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Responses to the TCFD Recommendations

Responses to the TCFD Recommendations

Logo: TCFD

KDDI announced our support for the Task Force on Climate-related Financial Disclosure (TCFD) in April 2021. We will strive to proactively disclose information based on the disclosure framework of governance, strategy, risk management and metrics and targets in accordance with the TCFD recommendations. We will also take concrete measures to address climate change and put them into actions.

(1) Governance

Regarding risks and opportunities, because a rise in power consumption and an increase in GHG emissions simultaneously pose risks and provide energy business opportunities, the Sustainability Committee convenes every six months to revise the carbon neutrality action plan while paying close attention to cost impacts (introducing renewable energy and introducing energy-saving technologies).

(2) Strategy

Scenario Analysis

Taking into account rapid decarbonization efforts as well as the progression of and uncertainties due to climate-related changes, including intensifying damage from abnormal weather events, the Group has conducted short-, medium-, and long-term scenario analyses, mainly for the telecommunication services business, based on business exposure and the skills, capabilities, and resources available.

(Main assumptions used in the scenario analysis)

We conducted a climate-related risk evaluation for a 1.5°C scenario in which transition risks are at their maximum and a 4°C scenario in which physical risks are at their maximum while referencing the NZE scenario from the IEA's World Energy Outlook 2024 and the RCP 8.5 scenario from the IPCC's AR5.
The NZE (1.5°C) scenario assumes the rapid realization of a carbon-free society, including the introduction of robust climate-related government policies and the broad expansion of renewable energy. The RCP 8.5 (4°C) scenario assumes the absence of climate change countermeasures, continued dependence on fossil fuels, a significant increase in the concentration of greenhouse gases, and clear physical impacts.
Of these scenarios, the under-1.5°C scenario (an average rise in global temperatures of less than 1.5°C from preindustrial levels) assumes the rapid realization of a carbon-free society is aligned with the latest targets based on the international Paris Agreement.

(Method and execution period of the scenario analysis)

1.5°C scenario that assumes the rapid realization of a carbon-free society, including the introduction of robust climate-related government policies and the broad expansion of renewable energy

Subject: Transition risk analysis
Reference: IEA World Energy Outlook 2024, NZE Scenario

Analysis of transition risks KDDI Group's risks KDDI Group's response
Policies and legal
(short- and mid-term strategies)		 Tokyo Metropolitan Ordinance/Emission Regulations Risk of increased costs of buying credits (allowances) for unachieved CO2 emission reduction Purchase of emission credits equivalent to 190,000 t-CO2 of unachieved CO2 emissions expected to occur during the Third Plan period from FY2020 to FY2024 (CO2 emission credits generated during the Second Plan period), 40,000 t-CO2 in FY2020 period and 150,000 t-CO2 in January 2023. These emission credits are scheduled to be allocated in the period FY2026, depending on the results of the third plan period from FY2020 to FY2024.
Introduction of new technologies to reduce CO2 emissions and electricity consumption
(mid-term strategy)		 Risk of increased power consumption of telecommunications equipment due to increased communications volume Aiming for a sustainable data center that contributes to decarbonization, a 94% reduction in power consumption for server cooling is being researched and developed with Mitsubishi Heavy Industries, Ltd. and NEC Networks & System Integration Corporation using immersion cooling, which uses liquid to cool IT equipment. In addition, a base station sleep function (sleeping during the night when traffic is low) has been introduced to promote the reduction of power consumption. We have developed a function for a millimeter-wave radio model in-house and are accumulating know-how and identifying problems. It is expected to reduce power consumption by approximately 100 kWh per year per radio.
Market and reputation
(long-term strategy)		 Risk of decrease in subscribers and deterioration in KDDI's corporate value due to delays in initiatives to use more renewable energy and missed targets for achieving carbon neutrality The Company is switching from fossil fuels to renewable energy sources. It plans to switch the 2.7 billion kWh of electricity consumed in its business operations to renewable energy sources by FY2030.
Furthermore, au Renewable Energy, Inc. as a Group company operates additional renewable energy generation projects, such as solar power.

4°C scenario that assumes the absence of climate change countermeasures, continued dependence on fossil fuels, a significant increase in the concentration of greenhouse gases, and clear physical impacts

Subject: Physical risk analysis
Reference: IPCC AR 5 RCP 8.5 Scenario

Analysis of physical risks
(Analysis using RCP 8.5 physical risk scenario)		 KDDI Group's risks KDDI Group's response
Acute Increase in frequency and severity of disasters caused by abnormal weather (typhoons, flooding, etc.) Risk of higher costs, such as key personnel for emergency repairs in order to rapidly restore communications networks Prepare for efficient repair work by revising BCP*1 and conducting disaster recovery drills
Chronic Rise in average temperature Risk of increase in amount of electricity used for cooling KDDI's data centers in order to cool servers managed on behalf of customers Introduce high-efficiency air conditioning systems and switch to renewable energy
  • *1Business Continuity Plan

The climate-related scenario analyses were conducted in fiscal 2024 in line with the plan cycle based on KDDI GREEN PLAN. Going forward, we will continue to regularly update the scenario analyses.

Climate-related risks and opportunities

Applying the results of climate-related scenario analysis, the Group identifies climate-related risks. At the same time, in consideration of the industrial guidance (including telecommunications services) related to applying to IFRS S2, we identified the following sustainability-related risks and opportunities that we can reasonably expect to impact the Group's forecast.

(Climate-related risk and opportunity content and impacts on our business model and value chain)

Category Content Areas of the value chain where risks and opportunities are concentrated Impacts on our business model and value chain Time scale
Upstream Midstream Downstream Current Future
Transition risks Rise in power costs (renewable energy) - KDDI - The Group is working to switch over to renewable energy, mainly renewable energy that provides additionality, with the aim of achieving net zero Scope 1 + 2 emissions by 2030. Currently, compared with electric power from the grid, renewable energy has a higher procurement cost, which will lead to higher overall costs. In response to higher demand for telecommunications and data centers, the Group is working to build more base stations and data centers. Accordingly, we expect the Group's power consumption to increase. Short to long term
Physical risks Recovery costs from disasters, damage to current equipment (base stations, etc.) - KDDI - Due to a rise in typhoons, torrential rain, floods, and other natural disasters, risks have emerged in the form of an increase in equipment failure, including at the Company's base stations, as well as greater associated recovery costs. Due to climate change effects, natural disaster frequency and damage could rise, and we expect the risk of an increase in equipment failure and recovery costs to remain moving forward. Short to long term
Opportunities Better profit margins and lower costs due to better energy efficiency (base station sleep function, etc.) - KDDI - By making server cooling more efficient and introducing base station sleep functions, we will have an opportunity to enhance our power use efficiency and profit margins. Going forward, we expect to expand cost reduction effects by accelerating initiatives to install the latest technology and thereby enhance power use efficiency. Short to long term

The Group defines the time scales in which we can reasonably expect the effects of these risks and opportunities to emerge as:

Short term
: 3 years or less*2
Medium term
: by 2030
Long term
: by 2050
  1. *2Of the above time scales, we aligned the "short term" with the period of the Mid-Term Management Strategy (FY2026-2028) and use the same time scale for strategic decision making.

Disclosure of Financial Effects

(Financial Effects)

Category Content Financial Effects
FY2025 Future Details
Short term Medium term Long term
Transition risks Rise in power costs (renewable energy) Power costs: Approx. ¥106 billion Large Large Large

FY2025 Financial Effects

Power consumption is affected by multiple factors, such as expanding business activities and a shift toward electric power to adapt to climate change. It is therefore difficult to single out only the financial effects arising from higher power costs caused by climate change. Thus, with due consideration of factors besides climate change, such as expanding business activities, FY2025 power cost (including renewable energy) is around ¥106 billion.

Future Financial Effects

If clear risks emerge, they will likely impact on the cost of sales and selling, general and administrative expenses as presented in our consolidated financial statements.
When looking to predict financial effects, although we are able to simulate the increase in future power consumption, we have determined that such measurements of quantitative information are not useful because of the high level of uncertainty when estimating future electric power prices.
Physical risks Cost of recovery from disasters, damage to current equipment (base stations, etc.) - Medium Medium Medium

FY2025 Financial Effects

Regarding natural disasters that occurred during the reporting period, no damage occurred that had a significant financial effect on the Company. Although some expenses associated with disaster recovery were incurred, the impact was minor, making it difficult to separate them out from other expenses. Thus, said expenses were included in cost of sales and selling, general and administrative expenses.

Future Financial Effects

If significant effects of disasters are incurred, such effects will likely impact operating income in the consolidated financial statements.
When looking to predict the financial effects of disasters, although we are able to forecast the scale of such events and likely equipment damage, we have determined that such estimates are not useful due to the high level uncertainty.
Opportunities Lower costs and higher profit margins due to better energy efficiency (base station sleep function, etc.) - Medium Medium Medium

FY2025 Financial Effects

Because essential energy demand is increasing due to expanding business scale, it will be difficult to pinpoint the cost reduction effects (financial effects) of our efforts to enhance energy efficiency.
Regarding the aforementioned effects, although some cost reduction effects influence cost of sales and selling, general and administrative expenses in the consolidated financial statements, the effects are not significant.

Future Financial Effects

If clear opportunities emerge, they will likely impact operating income in the consolidated financial statements.
When looking to predict financial effects, although we are able to simulate the reduction in future power consumption, we have determined that such measurements of quantitative information are not useful because of the high level of uncertainty when estimating future electric power prices.

Regarding the aforementioned financial effects in the fiscal year under review, we do not currently anticipate significant risks exerting a material impact on next fiscal year's financial statements.
Regarding the aforementioned future financial effects, we expect each risk and opportunity will have an impact over the short to long term. In addition, we take the Mid-Term Management Strategy (including investment and disposal plans) into consideration.

Effects on Strategies and Decision Making

(Climate-related transition plan)

With the aim of realizing a carbon-free society, the Group is promoting initiatives to mitigate and adapt to climate change based on the KDDI GREEN PLAN, its medium- to long-term environmental conservation plan.

(Targets of the KDDI GREEN PLAN)

  • By the end of fiscal 2040, achieve net zero CO2 emissions across the Group's entire supply chain, including Scope 3 emissions in addition to Scope 1 + 2.
  • By the end of fiscal 2030, achieve net zero Scope 1 + 2 emissions related to the Group's business activities (carbon neutrality).

With the aim of reducing Scope 1 + 2 emissions, we will tirelessly work to take energy-saving measures and utilize renewable energy. To reduce Scope 3 emissions, we aim to create a sustainable supply chain as well as request and support suppliers' efforts to visualize and reduce CO2 emissions.
When implementing these plans, the Group allocates resources and takes specific measures as detailed below in addition to considering the tradeoffs of identified climate-related risks and opportunities. As of the final day of the reporting period, we are making good progress on transition plans to address risks and opportunities and there has been no change to our business model.

(The Plan for the Group to achieve on the path to net zero emissions)

Graph

(Renewable Energy Implementation Plan (FY2025 to FY2030))

Graph

(Risk and Opportunity Countermeasures and Resource Allocation)

Category Content Countermeasures Countermeasure resource allocation
Transition risks Rise in power costs (renewable energy)
  1. 1Securing long-term stable renewable energy through virtual PPA
  2. 2Initiatives within the Group (au Renewable Energy)
 The funding for capital investment in the solar power business of au Renewable Energy is taken from the profit earned from au Renewable Energy's businesses.
Physical risks Cost of recovery from disasters, damage to current equipment (base stations, etc.)
  1. 1Preparing business continuity plans (BCPs) aimed at the rapid recovery of service from disasters and holding down recovery costs, and holding BCP drills*3
  2. 2Mitigating damage by strengthening disaster countermeasures to protect telecommunications equipment (communication stations with heightened resilience to disasters, stably securing emergency power sources)
  3. 3Establishing base stations that can generate power using solar panels even during disasters
 We include disaster countermeasures in BCP-related financial plans to manage them and are already taking countermeasures. As a way to adapt to climate change, we do not plan additionally secure resources.
Opportunities Lower costs and better profit margins due to better energy efficiency (base station sleep function, etc.)
  1. 1Enhancing the sophistication of cooling control for data centers
  2. 2Installing water cooling and immersion technology for servers
  3. 3Sharing equipment (sharing with SoftBank), upgrading equipment
  4. 4Introducing the base station sleep function
 We manage measures related to opportunities within the boundaries of financial plans used in normal business activities. We currently do not anticipate a need for additional funding procurement.
  1. *3To respond to intensifying disaster damage, every year we conduct BCP drills with the Representative Director & President serving as the General Manger of the Disaster Response Headquarters. Participants include internal directors, managers of each business, and relevant division general managers totaling around 500 people as well as employees related to disaster countermeasures.
    We also regularly conduct large-scale drills in collaboration with relevant organizations, including government agencies and municipalities. Among telecommunications operators, we share information related to support for disaster-stricken areas, allocate emergency shelter support based on local needs, standardize data transmission, and conduct joint drills aimed at rapidly recovering telecommunications equipment. Thanks to preparations undertaken in normal times, we are able to rapidly respond when a large-scale disaster strikes. For details on disaster countermeasures, please see below.

Climate Resilience Evaluation

In climate resilience evaluations, we consider the following areas of significant uncertainty as of the final date of the reporting period based on the results of the aforementioned scenario analysis, KDDI's strategies, and relevance with the business model.

  • Future value of renewable energy
  • Disaster occurrence frequency and scale, financial impact of damage to assets

There are no revisions to KDDI GREEN PLAN, or the business model based on the climate resilience evaluation as of the final date of the reporting period. Going forward, due to climate-related changes, progress or uncertainty, if the capital needed for countermeasures increases, we will consider revising the allocation of existing financial resources and amount of funding procured.

(3) Risk Management

Please refer to the previously mentioned "(1) Overview of sustainability" under "C. Risk management."
Regarding climate change-related risks, we utilize an environmental ISO mechanism with an environmental management system (EMS) approach. For risks subject to management, each relevant administrative department formulates quantitative annual targets related to risk reduction and progress assessments are conducted every quarter. Points needing improvement identified via the progress assessments are reported to the subcommittees operating under the Sustainability Committee. Risks and opportunities with the potential to affect the entire Company and all departments are deliberated on and confirmed by the Sustainability Committee.

(4) Metrics and targets

Disclosure of Absolute Totals of Greenhouse Gas emissions

The Group assesses and discloses the amount of greenhouse gases emitted by the entire consolidated Group in terms of CO2 equivalent (mt-CO2e) for Scopes 1, 2, and 3 based on the GHG Protocol Corporate Accounting and Reporting Standards (2004) and in accordance with the Theme-Based Sustainability Disclosure Standard No. 2 "Climate-Related Disclosure Standards."

Scope 1 26,919 mt-CO2e (consolidated)
Scope 2 (location-based) 1,381,853 mt-CO2e (consolidated)
Scope 2 (market-based) 610,985 mt-CO2e (consolidated)
Scope 3 (total) 10,939,914 mt-CO2e (consolidated) *FY2024 results

Disclosure of Scope 3 Greenhouse Gas Emissions

Emissions (Consolidated) *FY2024 results
Category 1
Purchased goods and services		 7,475,856 mt-CO2e
Category 2
Capital goods		 2,170,627 mt-CO2e
Category 3
Fuel- and energy-related activities not included in Scopes 1 or 2		 196,530 mt-CO2e
Category 4
Upstream transportation and distribution		 5,209 mt-CO2e
Category 5
Waste generated in operations		 305 mt-CO2e
Category 6
Business travel		 8,691 mt-CO2e
Category 7
Employee commuting		 3,242 mt-CO2e
Category 8
Upstream leased assets		 428 mt-CO2e
Category 9
Downstream transportation and distribution		 -
Category 10
Processing of sold products		 -
Category 11
Use of sold products		 605,024 mt-CO2e
Category 12
End-of-life treatment of sold products		 948 mt-CO2e
Category 13
Downstream leased assets		 -
Category 14
Franchises		 -
Category 15
Investments		 473,054 mt-CO2e

Disclosures Related to Greenhouse Gas (GHG) Emissions Measurement Approach and Measurement Methods

[Measurement Approach]

When measuring GHG emissions, we use a management control approach that treats the emissions of businesses for which Company makes practical management decisions as the Company's own emissions. In the setting and managing of climate-related indicators and targets, we clearly identify the scope in which the Company can effectively have an impact and determine if the management of indicators and targets is appropriate. The GHG emission-related indicators and targets disclosed by KDDI are calculated using a management control approach.

[GHG Emission Calculation Method (Activity x Emission Intensity)]

Scope 1 Fuel usage x Emission factors
Scope 2 (location-based) Energy consumption x Japan's Ministry of the Environment (2024) emission factors by electric power operator, substitutional value
Scope 2 (market-based) Energy consumption x Japan's Ministry of the Environment (2024) emission factors by electric power operator
Scope 3
(using Japan's Ministry of the Environment's DB Ver 3.4)		 Category 1 Economic value of goods and services purchased x Emission factors
Category 2 Economic value of capital goods acquired x Emission factors
Category 3 Fuel purchased x Emission factors
Category 4 Transported weight data by product x Emission factors
Category 5 Waste weight by type and treatment method x Emission factors
Category 6 (Business) Travel distance by travel method x Emission factors
Category 7 (Commuter) Travel distance by travel method x Emission factors
Category 8 Fuel usage of leased vehicles x Emission factors
Category 9 No disclosure (no pertinent business activities were conducted)
Category 10 No disclosure (no pertinent business activities were conducted)
Category 11 Use scenarios of sold products x Emission factors
Category 12 Waste weight by type and treatment method x Emission factors
Category 13 No disclosure (disclosure of data in combination with that for category 11 is under consideration)
Category 14 No disclosure (no pertinent business activities were conducted)
Category 15 Investment and financing results of financial group companies x Emission factors

For emission factors, we mainly used the values published by Japan's Ministry of the Environment, which are highly reliable and widely used within Japan.

Disclosure Related to Climate-Related Transition Risks and Physical Risks and Opportunities

The Group has identified the following business activity and asset exposure related to climate-related risks and opportunities.

[Business activities vulnerable to transition risks]

Calculated on a non-consolidated basis, the power consumption of business activities conducted by KDDI (communication stations and DC) and the Telehouse business that are vulnerable to climate-related transition risks accounts for 46.6% of the entire Group's power consumption.

[Assets vulnerable to physical risks]

The total book value of telecommunications equipment classified as assets vulnerable to climate-related physical risks is ¥1,453,547 million. (Please see Note 5. Property, plant and equipment in the consolidated financial statements.)

[Business activities aligned with climate-related opportunities]

Calculated on a non-consolidated basis, the power consumption of business activities conducted by KDDI (communication stations and DC) and the Telehouse business that are aligned with climate-related opportunities accounts for 46.6% of the entire Group's power consumption.

Disclosure Related to Capital Investments

Capital expenditure, financing, and investments related to climate-related risks and opportunities (capital invested for disaster preparedness) total ¥1,149 million.

Disclosure related to carbon pricing

We established our own internal CO2 price and introduced an Internal Carbon Pricing (ICP) system as a basis for investment decision-making. The internal carbon price is ¥14,000/t-CO2.

<Example of applications>
  • Introducing energy-saving technologies, such as those for making air conditioning more efficient
  • Upgrading equipment to enhance energy efficiency

Disclosure of Industry-Specific Indicators

Regarding indicators defined by industry-specific guidance related to the application of IFRS S 2, after careful consideration of its applicability, we have determined it does not apply and therefore employ unique indicators created by the Company.

Disclosure of Other Climate-Related Indicators

We have identified the following climate-related risks and opportunities that we reasonably expect to have an impact on the Group's forecast. The relevant company performance indicators and calculation methods are as follows.

Category Content Response Performance indicator Calculation method
Transition risk Rising electric power costs (renewable energy) Securing long-term, stable renewable energy, conserving energy for business equipment Electric power consumption per unit of operating revenue: 539

Electric power consumption per unit of operating revenue (consolidated)

Data input: The Group's operating revenue and electric power consumption
Physical risk Cost of recovery from disasters, damage to current equipment (base stations, etc.) Conducting Company-wide BCP drills BCP drill participation rate: 100%

Number of drill participants among key personnel / Number of people subject to drill participation

Data input: Tabulation by the BCP Secretariat
Opportunities Lower costs and better profit margins due to better energy efficiency (base station sleep function, etc.) Conserving energy for business equipment Electric power consumption per unit of operating revenue: 539

Electric power consumption per unit of operating revenue (consolidated)

Data input: The Group's operating revenue and electric power consumption

The indicator figures are relative indicators. We have not acquired third-party certification.

Climate-Related Targets

To accelerate the realization of a carbon-free society, the Company's Sustainability Committee discussed and then approved and set targets for achieving net zero emissions across the Group by the end of fiscal 2040 and net zero Scope 1 + 2 emissions by the end of fiscal 2030.

Environmental target*4 Target fiscal year Details
1 Achieve net zero emissions for the Group FY2040 Achieve net zero emissions (effectively zero emissions of CO2) from entire supply chain, including Scope 3 emissions, in addition to emissions related to the Group business activities (Scope 1 and Scope 2)
2 Achieve carbon neutrality for the Group FY2030 Emissions related to the Group business activities (Scope 1 and Scope 2)
3 Minimum ratio of 50% for KDDI's additional*5 renewable energy FY2030 Achieving a ratio of more than 50% in additional renewable energy for electricity consumed by the Company
4 Switch to 100% renewable energy sources for data centers operated globally by the Group FY2025
(Achieved)		 For all Telehouse-brand data centers operated globally by the Group, achieved to switch to 100% renewable energy for electricity used

In Japan, a target was set to reduce greenhouse gases by 46% by fiscal 2030 compared to fiscal 2013, and many companies have been working hard to achieve it. At COP 28 held from November to December 2023, there was some confirmation of progress toward the 2030 reduction targets various countries had submitted for the Paris Agreement, and it was recognized that the 2035 targets need to be more ambitious.
Given this increase in global environmental awareness, we established the aforementioned environmental target to accelerate initiatives aimed at realizing a carbon-free society.

All of these targets are absolute volume targets, and the principal greenhouse gas target is CO2. The FY2040 net zero targets (Scopes 1, 2, 3) have received certification as net zero targets from the Science Based Targets initiative (SBTi).
The Sustainability Committee regularly evaluates the necessity of altering targets based in part on international sustainability trends.

Indicators used to monitor progress in achieving targets are emissions related to the Group's business activities (Scope 1 + 2) and CO2 emissions from the entire supply chain.

Corporate performance for each climate-related target is as follows. We are making progress toward achieving them as planned.

  • Achieve Group net zero emissions by the end of fiscal 2040
    Fiscal 2025 results: -
  • Achieve carbon neutrality by the end of fiscal 2030
    Fiscal 2025 results: 0.6 million t-CO2 emissions

Greenhouse Gas Emission Targets

[Approach to setting greenhouse gas emission targets]

We aim to achieve net zero Scope 1 + 2 CO2 emission for the entire Group by fiscal 2030 and net zero CO2 emissions including Scope 3 from the entire supply chain by fiscal 2040. These targets focus on CO2 out of the seven types of greenhouse gases and net figures.

[Approach to carbon credits]

To achieve net zero Scope 1 + 2 CO2 emissions for the entire Group by the end of fiscal 2030, we plan to reduce Scope 1 + 2 emissions by 97% or more and offset the remaining 3% using high-quality carbon credits.
Because we are currently considering detailed information on the carbon credits to be used, we plan to disclose our plan as the details are finalized.