We will now begin the AGC Inc.'s 2022 ESG briefing session. My name is Ogawa from the Public Relations and Investor Relations Department, and I'll be your moderator today. Let me introduce to you today's attendees. Representative Director, Senior Executive Vice President, CFO, Mr. Shinji Miyaji. General Manager of Strategy and Planning Division, General Manager of Sustainability Division, Corporate Planning General Division, Mr. Tadashi Murano. First, CFO Mr. Miyaji will explain AGC's sustainability management. After that, Mr. Murano will explain AGC's response to climate change issues. After the presentations, we will have Q&A sessions. If you have any questions, please press Q&A button. This session is scheduled to end at 6:15 PM Japan time. We appreciate your cooperation. Now, Mr. Miyaji, please start your presentation.
Thank you very much for the introduction. I'll spend about five minutes at the outset just for a brief explanation. If you can jump to page five. Next page, please. Yes, right there. This shows group vision, Look Beyond. It was formulated in 2002. It has been slightly changed, but as for our shared values, for the past 20 years, there has been no change. Environment has been incorporated as one of the important shared values, and response to environmental protection has been done in a serious manner. Next page, please. Last year, trying to well-balanced creation of social and economic values, we have come up with Vision 2030.
We would like to have coexistence of social values and economic values, creation of the five social values and economic value of the target that is shown here. That's what we have come up with. Next page. The social values. The five social values are here, shown here. I don't have enough time to explain each one of them, but we'd like to focus on far right today. The climate change response is the focal point in our briefing today. Here you can see the co-creation of social and economic values, and this is the image that we have. As for economic values, we have been making steady progress, and we would like to work on social values as well. Next one, please. As for sustainability, the structure of the governance is shown here.
In AGC, there is a Sustainability Committee established, and this is positioned at the same level as the Management Committee. This is the highest decision-making body for the execution organization, and it is reporting to the board of directors on a regular basis. All kinds of strategies and progress management and ESG is being done, and PDCA is used to run the cycle. Of course, the CEO is the chair of this committee. This is my last slide. In AGC, as you know, we have been engaged in various industries, and we have been commanding leadership positions in the markets. As an industrial leader, we like to fulfill our responsibility, especially in terms of environmental issues. We need to fulfill our responsibility as a leader.
From the manufacturing to sales, emissions of CO₂ has to be minimized. At the same time, we have to offer more products to contribute to environmental protection so that we can fulfill our role and responsibility as an industry leader. We're going to focus on climate change response today, and I'd like to let Murano explain the rest of the presentation. Murano, over to you. I am from Sustainability Division, and my name is Murano, and I'd like to talk about sustainability management of AGC and one of the important points, climate change initiatives. I'd like to spend about 20 minutes. There will be GHG reduction and CO₂ reduction. Basically, they are meaning the same thing, and they're used interactively.
As a material manufacturer, we have been deploying global businesses, and we have been trying to contribute to environmental protection. In 1971, we have established environmental department, and we have awarded individuals and organizations from Asahi Glass Foundation. A Blue Planet Prize was established, and that will be explained in the next page. As for the Blue Planet Prize, last year, Nobel laureate Dr. Manabe was awarded. This person was the first person who was awarded 30 years ago, the first one. Also, a well-known Dr. Jeffrey D. Sachs, who was involved in SDG formulation, was also one of the awardees. We have been continuing to award and recognize those who are involved in the environmental protection and SDGs.
As you can see here, as AGC Group, in order to address climate change more aggressively, in 2018, SDGs Division was established in Corporate Planning General Division to formulate long-term targets and initiatives for climate change for the group-wide on the group-wide basis. Next page, the net-zero carbon milestones. In last year, we have come up with a 2050 carbon net-zero target. As ahead of that, in 2030, Scope one and two GHG emission 30% reduction will be targeted. At the same time, the GHG emission per unit of sales has to be also reduced by 50%, and that is the target for 2030. This fiscal year, as for Scope three, we have come up with a GHG emission 30% reduction target as well.
Later, I will explain more about this, but, in each of the products and processes and the whole supply chain, energy saving and GHG reduction initiatives will be accelerated further. As for the entire group, life science and electronics, which are growing, and the strategic businesses, will be expanded, and so that we can improve carbon efficiency on the group-wide basis. After 2030, there will be a challenging target, but, we'd like to strive for achieving these targets. Next page, please. As was explained earlier, Sustainability Committee is established, and the strategy meeting to address climate change was established within that committee to accelerate specific initiatives. This is a cross-functional activity for the entire group. As you can see, the GHG emission reduction contribution and initiatives are being discussed at this strategic meeting.
At the same time, as you can see in the next page, internal carbon pricing has been introduced. From this fiscal year, we have been working on this on a full-scale basis. Internal investments and development in the company, we are accelerating GHG emission reduction within those investments. Now, the specific initiatives to address climate change within the group, page 19, for the entire group, the glass and chemicals, the core business is one thing, and life science and electronics, which are strategic businesses. We are looking at this as a ambidextrous management. As you can see, resilience to market fluctuations, high asset efficiency, high growth rate, and high carbon efficiency. Those are the features of the business portfolio that we are trying to establish.
As you can see specifically in the graph on page 20, the horizontal axis is CO₂ emission per unit of sales, and vertical axis is asset efficiency, ROCE. You have to go to the right top corner. Every business has to strive for right top corner. The dark blue, the Electronic Materials and Life Science, or fluorine and specialty businesses, if we can expand those businesses, then group-wide carbon efficiency should be improved. That is the strategy. This is not the sales, but this is operating profit-based target. In 2030, entire group operating profit of JPY 300 billion is the target. Of that, as I said, Life Science, Electronics, those strategic businesses will have to represent at least 50%.
As a result, the entire group carbon efficiency should be improved. Now, to issues of climate change, what are the specific initiatives and technology roadmap? As AGC Group, to issues of climate change, we are trying to reduce GHG emissions from our own products and production processes. At the same time, with the products and technologies of AGC, we are also trying to contribute to GHG reduction in society. These are both the two perspectives that we have. First, addressing GHG reduction. On a global basis, this is the efforts to address climate change in each of the regions and countries.
There is a shift and movements toward low carbon initiatives. As you can see on page 26, in each of the countries, the energy source or electricity source decarbonization efforts are varied. In the 30 countries we are globally doing business, and basically, the manufacturing process of AGC products have to shift from fossil fuel to, for example, electricity, which has less GHG emissions. That's the basic strategy. In different regions, the GHG emission coefficients are different. So in order to have effective results, we have to have optimum policy and strategy in each of the regions. For example, in U.S. and Europe, as you can see, electricity GHG emission coefficient is low, so electrification will be promoted. In Asia, this GHG emission coefficient is still high, so energy conservation will be given more priority.
That's the way that we are going to focus. This is a specific AGC Group's GHG emissions scope. In 2021, this is the actual. There's Scope 1, 2 emissions. It's about 11.607 million, and Scope 1 is almost the same. Scope 3 is about 11,515,519 million. This is the breakdown of Scope 1 and Scope 2. For Scope 1, for the glass and electronics segment, there's a float glass melting furnace. This is emissions of producing that and also the chemical segment. We have on-site power generation. That is the center of the Scope 1 emissions sources. This is for glass production. There is a float glass melting furnace.
We are aggressively working on the CO₂ emission reduction compared to before. This is Europe measurement. After 1990, we changed the combustion process from heavy oil to natural gas, and that's a fuel conversion, and also used oxy-fuel combustion so that we're able to reduce the CO₂ emission by 2019 by 30%. This is the future initiative, a technological roadmap. For the glass production, the biggest process for the emission is the float glass melting furnace process. In principle, we change the fuel process and also we use energy conservative process, and also we use recycle process including the fuel recycle to reduce CO₂ emission.
As I said earlier, each region, the CO₂ emission coefficient is different, so top one is Europe and America, and bottom one is Asia. This is broken down by size of the furnace to find out optimal way to reduce the emission. There's the clean fuel demonstration test in the middle. This was announced in Japan. This is the demonstration using ammonia. By doing this kind of measurement, we are demonstrating clean fuel. AGC Group is one of the top manufacturers for the glass business. But as compared to other glass manufacturers, on top of large furnaces for architectural and automobile glasses, we have small to mid-size furnaces for display businesses. We have a variety of manufacturing processes.
As AGC Group, we work on reducing the CO₂ emission based on different technologies, combining different technology to be a leader of the CO₂ emission reduction in this particular industry. Now next is the breakdown of the Scope 2 segment. As you can see, the major emission sources, green chemicals. The basic chemicals as the chlor-alkali electrolysis facilities is the source of the emission. So I'd like to talk about how we're working on this to reduce the CO₂ emission. Actually, the caustic soda and chlor-alkali like the PVC is a major product and electricity is a major energy. AGC has the technology IEM method. We are the first one to develop this, so that we're able to reduce the electricity consumption rate drastically.
FLEMION, which is ion exchange membranes are sold by us, so that we are contributing to the reduction of our industry's environmental impact. This is the future, the initiatives. We will of course work on promoting the energy conservation, and also we would like to work on the energy reduction for the and also emission reduction for the electricity purchased by us. We would like to promote the electricity emission coefficient purchased and introducing renewable energy. This is a total of the GHG emission. By 2030, we will reduce by 30% and after that we'll accelerate in-house development. For the entire supply chain and for the region and also industry as a whole, we would like to challenge on carbon neutral by 2050. This is.
Actually, there's a Scope 3 breakdown in page 35. As the services and goods that we purchased and also we sold product, it's 60% of the total. As AGC Group, please take a look at the next page for Scope 3 reduction target. There are major categories, which is Category one, 10 and 11 and 12. In total, we would like to reduce the emission by 30%. We are accelerating our initiative. This is the actual initiatives. This is supply chain engagement to reduce CO₂ emissions for the supply chain. We join CDP Supply Chain program and also strengthen supply chain engagement activities so that we can reduce the emission for the entire supply chain. This is page 38. This is the detailed roadmap. The
There is the CFC product, alternative CFC product, which has a high global warming potential. We'd like to reduce that and I'd like to talk about that later. We talked about AGC's initiatives, but now I would like to talk about the contribution to the society in terms of GHG the emission reduction. Page 40 talks about that. AGC uses technologies so that we promote product development and other measures with the aim of reducing environmental impact throughout the product life cycle. Before, by 2020, we aimed to reduce six times the annual CO2 emission through energy saving and energy creating product, and we almost achieved this. Going forward, please take a look at page 41.
We would like to accelerate these initiatives, so we would like to have the appropriate rules and also evaluation method is important. We'd like to join the creation of such a framework. We would like to realize the low carbon society by using a patent. 10% of the total number of patents held by the company is contributing to low carbon society. I would like to talk about details about the glass using page 42. A GHG reduction in a society, we have a technology and product to contribute to that. This is one example. For decarbonization, we would like to improve the energy efficiency of buildings, but which is a big issue in a society. Energy consumption in a building, the.
Actually in the housing, this is the heat transfer has a big impact. On the left hand side is a winter time, right-hand side is summertime. The heat escapes and heat enter, inflow and outflow, it contribute to the heat transfer. We would like to improve that, and that actually contribute to the energy savings and conservation in the housing and buildings. This is actual product as AGC Group. Opening, meaning, the window, we develop high insulated glass for the window. Low-E double glazing glass, which is the highest technology compared to the single glass, reduces the heat transfer approximately 90%.
We can make sure that these products are used and penetrated to the global society, then we can contribute to the reducing GHG emission reduction. Also we would like to continually develop the contributing technologies and sell the product. This is impact on page 45. For the glass business, if the CO₂ emission at the time of manufacturing is one, then product contribution to the reduction of CO₂ emission is 10 times higher than this one. Also for the chemical business technology. For chemical business, the automobile air conditioning, we are developing the environmentally responsible refrigerant and solvent with extremely low global warming potential. GWP, which is Global Warming Potential, is one over 10,000.
We would like to develop such product and make sure that this is penetrated to the society. For the EV, and there is the fuel cell, which we expect to increase for the usage of hydrogen cars. AGC has electrolyte polymer for fuel cell, has a high power generation and high durability. Right now, at this moment, we have overwhelming number one position. With the EV vehicle penetration, we expect this business will grow. Now, for climate change, we would like to talk about accumulated investment plan. By 2025, for over five years, we will invest more than JPY 100 billion. Now, this talks about GHG emission reduction investment and also this also covers the investment to reduce and also contribute to social GHG emission reduction.
The technological development cost is not included in this investment. Last but not least, as Mr. Miyaji mentioned at the beginning, AGC Group are the material manufacturer who has a global business. This is a Vision 2030. We would like to implement this to contribute to the society. For that, of course, that we have to achieve the financial target. However, we would like to make sure that we will be responsible, responsive to the climate change problems as a leader of this industry. This conclude my presentation. Thank you very much.
Next, we'd like to move to question and answer session. If you have any questions, please press the Q&A button and type in your questions. Let us answer the questions that have been pre-submitted. The first question, as for the reference index for directors' remuneration, are you planning to incorporate GHG emission reduction target progress, as one of the indices? Miyaji will answer that question.
There is a remuneration committee in our company, and after the deliberation in the committee, the remuneration for directors will be decided at the board of directors meeting. I'm not a member of the remuneration committee, so I can't say for sure. It's difficult for me to say something that clear and deterministic.
As has been said, as a leader in the industry, obviously in the remuneration for directors, GHG and also something some related to sustainability has to be incorporated. That's my personal view. Ideally, we should have incorporated this much earlier. How to quantify those statuses and how to establish the structure is an issue. We haven't been able to incorporate these in a quantified manner, but we'd like to incorporate that as soon as possible. As one of the directors, That's my personal view. At the moment, there's emission indices or the sustainability or ESG SDG related matters are included in individual's mission.
We'd like to come up with a structure to incorporate them officially, and that should be deliberated at the remuneration committee as soon as possible. Thank you.
Thank you very much. Next question. For what is the progress of the technological innovation in the glass melting process in terms of GHG emission reduction target in your glass and electronics businesses? Mr. Murano is going to answer this question.
Yes. Thank you very much for your question. Please take a look at this page. As you can see that there's energy, the oxy-fuel combustion, which is a technology that we are working on from before. We can introduce the electro-boosting and also clean fuel, like ammonia or hydrogen combustion. We are doing a demonstration test, a field test, which is we are aggressively conducting. However, for ammonia and also hydrogen combustion.
These are few conversion. Actually, we have to think about infrastructure and also the procurement cost for different regions when we consider the introduction of these technologies and fuel conversion. As I said earlier a little bit, using this electricity booster introduction is already being done in a part of the region, so we can combine these technologies to reduce the CO₂. After 2030, please take a look at the right-hand side. On top of combination of these technologies, we are thinking of a carbon recycling, a carbon recycling. That these are the new options based on the new developed technological developments. That is mid- to long-term development plan.
Thank you very much. Next question.
Because of geopolitical factors, even if GHG emission is lower, if you depend on a single energy source, then that could enhance the risk. The reduction of GHG emissions and diversification of energy sources, how are you looking at the coexistence of those two risk management strategies? Murano will answer this question.
In terms of geopolitical factors, at the moment, the Russian invasion in Ukraine, and there's an impact on the supply risk for natural gas, and that has manifested itself as actual risk. For that, for example, if the natural gas supply from Russia is greatly limited or stopped completely, then obviously that would affect the demand from Europe for glass. Depending on the demand, we have to adjust our production, and that is something that we have to shift it.
As for manufacturing glass, the melting furnaces that I mentioned, if they are stopped temporarily, then we will not stop that completely. In order to avoid the damage on glass furnace, we have to maintain a minimum combustion. That is what we call hot hold. For those risks, we are trying to do modifications of the production equipment in order to enable hot hold mode, which uses alternative fuels. In Europe, excluding Russia, there are 12 float glass furnaces installed. Of those, about 2/3 can be shifted to hot hold using gas oil or light oil. For the rest, by the end of this year or early next year, we're trying to switch over to such mode.
For mid- to long-term, in order to reduce the dependency on natural gas, how we should address that is something that we need to consider as well from mid- to long-term basis. Thank you.
Thank you very much. Next question. I believe that the chlor-alkali project in Thailand, which is scheduled to be expanded in 2025, is a high energy consumption project. How much room is there to reduce the energy consumption rate in that operation in Thailand and also Indonesia? Mr. Murano is going to answer to that question.
Thank you very much for your question. This Thailand chlor-alkali business, as I said earlier, electrolysis process uses a lot of electricity. That is energy-consuming process. Our current technology is quite close to the highest technology. There is not much room, actually.
Room to reduce is quite limited. However, having said that, we can continue the improvement of the facility for the sake of energy conservation. However, electricity which is used for that process could be changed to the renewable energy. That would be a very valid method to reduce the energy emission. Thank you. Energy consumption, correction.
Next question is about purchased electricity. The electricity that is generated through nuclear power has less GHG emission. Do you plan to use nuclear-rated or derived electricity more aggressively? Can you give us your thoughts on the electricity that is generated through nuclear power? Murano will answer that question.
Nuclear derived electricity does have a GHG emission. So it is one of the powerful means to reduce in terms of Scope 2.
We are not specifying nuclear power as an energy source to be used, and that is not the kind of plan that we have at the moment.
Thank you very much. Next question. Presentation on page 41, you made a comment about the rule in formulation to join this group, CDP. Do you think that the credit for the CO₂ emission can be linked to the evaluation of a contribution of your company to the society?
Thank you very much for your question. This CO₂ emission contribution to evaluate that fairly and globally, that actually link to the contribution for the financial numbers.
To be more specific, for example, the window for the architectural window, our product contribution, if that will be visible globally, then our value can be understood, including the consumer. As a AGC Group, this will contribute to the earnings of AGC Group. I think that is totally possible.
Thank you very much. Let us move to the next question. By fiscal 2020, you had come up with a target of reducing the emissions through energy saving and energy creation products, which is six times the amount of emission of GHG annually. You have abolished that target, and what is the target that you have come up with to replace that? Miyaji will answer that question.
Six times target was established in 2014.
Back then, the amount of emission should be reduced through energy saving and energy creation products. That was well-recognized and appreciated by society as well. As time has passed, there has been major changes. The emission amount itself has to be also clearly shown. That is the change that we have seen in society. Based on that, if that is the case, we've decided that the reduction of emission from our company and contribution to reduction should be separated. With regard to emissions, we have been able to quantify them, obviously. For the contribution part, we need to also show that. That's what we thought. Five social values were mentioned at the outset.
These five social values, how they are created in society, that has to be communicated in an easy-to-understand manner, and that is what we need to do at this time. Firstly, as Murano said, the architectural glass or energy-saving glass especially, relatively speaking, can be quantified and can be explained in a quantifiable manner. For others, quantifiable or some qualitative manner, we can make some communication. That is something that we have to be more ingenious and creative in terms of communication to society going forward. As for the contribution to reduction, we would like to be more creative and so that communication will be made easier to understand.
Thank you. Next question. About the emission, you six.
You have the actual for the six times more than your emission. Scope 1, there's 11 million tons, so that is actually 60 million the contribution was achieved. Is this correct understanding, if it's six times more than emission? Would you please give us the breakdown of the contribution by product? Mr. Murano, please. In product and also business unit.
11 million tons, that is a 2021 actual. But as a calculation for Murano, yeah, it's six times more than the emission. Six times more emission is 2020 actually. Yes, that is the six times more contribution compared to the amount of the emission. So your understanding is correct. But we don't have the data to quantify the breakdown.
As I just mentioned a little bit about our heat insulation glass, that is contributing. Actually, that is a major contribution, I believe.
Thank you very much. Let us move to the next question. In 2050, carbon net zero, would it be possible? I think this will be quite challenging target. What would be the key to achieve that? That is the question. Miyaji will answer that question.
Well, there is a slide shown here. There is a target for 2030 and a target for 2050. As for 2030 target, if we are creative enough, then we'll be able to achieve that probably. We believe that we can achieve this at the moment. For another 20 years, reducing to zero is not that easy, as you said.
Of course, technological innovation will be required, but until the end, whether we can reduce to zero or depends on the combustion. For example, at a float glass furnace, we haven't been able to draw the picture for achieving that. If we don't have that picture right now, then are we going to be able to do that in 2050? That will be quite difficult. Carbon at zero is really important and necessary. Once we come up with this, the CCS and CCUS and credit may be also involved. We have to depend on all kinds of instruments and means that are available. Technological innovation itself, or by itself alone that are actually held by ourselves, would not be enough to achieve this.
We have to incorporate external technologies as well, and we have to be even more creative to reduce down to zero. At the end, probably we will have to wait for the CCU and CCS and CCUS to become viable. It may not be just limited to us, but there are many other companies that are having difficulty in this industry reducing to zero, so there's high expectation on that.
Next question about the GHG emissions reduction. Other than that, would you please talk about KPIs? Do you set the KPI like a sales amount of, in terms of a contribution to the environment? Murano-san,[inaudible] please.
Yes. Please take a look at this page. Internally, of course, we do have a target for products. That is our internal initiative. However, as I mentioned, when we talk about the rules and rule formulation, how one is evaluated, in terms of, the company's contribution to the environment, as, the top manufacturer in this industry, we should proactively, join to formulate, the fair, the evaluation, for the contribution, so that everybody understand that, this is the product, to contribute, the, environment. We should avoid greenwash, and we have to make sure that, the environmental contributing product, understood as contributing internally and also externally. That's how I would like to set the KPI. Thank you.
Thank you very much. Let's move to next question. Contribution to low carbon society, and you have, you said that you have patents for that purpose. What sort of patents do you have, more specifically?
Murano will answer the question.
If you can go to page 44 and onward, there are several products that are shown. Since we're talking about patents, production process, raw materials and the formulations, those are some of the topics in the patents. New product patents will be expanded going forward. This is an example of glass, but there are also products shown on page 46 and 47. The chemicals, those are the new technologies and new products, and there will be patents related to those that will expand further.
Thank you very much. Next question. In terms of high insulating window adoption rate, would you please talk about adoption rate by region? And also, would you please talk about the potential for the sales expansion in the future? Mr. Murano, please.
Actually, by region and also by countries, detailed data, I don't have them right now. However, whether that is the detached housing or commercial buildings, the adoption rate are different depending on the types of the buildings. There are existing windows. There's a replacement, and that is a big potential so that this high insulation window replace the existing window. For the new detached housing and new buildings, there are regulations in many countries which are adopted. I believe that high insulating windows will be adopted because of new regulations. However, there are existing buildings and existing detached housing. If the replacement will accelerate, and that will greatly contribute to our sales. To be more specific, actually, there are existing housing, existing buildings.
There's the energy savings subsidy and also there's Renovation Wave in European countries. There are major energy savings policies. If these policies becomes the activities and implementations, then these are highly insulated glass and coated glass will be used. It has a high potential. However, the speed of that replacement really different country by country and region by region.
Thank you. Next question. With the Russia and Ukraine crisis, there are energy policies that are changed in Europe. What are the changes you have seen in your company? Page 30 roadmap shows the shift from the natural gas to electro-boosting. Is that something that you have seen as changes? Murano will answer that question as well.
As you said, rightly, that is the case. Ukraine-Russia crisis, what sort of impact is it going to have from mid- to long-term? From that perspective, we have to come up with short- to mid-term plan. In the short term, as I said, ideally, the fuel gas to natural gas, that shift has to be done to achieve oxy-fuel combustion, and that is what we have been doing for energy saving. Natural gas prices going up or supply becomes limited, then we may go back temporarily to fuel gas or electro-boosting using clean energy will be further accelerated in terms of development. That kind of change may be seen going forward as well.
Thank you very much. We answered all the questions, but if you have any questions, please use the Q&A button to enter your question. Are there any additional questions that you'd like to ask? If not, we would like to conclude the Q&A session. Now, if you come up with any questions after this session, IR department will answer. Please contact us. Thank you for taking time out of your busy schedule to join this session today. This concludes the 2022 ESG briefing session. When you close the Zoom screen, you'll be redirected to the survey screen. It takes about two minutes to answer, and we would appreciate your cooperation in responding to the survey for the improvement of further IR activities. Again, if you have any further questions, please contact us.
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