Our Strategy for Climate-related Risks and Opportunities -TCFD Scenario Analysis-

Given the international community’s commitment to achieving long-term goals of the Paris Agreement, Nippon Steel signed the statement of support for the Task Force on Climate-related Financial Disclosures (TCFD) in May 2019, considering the climate change as one of priorities that the planet is facing today. Based on the recommendations, we are committed to information disclosure on the climate change impact to our business activities.

Scenario analysis

For each transition factor and physical factor, we have identified risks and opportunities that may have a significant impact on our business in the areas of upstream procurement, direct operations, and downstream demand for products and services. We have then considered strategies for each scenario.

In conducting the scenario analysis, we have used the scenarios of the International Energy Agency (IEA) as a base, and evaluated medium- to long-term risks and opportunities up to 2050, by referring to the IEA’s 1.5°C scenario (NZE2050) and the below 2°C scenario (B2DS) in transitional aspects and the 4°C scenario (NPS) in the aspects of physical impacts.

Reference scenario

1.5°C/2°C scenario: IEA WEO2022 NZE2050/IPCC Special Report on the impacts of global warming of 1.5°C/IEA WEO2018 SDS/IEA ETP 2017 B2DS

4°C scenario: IEA WEO2018 NPS/IPCC AR5 RCP

TCFD scenario analysis

1.5℃/2℃ scenario

Factors (risks and opportunities)	Events (expectations and concerns of stakeholders)	Impact to Nippon Steel (risks and opportunities)	Nippon Steel’s strategy (including future responses)
Transition factor 1 Advance in electric vehicles (EVs)	World EV sales: 65 million units, 60% market share in 2030 (vs. 6.6 million units, 8.6% market share in 2021)^*1	Opportunities in demand growth for our steel products Increase in the global total number of cars and resultant increase in steel demand despite a decline in the share of steel demand for cars equipped with internal combustion engines due to the growth of EVs’ share of the new car market Increase in demand for high-performance steel products — our area of strengths, such as electrical steel sheets for EVs	Capture growing demand by strengthening the global supply of electrical steel sheets
Transition factor 2 Shift to other lightweight materials, prompted by tighter fuel efficiency regulations, etc. (multi materials)	Shift to other lightweight materials, prompted by tighter fuel efficiency regulations, etc.	Opportunities in demand growth for high-strength steel and capturing of demand for other materials Some possibility of switching to other lightweight materials but little prospect for significant progress since steel excels in environmental evaluation from the LCA perspective, including the production stage and material recycling, and automakers increasingly emphasize the evaluation from the LCA perspective Increase in demand for high-tensile steel, carbon fiber-reinforced plastic (CFRP), titanium, etc.	Strive to further popularize the LCA concept through activities to raise customers’ understanding and lobby the government for regulatory change Further increase the high-tensile strength of steel and provide the lightweight steel structure technology by proposing a comprehensive automotive solution (NSafe™-AutoConcept) Capture demand for CFRP and other products in cooperation with Nippon Steel Chemical & Material Co.
Transition factor 3 Shift to low-carbon steel (steel that generates low CO₂ emissions in production)	Accelerating shift to low-carbon steel due to change in customers’ demand	Opportunities in demand growth for low-carbon steel Some shift to EAF steel with low CO₂ emissions in production Continued increase in demand for BF steel due to insufficient increase in EAF steel to satisfy growing worldwide demand, caused by the limited supply of scrap	Acquire the SuMPO EPD (former EcoLeaf) environmental label for more products Accelerate the Carbon Neutral Vision (breakthrough technology development, including high-grade steel production in large-sized EAFs and hydrogen steelmaking) Promote the use of direct reduced iron and other measures to reduce CO₂ emissions in existing processes Supply of NSCarbolex™ Neutral
	Higher needs for decarbonization in steelmaking process	Needs for a fundamental review of the steelmaking process aimed for decarbonization Potential to gain a great competitive advantage if our technological development and investments advance ahead of global peers Increase in investment burden and operating cost for the introduction of breakthrough technologies	Facilitate the development and implementation of breakthrough technologies by utilizing government support such as the Green Innovation Fund Consider sharing of cost by society
Transition factor 4 Higher needs for energyefficient products and technology	Eco-friendly technology solution to boost demand	Opportunities in demand growth for eco-friendly technology Increased demand for products that realize energy savings in the processing by customers Increased demand for products that contribute to energy savings in use of end products Increase in profits through the provision of the Group’s technology solutions that enable energy saving in steelmaking process	Expansion of NSCarbolex Solution, a brand that offers products that realize energy conservation in customers’ manufacturing processes, products that contribute to energy conservation in using their end products, and products that contribute to energy transformation in society. Government-private cooperation, technologies customized list, and steelworks diagnosis to provide energy-saving technologies to emerging countries (contribution to the global value chain), e.g. dissemination of CDQ, all of which are handled by Nippon Steel Engineering, into emerging countries
Transition factor 5 Higher needs for products and solutions associated with a society based on renewable energy and hydrogen	Ratio of renewable energy in world power generation: 88% in 2050 (vs. 28% in 2020) World production of hydrogen: 490 mn tons in 2050 (vs. 90 mn tons in 2020)^*2	Opportunities in demand growth for products of our Group Profit growth by provision of the Group’s products and solutions that support a renewable-energy-oriented society Profit growth by provision of the Group’s products and solutions that support a hydrogen-oriented society	Enhance the Group’s product menu for the renewable-energy society and expand sales in Japan and overseas, e.g. high corrosion-resistant steel sheets for solar power generation mount, steel plates and steel anchor chains for offshore wind power generation, and steel pipes for geothermal and biomass power generation Enhance the Group’s product menu for the hydrogen society and expand sales in Japan and overseas, e.g. HYDREXEL™ stainless steel for high-pressure hydrogen environments
Transition factor 6 Increase in cost caused by adoption of carbon pricing (CP)	Incremental introduction of carbon pricing (CP) measures	Increasing burdens on our cost due to CP introduction The GX Promotion Act states that the introduction of CP will help companies secure the funds and time required to work on technology development and capital investment aimed at decarbonization. While the impact of CP is not so significant for the time being, the burden on our costs will increase due to the CP system design cost and the movement of passing the burden of CP on to electricity charges, etc. we pay.	Reduce CO₂ emissions through the expanded use of direct reduced iron, reduction in CO₂ emissions in existing processes, and advance in breakthrough technologies such as hydrogen steelmaking and production of high-grade steel using large EAFs We will request the government to take measures to support heavy emission-producing industries, which have few options for decarbonization, and measures to support narrowing product price increases due to the rise in energy costs

*1Source for EV-related data: the NZE 2050 Scenario of the IEA Global Electric Vehicle Outlook 2022. EVs include battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHVs).
*2Source for data on renewable energy and hydrogen: the NZE 2050 Scenario of the IEA World Energy Outlook 2021.

4℃ scenario

Factors (risks and opportunities)	Events (expectations and concerns of stakeholders)	Impact to Nippon Steel (risks and opportunities)	Nippon Steel’s strategy (including future responses)
Physical factor 1 Abnormal weather to suspend raw material suppliers’ operation	Difficulty in operation, caused by a natural disaster	Limited impact by taking measures for risks Limited assumed risk in securing stable procurement of raw materials by taking the following measures: Material sourcing from multiple regions in the world Keeping raw material inventories in steelworks and ships	Continue multiple sourcing Appropriately manage days of inventory and risks
Physical factor 2 Abnormal weather to suspend operation and shipment	Difficulty in procuring raw materials, caused by abnormal weather	Limited impact by taking appropriate measures Adoption of BCP measures. Limited risks in production disruption caused by natural disaster. Excessively abnormal weather may result in suspension of operation, etc.	Continually adapt measures in consideration of long-term trends Measures against typhoons and heavy rain, measures to prevent crane overturns, measures against earthquakes and tsunami (securing emergency evacuation places, embankment reinforcement, etc.)
Physical factor 3 Heightened needs for solutions for ‘national resilience’ against natural disasters	Natural disaster caused by abnormal weather	Demand growth of steel for national land resilience Profit growth by providing products and solutions for national resilience against earthquakes, tsunamis, heavy rain, typhoons, etc.	Enhance the Group’s product menu and expand sales in Japan and overseas, e.g. steel-slit dams and NS ECO-PILETM method