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Breeding Raw Materials Adapted to Climate Change

TCFD

Sapporo Holdings endorses the recommendations of the TCFD, which encourages companies to assess, manage, and disclose information on the risks and opportunities of climate change, and is actively promoting information disclosure.
Recognizing that addressing climate change is one of the most important issues to be addressed on a global scale, we are working to resolve issues from both mitigation and adaptation perspectives. We have identified risks and opportunities based on scenario analysis of multiple possible future business environments, and are reflecting the results in our strategies and initiatives.

Governance

Sapporo Group has established the Group Sustainability Committee, chaired by the President and Representative Director of Sapporo Holdings, as an advisory body to the Management Council* to promote and oversee environmental conservation activities for the entire Group and to support the environmental management initiatives of each operating company.
The Group Risk Management Committee is incorporated into the overall risk management, and the committee secretariat reports semiannually to the Board of Directors on the occurrence of risks, including those related to water risk and climate change, and how to respond to them, as well as how to prevent their recurrence. The Sustainability Committee formulates overall policies to promote sustainability management throughout the Group, coordinates within the Group, and the director in charge reports semiannually to the Board of Directors on progress in addressing climate change-related issues. The Board of Directors monitors and supervises the efforts to address these reported issues and the targets set.

(note) Corporate governance and internal control

The Sapporo Group's Sustainability Implementation Structure(As of December. 31. 2020)

Strategy

Sapporo Group formulated the Sapporo Group Environmental Vision 2050 in 2019 with the aim of realizing a decarbonized society, and is working to prevent global warming by reforming its business structure with a decarbonization orientation, thoroughly implementing energy-saving measures, and utilizing renewable energy.
In this context, in our core beer business, we have been breeding our own barley and hops, the main raw materials, since our founding in 1876, and have adopted a unique raw material procurement system called "cooperative contract farming" since 2006. In the future, assuming the impact of each of the scenarios described below on the yield of raw materials, we will work to develop new varieties and ensure stable procurement in cooperation with universities, research institutions, and suppliers in Japan and overseas, based at the Sapporo Brewery Material Development Laboratory. We will also strengthen cooperation with suppliers to ensure stable procurement of corn and rice as secondary materials.
We will take on the challenge of resolving climate change issues from the perspectives of mitigation and adaptation* through our group-wide efforts to thoroughly decarbonize and our efforts to produce raw materials, which we have cultivated over 140 years in the beer business, aiming to become a resilient corporate entity and contribute to the building of a sustainable society.

* Mitigation: Curbing the emission of greenhouse gases

   Adaptation: Adjusting the nature and human society to cope with the effects of global warming (from Ministry of the Environment data)

Strategy

Scenario Analysis

A scenario analysis was conducted for the procurement area of agricultural products used as raw materials for beer, which is expected to be affected by climate change in the core beer business. Based on scenario analysis data from the Food and Agriculture Organization of the United Nations (FAO) and other sources, the analysis was corrected to take into account factors such as extreme weather events, and assumed changes in yields up to 2050 for three scenarios that differ in climate change factors, economic and social factors, and factors related to production volume.

Temperature increase Extreme weather events (typhoons, floods, droughts, etc.) Agriculture-related trends Other social trends
Sustainability Progress scenario Possible to keep it below 2°C Increase to some extent (-) Tighter regulations on the use of chemical fertilizers, etc. (-) Population growth, improved living standards, increased demand for food, and some increase in food prices
Sustainability Standard scenario Impossible to keep the temperature below 2°C Increased frequency and damage (-) Increase in variety improvement and capital investment (+) Population growth, higher living standards, increased demand for food, higher food prices
Sustainability Stagnation scenario Much higher than 2°C Severe increase (-) Increase in crop diseases and damage to agriculture (-) Higher food prices, more difficult access to food for the poor

+: Positive impact on yields  -: Negative impact on yields

Projected changes in yields in major sourcing countries

The sustainability progress scenario assumes a negative impact on yields due to the impact of restrictions on the use of chemical fertilizers. In countries where yield estimates are on an upward trend, yields may increase or remain flat despite the negative factors in the table above.

Barley

Progress Standard Stagnation
Europe
North America
Oceania
East Asia

Hop

Progress Standard Stagnation
Europe
North America
Oceania
East Asia

Corn

Progress Standard Stagnation
North America
South America

Rice

Progress Standard Stagnation
East Asia
: >5%
: ±5% or less
: <-5%

It indicates whether the estimated yield in 2050 is increasing (↑), remaining flat (→), or decreasing (↓) compared to the yield in 2018.

Risks and Opportunities, Direction of Responses and Measures

According to the results of the scenario analysis, there are areas where yields would decrease in each scenario. Including these impacts, we examined the risks and opportunities facing the Sapporo Group, assuming that the three scenarios become reality.
In terms of risks, we recognize that crop yields could decrease due to abnormal weather, regulations could be tightened, and quality could decline due to pests and diseases. On the other hand, in terms of opportunities, we recognize the stabilization of quality through improved varieties, the development of new varieties, and the enhancement of competitiveness through product development, etc. We believe that by strengthening mitigation and adaptation measures, the impact of risks will be reduced and the potential for capturing opportunities will be greater.
Although the trend of declining yields will occur in each region, we will respond to regional differences by securing diversified sources of procurement. In addition, we will respond to tighter regulations on agricultural chemicals, yield reduction and quality deterioration caused by diseases through “Collaborative Contract Farming System” activities and the development and commercialization of new varieties. These are measures that will be effective in all scenarios.

Item Risks and opportunities Direction of response and measures
Risks Transition risks Tighter regulations on agricultural chemicals in each country
Increased costs due to the introduction of carbon pricing in many countries
Information on pesticide regulations and understanding of pesticide use
Gathering information on integrated pest management, including biological control and physical removal methods in place of chemical pesticides, and understanding of producer trends
Promotion of decarbonization efforts (achievement of targets for 2030 and 2050)
Increase in demand for food due to global population growth, etc., tightening of export regulations and increase in procurement prices due to decrease in production caused by abnormal weather
Stagnation in procurement of raw materials due to epidemics of new infectious diseases, etc.
Secure diversified procurement sources Gathering and understanding information on global food import and export trends and regulations
Strengthen infrastructure for stabilizing domestic production
Decrease in quality of raw materials due to abnormal weather Develop and promote high-yielding barley and hop varieties with low risk of quality deterioration due to abnormal weather
Physical risks Increase in pests and diseases due to global warming Development and diffusion of new barley and hop varieties with excellent disease resistance Establishment of a pest control system for the introduction of integrated pest management in cooperation with suppliers
Increase in water risks due to heat waves, droughts, and unseasonable rainfall caused by abnormal weather, and increase in frequency and severity of wind and water damage caused by typhoons and torrential rains Safety of water supply at existing sites and risk assessment for drought and extreme weather
Opportunities Strengthen competitiveness by improving the efficiency of production systems using ICT and robots, stabilizing quality through breeding, developing new varieties, and developing products Utilization of new technologies in agriculture through collaboration with domestic and international partners
Development and commercialization of barley and hop varieties adapted to avoid or reduce the effects of climate change such as drought and heavy rainfall

Transition Plan and Carbon Tax

Mitigation Measures Plan to 2030 (Scope 1,2)

Mitigation Measures Plan to 2030 (Scope 1,2)

"The Sapporo Group is committed to greenhouse gas reduction targets at the SBT Initiative certification level: the SBT 1.5°C standard sets annual reduction levels toward the target year, and we aim to achieve a certain slope of reduction throughout the Group.
In order to achieve these reduction plans, we will invest approximately 2.1 billion yen in decarbonization over the eight years from 2022 to 2030. At our production sites, we will promote energy-saving activities such as upgrading to higher efficiency and streamlining processes in line with measures to address aging facilities, as well as a shift to renewable energy, mainly for electricity. In the framework for investment decisions aimed at decarbonization, ICP (Internal Carbon Pricing) has been introduced at our major operating companies, and we have adopted 6,000 yen/t-CO2 for the estimation of the investment amount this time."

Adaptation measures Plan to 2050

Year Barley Hops
2023
  • Cultivation of breeding material resistant to red mold and ear germination and start of characterization
  • Evaluation and verification of new characteristics that can respond to climate change, elucidation of mechanisms, development of genetic discrimination technology, and start of breeding.
  • Development of a Simple Evaluation System for Hop Rootstock
  • Selection and evaluation of useful genetic resources
  • Breeding and selection using parents with resistance to powdery mildew
  • Development of technology to discriminate resistance to powdery mildew using genes
2024
  • Establishment of a simple evaluation system for hop root systems
2025
  • Cultivation, characterization, and selection of breeding materials with new characteristics that can respond to climate change
  • Breeding and breeding material training using parents with useful genetic abilities related to root systems
2026
  • Selection of variety candidates for either red mold resistance or ear budding resistance
2027
  • Evaluation of potential varieties in public trials
  • Establishment of a technique to discriminate rice powdery mildew resistance by gene
2028
  • Brewing trials of potential varieties
2029
  • Registration of ear germination resistant varieties filed in Canada.
2030
  • Registration of red mold resistant or ear budding resistant varieties filed in Japan.
  • Registration Filed for Water Stress Tolerant Variety
  • Registration of a variety with excellent resistance to powdery mildew filed
2031-2034
  • Prototype and brewing trials of applied varieties
  • Commercialization of ear germination resistant varieties in Canada
2035
  • Red mold-resistant or ear budding-resistant varieties put to practical use in Japan
  • Consider expanding the area under cultivation of new varieties with characteristics that can cope with climate change.
2036-2049
  • Selection of candidate varieties with new characteristics that can respond to climate change
  • Breeding resistant varieties with multiple combinations of resistance to powdery mildew
2050
  • Commercialization of new varieties with new characteristics that can respond to climate change

In our core alcoholic beverage business, the Sapporo Beer Ingredient Development Laboratory is the base for developing new varieties in collaboration with universities, research institutes, and suppliers in Japan and overseas. We are developing varieties of main ingredients for beer, which are expected to be greatly affected by climate change, with the aim of commercializing varieties with excellent disease resistance and stable yield and quality even in abnormal weather conditions.

Impact of carbon tax on Scope 1 and 2

Year Emissions if greenhouse gas reduction targets are achieved
(thousand tons)
Emissions if greenhouse gas reduction targets are not met
(thousand tons)
Cost related to carbon tax if greenhouse gas reduction targets are achieved
(thousands of yen)
Cost related to carbon tax if greenhouse gas reduction targets are not met
(thousands of yen)
2030 110 189 1,813,440 3,130,869
2050 0 189 0 6,055,178

1USD=130 yen
IEA: NZE Scenario
Carbon tax 2030: 130 USD for developed countries, 90 USD for emerging countries, 15 USD for developing countries
Carbon tax 2050: 250USD for developed countries, 200USD for emerging countries, 55USD for developing countries

Based on the IEA's NZE scenario, we have calculated the financial impact related to the carbon tax for 2030 and 2050.
If emissions are reduced as planned, we assume 109 thousand tons and 0 tons in 2030 and 2050, respectively. On the other hand, if the reduction target is not achieved, emissions in 2030 and 2050 are estimated to be 189 thousand tons each, assuming that the emissions in 2022 will continue. Comparing the case where the reduction target is not achieved and the case where it is achieved, the impact in 2030 is approximately 1.3 billion yen and in 2050 is approximately 6 billion yen.

Indicators and Targets

From among the responses and measures described in the previous section, the following indicators and targets have been set for initiatives that the Sapporo Group will focus on in particular. In the area of mitigation measures through the control of greenhouse gas emissions, the Sapporo Group has set medium- to long-term CO2 emission reduction targets. As one of the targets related to the value chain, we have set a new target to reduce CO2 emissions in areas under “Collaborative Contract Farming System” in Japan as one of our future concrete initiatives. We will expand our efforts to domestic cultivation areas, taking into account regulations on pesticides and other substances.
In the area of adaptation measures to avoid or mitigate the damage caused by the effects of climate change, we have set new targets for the main agricultural ingredients of our key beer products. The goal is to develop and commercialize varieties that can cope with abnormal weather conditions such as drought and heavy rainfall, as well as water stress and diseases caused by these conditions, which can reduce yield and quality.

Mitigation measures

By 2030

  • Reduce greenhouse gas emissions from our own sites (Scope 1 and 2) by 42% from the 2022 level.
  • Reduce greenhouse gas emissions throughout the value chain (Scope 3) by 25% from the 2022 level.
  • Reduce greenhouse gas emissions in FLAG Scope 1, 2, and 3 by 31% from the 2022 level.
     -Implement emission reduction activities in all domestic cooperative cultivation regions.

By 2050

  • Achieve net-zero greenhouse gas emissions in Scope 1, 2, and 3.
     -100% of electricity consumption to be derived from renewable energy sources.

Adaptation measures

  • Apply for registration of new varieties (barley, hops) to adapt to climate change by 2030
  • By 2035, commercialize new varieties (barley, hops) to adapt to climate change in Japan
  • By 2050, in addition to the above varieties, develop new environmentally adaptable varieties and put them to practical use in Japan and overseas

We have set targets for other items related to climate change in ”Medium- and long-term targets for sustainability material issues,” and are promoting Group-wide efforts to achieve them.

We will continue our efforts to understand the risks and opportunities that we have not yet fully analyzed, as well as the measures we are taking to address them and their financial implications. At the same time, we will continue to enhance the information we disclose. We will also review the information as appropriate in response to changes in social conditions.

Sapporo Group Environmental Vision 2050

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