to Financial Assessment

 

Assessment using internal carbon pricing

Assessment using SDS scenario

Financial assessment method

Financial impact of carbon pricing policies on projects

Assessment of financial impact on portfolio resulting from application of oil prices and carbon prices according to the IEA WEO Sustainable Development Scenario (SDS)

Metrics

IRR based on internal carbon price (base-case)

Extent of change in NPV using IEA WEO SDS reference prices (sensitivity analysis)

Status

Adopted as base case since FY2021

Implemented since FY2018

Disclosures in Line with TCFD Recommendations

Overview of the TCFD Recommendations

INPEX’s disclosures

Governance

Disclose the organization’s governance around climate-related risks and opportunities

1

Describe the board’s oversight of climate-related risks and opportunities

2

Describe management’s role in assessing and managing climate-related risks and opportunities

Strategy

Disclose the organization’s governance around climate-related risks and opportunities

1

Describe the climate-related risks and opportunities the organization has identified over the short, medium and long term

2

Describe the impact of climate-related risks and opportunities on the organization’s businesses,
strategy and financial planning

3

Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario

Risk Management

Disclose how the organization identifies, assesses and manages climate-related risks

1

Describe the organization’s processes for identifying and assessing climate-related risks

2

Describe the organization’s processes for managing climate-related risks

3

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management

Metrics and targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

1

Disclose the metrics used by the organization to assess climate change-related risks and opportunities in line with its strategy and risk management process

2

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the related risks

3

Describe the targets used by the organization to manage climate change-related risks and opportunities and performance against targets