Disclosure in Accordance with TCFD Recommendations

Governance
Strategy
Risk Management
Metrics and Targets

In our Medium-term Management Plan (FY2021–2023) and ESG Initiatives, the Kumagai Gumi Group declares its efforts to address environmental issues, including climate change, as a key management issue.

We have pledged to implement countermeasures related to climate change through our business activities and to promote the transition to a decarbonized society as part of the Eco-First program. Various efforts are underway to achieve carbon neutrality by 2050.

We have expressed our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Additionally, we have identified and assessed climate-related risks and opportunities and analyzed scenarios to identify the medium- to long-term impact on our business activities.

Governance

We discuss important management matters, including climate-related issues, at the Management Committee (chaired by the president). We have also established the Sustainability Promotion Committee (chaired by the general manager of the Corporate Strategy Office) as an organization to assist the Management Committee.

The Sustainability Promotion Committee is chaired by the general manager of the Corporate Strategy Office, and is composed of the general managers of our business divisions and other members.

Focusing on ESG/SDGs perspectives, the committee considers broad measures that will contribute to our long-term growth and the establishment of a sustainable society.

In cooperation with management committees and other bodies, the committee considers specific measures to address environmental issues, including climate-related issues, and countermeasures based on progress toward our environmental targets, including CO2 emissions reductions.

The Board of Directors receives timely reports on matters related to climate change that have passed through the above process and supervises the status of our initiatives.

Strategy

The risks associated with climate change include risks due to transitional changes, such as stricter regulations on GHG emissions, and risks due to physical changes, such as more frequent and severe natural disasters.

On the other hand, the opportunities associated with climate change include growth in demand in new markets.
In addition, the impact of climate change may become apparent not only in the short term but also over the medium and long term.

As such, we have identified risks related to climate change, which we have categorized as transitional or physical, and opportunities related to climate change. We have also classified these risks and opportunities into the three timelines: short term (3 years or less); medium term (more than 3 years to 10 years); and long term (10 years).
Major identified risks include increased construction business costs due to stricter regulations on GHG emissions.
Major identified opportunities include growing demand for businesses related to renewable energy and increased sales driven by the expanding national resilience market.

Strategy formulation process

Result of scenario analysis

We assessed the financial impact as of 2030 for identified risks and opportunities we had determined would have significant impacts on our business.

We adopted and analyzed the 4°C scenario, which assumes a 4°C increase in the global average temperature by 2100 compared to pre-industrial times. We also adopted and analyzed the 1.5°C scenario, which assumes a 1.5°C increase.

As a result of the scenario analysis, we confirmed that increased earnings would outweigh any negative impact.
Under either scenario, the market for the construction business, which is our main business, is expected to expand.

We also reaffirmed the importance of countermeasures to risks and opportunities. At the same time, we confirmed that they are consistent with our business strategies set forth in the Medium-term Management Plan (FY2021–2023).

Primary scenarios for analysis of transitional risks and opportunities

4℃ scenario: Stated Policy Scenario (STEPS) for IEA
1.5℃ scenario: Net Zero Emissions by 2050 Scenario (NZE) for IEA

Primary scenarios for analysis of physical risks and opportunities

4℃ scenario: RCP 8.5 for IPCC
1.5℃ scenario: RCP SSP 1–1.9 for IPCC

Source of primary parameters

Items	Sources
Carbon taxes	IEA WEO 2021
Number of typhoons (2030, 2050)	Ministry of the Environment, “Climate Change Impact Assessment Report”; Japan Meteorological Agency Report
Number of days of heavy rain (2030, 2050)	World Bank, Climate Change Knowledge Portal
Average temperatures (2030, 2050)	World Bank, Climate Change Knowledge Portal
Increase in number of days of intense heat (2030, 2050)	World Bank, Climate Change Knowledge Portal
Rate of decline in labor productivity (2030, 2050)	ILO, “Working on a WARMER planet” (2019)
Energy mix	IEA WEO 2021
Market predictions for medium- to large-scale wooden buildings	Forestry Agency, “Market area roadmap: Wooden large construction / Smart forestry industry”
Market predictions for ZEB	Environmental Industry Market Size Study Group, “Report on the Market Size and Employment of the Environmental Industry” ZEB/ZEH-M committee, “Promotion of further spread of ZEB/ZEH-M”
Construction investment forecasts for the national resilience market	Cabinet Secretariat, “Overview of the 2022 National Resilience Annual Plan”

Result of scenario analysis

Category			Factors	Details	Financial Impact		Measures
Category			Factors	Details	1.5°C warming scenario	4°C warming scenario	Measures
Risks	Transition risks	Policies, laws and regulations	More stringent regulations governing GHG emissions(Carbon pricing implementation, etc.)	Increase in business costs due to procurement of construction materials and introduction of charges and emissions trading systems for GHG emissions during construction	Large	Small	Energy conservation during construction stages Introduction and operation of internal carbon pricing Decarbonization of construction machinery
	Physical risks	Acute physical risks	More frequent and intensifying natural disasters	Increase in costs to respond to construction sites and on-site employees affected by natural disasters and construction delays caused by supply chain interruptions Decrease in asset value of real estate holdings due to natural disasters	Small	Large	Enhance and operate BCP, including supply chains Develop and implement construction techniques less affected by the natural environment Consider moving real estate away from disaster hazard areas
	Physical risks	Chronic physical risks	Increase in average temperature	Increase in labor costs due to decline in work efficiency at construction sites Decline in sales due to stagnation of orders following health problems and more severe worker shortages due to worsening working conditions on construction sites	Small	Medium	Make improvements to working environments such as measures to prevent heat stroke Develop and implement labor-saving construction methods and technologies to raise productivity
Opportunities	Energy sources		Increase in demand for renewable energy related businesses	Increase in sales and demand for construction due to increase in renewable energy related investments	Medium	Small	Design renewable energy related facilities, and develop and implement construction technologies Promote renewable energy businesses
	Products and services		Increase in demand for medium- to large-scale wooden structures	Increase in sales of medium- to large-scale wooden structures with minimal GHG emissions and allows fixation of CO₂	Large	Medium	Design wooden structures, and develop and implement construction technologies Provide investment for the operation and commercialization of medium- to large-scale wooden structures
	Products and services		Increase in demand for energy-saving buildings	Increase in sales of buildings with excellent energy efficiency and minimal GHG emissions	Large	Medium	Develop and implement ZEB/ZEH-related technologies
	Market		Expansion of national resilience markets	Increase in sales of technology,products and construction for disaster prevention, mitigation and restoration	Large	Large	Development and application of technologies contributing to national land strengthening (Technologies for disaster prevention, mitigation and restoration)

Risk Management

We believe accurately assessing and reducing risks as well as striving to maximize opportunities associated with business activities will lead to enhanced corporate value.

Regarding important matters, we identify and assess risks and opportunities for each case. Final decisions are made by the Management Committee and the Board of Directors.

Each business division identifies and assesses risks and opportunities in business processes, and considers necessary countermeasures and incorporates them into our fiscal plans. The status of these initiatives is monitored and reported quarterly to the management committees.

Environmental risks and opportunities, including climate change, are reported to and discussed by the Sustainability Promotion Committee. They are also reported to and discussed by the Management Committee and the Board of Directors, as necessary.

Metrics and Targets

As part of the Eco-First program and SBT, we have set emissions reduction targets for greenhouse gases (Scope 1, 2, 3) and mixed construction waste, and disclose the results of these measures.

We joined the RE100 initiative in February 2021, and are actively promoting the introduction of renewable energy power to achieve carbon neutrality.

In addition, we have created an ESG/SDGs Matrix that links our business to the SDGs. We disclose indicators, targets, and results for various distinct issues, including greenhouse gas reduction targets.