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2023

Sustainability Report 2022

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Sustainability Report 2022

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

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

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 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)

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

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

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

Transition risks

Risk category

Risk description

Expected timing of risk occurrence

Action plan

Policies and
regulations
(related to Scope 1 emissions)

  • Risk of increased costs due to earlier-than-expected introduction and strengthening of a carbon price system
  • Risk of stricter regulations for methane emissions management

Short-
term

Medium-
term

  • Ongoing monitoring of external environment, including trends in carbon pricing policies
  • Economic assessment using our internal carbon price as a base case; ongoing revision based on EU STEPS prices in the IEA WEO or the policy carbon cost forecast for each country
  • Introduction of clean energy in project operations as an initiative for reducing emissions
  • Management to maintain methane emissions intensity at 0.1%
  • Engagement with relevant stakeholders

Technologies
and markets
(oil and gas demand/
price drops)

  • Risk of progressively lower demand or lower prices for oil and gas due to cost reductions for renewable energies, electric vehicles, and batteries, or a market preference for low-carbon energy
  • Risk of customer preference for gas/LNG with lower net carbon intensity

Medium-
term

Long-
term

  • Monitoring of technology/market trends
  • Implementation of economic assessment using the IEA WEO Announced Pledges Scenario (APS) as main scenario; consideration of the Net Zero Emissions by 2050 Scenario (NZE)
  • Initiatives to reduce costs
  • Promotion of transition to natural gas and CCS

Reputation
(related to Scope 1 emissions)

Risk of Scope 1 emissions being a concern to stakeholders

Short-term

  • Establishment of targets as at least 30% reduction in emissions intensity for 2030, and net zero by 2050
  • Promotion of technical development and commercialization with the goal of achieving at least 2.5 million tons annually of CO2 emissions by around 2030
  • Maintenance of methane emissions intensity (methane emissions / natural gas production) at current low levels (about 0.1%)
  • Zero routine flaring by 2030

Reputation
(related to Scope 3 emissions)

Risk of worsening image of oil and gas companies as Scope 3 emissions come under scrutiny

Short-
term

Medium-
term

  • Engagement with stakeholders to reduce Scope 3 emissions
  • Encouragement of development and spread of natural gas
  • Sale of carbon-neutral LNG

Financing

Risk of adversely affecting funding as investors or financial institutions consider our information disclosure to be inadequate

Short-
term

Medium-
term

  • Promotion of information disclosure in line with TCFD recommendations
  • Dialogue and engagement with investors and financial institutions

Physical risks

Risk category

Risk description

Expected risk timing

Action plan

Acute

Risk that extreme weather phenomena will adversely affect operating facilities

Short-
term

Medium-
term

  • Regular assessment of physical risks

Chronic

Risk the long-term average temperature increases, changes in rainfall patterns, and sea level rises adversely affect operational facilities

Medium-
term

Long-
term

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

FY2023 Status of Climate Change Opportunities

Opportunities related to resource efficiency

Opportunity assessment target

Timing

Opportunities - Long-term Strategy and Response Status

Improvements to energy efficiency in production processes

Short-term

  • Implementation of low-carbon operations through the fuel gas flaring reduction initiative, gas leak detection and repair (LDAR) program, and other initiatives at Ichthys LNG in Australia

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

Opportunities related to energy sources

Opportunity assessment target

Timing

Opportunities - Long-term Strategy and Response Status

Use of renewable energy sources in production processes

Short-
term

Medium-
term

  • Supply of clean power to maritime production facilities through power generation at the floating wind farm in the Snorre Oil Field in Norway
  • Evaluate the potential to introduce onshore hydropower in the Wisting Oil Field development plan

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

Opportunities related to products and services

Opportunity assessment target

Timing

Opportunities - Long-term Strategy and Response Status

Promotion of CCUS

Medium-term

  • Signed a memorandum of understanding with PTTEP (a state-owned resource development company in Thailand) and JGC and start discussions towards a joint CCS project in Thailand
  • Conduct a joint feasibility study for a CCS project in Sarawak, Malaysia, through a joint cooperation agreement with local company PETROS
  • Conduct a joint feasibility study related to a large-scale wide-area CCS value chain project through maritime freight, following memorandum of understanding signed with ITOCHU, Mitsubishi Heavy Industries, and Taisei
  • Conduct a study for CCS project development at the Tangguh LNG Project in Indonesia, based on a production sharing agreement
  • Conduct injection testing in FY2023 for a CO2 EOR verification trial in the Minamiaga Field Office and consider moving to the next phase
  • Progress assessments and other preparations for introducing CCS at Ichthys LNG
  • Consider and launch new projects in Japan and overseas

Expansion of hydrogen projects

Medium-
term

Long-
term

  • Signed a joint memorandum of understanding with AGL Energy, a local power generation company in Australia, for hydrogen hub project development in Australia; currently investigating hydrogen exports and methanation using hydrogen
  • Exploring initiative for ammonia fuel supply transportation through joint concept study for ammonia bunkering vessel with Mitsubishi Shipbuilding
  • Procuring materials and equipment for ground preparation, CO2 injection, production, and observation well drilling for the hydrogen and ammonia production demonstration project in Kashiwazaki City, Niigata Prefecture, Japan. Planned start of operations in FY2025.
  • Pursue opportunities to participate in clean ammonia business in Abu Dhabi
  • Consider and launch new projects in Japan and overseas

Expansion of renewable energy projects

Short-
term

Medium-
term

Wind power generation

  • Progress development of offshore wind power business, and construction of a floating offshore wind power project offshore Goto City, Nagasaki Prefecture, Japan
  • Ensure stable operations and expand business at European wind power projects
  • Generate business opportunities in Southeast Asia, Australia, and the United States



Geothermal power generation
  • Carry out additional development at Muara Laboh Geothermal Power Project in Indonesia
  • Progress construction for Oyasu Geothermal Power Project
  • Progress geothermal exploration activities in Indonesia, Japan and other regions

Promotion of carbon recycling

Long-
term

  • Commence plant construction for planned 2025 launch of synthetic methane production as a methanation technical development project
  • Pursue further R&D in artificial photosynthesis

Development of projects in new fields

Medium-
term

Long-
term

  • Conduct studies regarding drone utilization, methane pyrolysis, CO2 recovery, storage battery-related projects, etc.

Promotion of the carbon-neutral product sale

Short-
term

  • Further expansion of the carbon-neutral product sales and expansion of carbon credit portfolio

Promotion of forest conservation

Medium-
term

  • Signed a joint memorandum of understanding with Australia and New Zealand Banking Group (ANZ) and Qantas Airways to evaluate carbon farming and renewable biofuel project potential in Australia

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

Opportunities related to the market

Opportunity assessment target

Timing

Opportunities - Long-term Strategy and Response Status

Diversity of energy supply

Medium-term

  • Establish a gas value chain in Asia through investment in midstream and downstream businesses such as LNG bunkering, receiving terminals, small-scale distribution, and power generation

Development of cleaner natural gas

Medium-term

  • Conduct studies with the view to increased production capacity and expansion at Ichthys LNG in Australia; pursuit of project opportunities in Southeast Asia
  • Promote business activities in Indonesia, including the introduction of CCUS in the Abadi LNG Project.

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

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

Physical Risk Assessment Roadmap (graphic)

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

7 metrics of disclosure in line with TCFD Guidance of Metrics, Targets, and Transition Plans