Responding to Climate Change

Policy and Strategy

Cooperating on Climate Change with the Japanese Government, International Organizations, and Industry Groups

At an extraordinary Diet session held in October 2020, the Japanese government made a declaration on achieving carbon neutrality and a decarbonized society by the year 2050.

IINO LINES supports the Japanese government's policies on forming a decarbonized society, and we also comply with and support the climate change targets and Carbon Intensity Indicator (CII)*¹ rating scheme comprising various regulations established by the International Maritime Organization (IMO), a specialized agency of the United Nations, as well as the Energy Efficiency Existing Ship Index (EEXI)*², an energy efficiency related agreement. Towards achieving carbon neutrality by 2050, the IINO Group will take appropriate action, which includes considering the acquisition of SBT certification. We also comply with and support the climate change-related laws and regulations of Japan (Energy conservation law: Act on the Rationalization, etc. of Energy Use; Global warming law: Act on the Promotion of Global Warming Countermeasures), and submit a report on energy usage and greenhouse gas emissions to the government once a year.

In October 2021, the Japan Shipowners' Association (JSA), a shipping industry group, also announced that it would take on the challenge of net-zero greenhouse gas emissions by 2050, showing that JSA is leading the way in the formulation of climate change strategy as a shipping industry group. IINO LINES is a member of the JSA, and the president of IINO LINES serves as its president and is involved in important decision making. JSA has established "strengthening coordination with related internal and external bodies on environmental action and is actively participating in internal and external forums and meetings" as one of its action guidelines for environmental conservation. The IINO Group supports JSA's policy on climate change action and has confirmed that the IINO Group's own climate change strategy to "consider the future acquisition of SBT certification to achieve net-zero greenhouse gas emissions by 2050" is consistent with this policy.

*1

A framework that evaluates the annual fuel efficiency of oceangoing vessels and rates them based on the evaluation to promote improvements to fuel efficiency across international shipping overall. (Ratings are on a five-point scale, "A" being the best and "E" being the worst; the framework took effect in 2023)

*2

An indicator similar to EEDI (Energy Efficiency Design Index) metrics for newly built ships, requiring that CO₂ emissions per transportation unit remain at or below a certain value as a regulation for existing ships. (applied from 2023)

Climate Change-related Risks, Investments, and Opportunities

This section describes the risks, investments, and opportunities related to climate change that could have a major impact on our Shipping or Real Estate Business operations in financial or strategic terms.

Physical Risks in the Shipping Business

Physical Risks, Response Measures and Opportunities

*1

Short-term refers to a relatively short period of time, around two years.

*2

Medium- to long-term refers to a period of time longer than two years.

Costs to Address Risks (use of IT systems)

Due to the use of vessel operation and management systems, the communication equipment used for ship-to-shore and ship-to-ship communications, and other items, costs of approximately 15 million yen were incurred.

Potential Financial Impact

If a typhoon forms along the route of a voyage, a vessel must divert (deviate) from the route to avoid it. Approximately 1,041 million yen in additional charges could be incurred as costs when diverting annually.

Physical Risks in the Real Estate Business

Physical Risks, Response Measures and Opportunities

*1

Short-term refers to a relatively short period of time, around two years.

*2

Medium- to long-term refers to a period of time longer than two years.

Costs to Address Risks

It is necessary to enroll in insurance against disasters for all office buildings owned in Japan, and costs of around 10 million yen will be incurred for some office buildings.

In addition, some Company-owned office buildings may be located at low tidal elevations and risk of rainwater intrusion. To address this risk, approximately 45 million yen will be incurred to install first-floor tide protection embankments and underground waterproof plates.

Potential Financial Impact

As a result of a risk assessment performed by a risk consulting firm on some of the office buildings we own, there was determined to be a flooding risk with potential damages of around 3.7 billion yen. The amount of damages would be covered by the aforementioned insurance in which the Company is enrolled.

Mid-term Management Plan Targets, Measures to Combat

From a medium- to long-term perspective, the Group has set the periods until 2030 and 2050 as target periods and is aiming to achieve carbon neutrality by 2050 under its mid-term management plan "The Adventure to Our Sustainable Future," which runs from April 2023 to March 2026. Previously we had set GHG reduction targets for the Shipping Business and Real Estate Business respectively, but we revised our interim reduction target up to 2030, raising the reduction rates for both the Shipping Business and Real Estate Business.

To achieve these targets, we conducted scenario analyses based on the TCFD recommendations* for each of the IINO Group's core businesses, the Shipping and Real Estate Businesses. This provided us with a renewed awareness that climate change poses a wide range of risks and opportunities in both the Shipping and Real Estate Businesses and that those risks and opportunities will have an impact on our medium- to long-term business strategy.

We will assume an impact on business due to climate change, strengthen our risk management efforts, integrate our action on global warming with business strategy, and work toward achieving the world view of the 1.5 °C scenario.

*

Check our declaration of Support for TCFD Recommendations for details about the scenario analyses.

Formulation and Implementation of Plan to Realize a Decarbonized Society

Roadmap for Achieving Carbon Neutrality in the Shipping Business

Basic Policy
1. Independently operated vessels (Scope 1): Mainly small and medium-sized vessels, including chemical tankers, dry bulk carriers, and domestic gas carriers
Although the effect of investment in emission reductions is less than that of larger vessels, we will invest in next-generation fuel vessels that are best suited to each type of vessel in stages. Furthermore, steady measures will be taken to reduce CO₂ emissions over the medium- to long-term through the introduction of biofuels that can be used in heavy fuel oil-fired engines and by getting involved in the design and development of small and medium-sized next-generation fuel vessels.
2. Fixed-term charters (Scope 3): Mainly large-sized vessels, including oil tankers and large gas carriers
Make upfront investments in next-generation fuel vessels, mainly gas carriers that use onboard cargo as fuel. Accumulate operational and management know-how and enhance technology for future management of zero-emission fuel (hydrogen and ammonia) vessels.
In addition, we will promote the decarbonization of the Group's entire fleet through horizontal expansion to other vessel classes and designs.

Numerical Targets in the Mid-term Management Plan

In its mid-term management plan, the IINO Group has set the numerical financial targets of achieving revenues of 190 billion yen and recurring profit of 20 billion yen by FY2030, while in the IINO VISION for 2030, we aim to "become an independent global corporate group that continues to evolve with creative ideas in response to the demands of the times." To achieve the IINO VISION for 2030, it will be necessary to not only create economic value to meet those financial numerical targets but also create social value. Accordingly, in the mid-term management plan, we have set revised numerical targets for GHG emission reductions for both the Shipping Business and Real Estate Business and raised the reduction rates. We will further revise the rates in case of any changes in reduction targets of the Japanese government, IMO, and other international organizations.

In terms of business-specific targets, in the Shipping Business, we aim to reduce GHG emissions per ton mile (transportation unit) by 20% of 2020 levels by 2030. Additionally, in the Real Estate Business we aim to reduce GHG emissions by 75% of total volume compared with 2013 levels by 2030 using Japanese government targets as a reference. Note that as a short-term reduction target to achieve our 2030 target, we aim to reduce GHG emissions by approximately 4% per ton mile over three years in the Shipping Business and by approximately 22% of total volume over three years in the Real Estate Business.

Furthermore, the IINO Group has formulated a road map to achieve carbon neutrality by 2050. To meet these targets, we will continue to promote investment in assets that help reduce our environmental impact, strengthen efforts concerning ships based on next-general fuels, and step up initiatives targeting sustainable cargo.

Our Reduction Targets

Data List (GHG/CO₂ emission reduction rates)

Strategies and Action Policies to Meet Targets

To achieve the 1.5°C scenario world view consistent with the Paris Agreement and meet the GHG reduction targets in our mid-term management plan, the IINO Group is pursuing a number of efforts to envisage the impact on its businesses due to climate change and enhance risk management while pursuing management strategies that integrate each initiative with business strategy and reflect one of the key strategies in the mid-term management plan to "formulation and implementation of plan to realize a decarbonized society."

As a specific example of such efforts, in the Shipping Business, we are making every effort to reduce CO₂ emissions while improving economic efficiency through the promotion of investments in large vessels equipped with fuel-efficient engines. As part of stepped-up efforts aimed at vessels powered by next-generation fuels, we are investing or seriously considering an investment in dual fuel main engine vessels that can use LNG, LPG, and LEG (liquefied ethane gas), and methanol as fuel while working to develop expertise in their operation and management. Additionally, we are pursuing action to switch to zero-emission fuels (ammonia, hydrogen) and making investments in anticipation of ammonia fuel main engine vessels. In addition, to enhance efforts aimed at sustainable cargo, we will engage in clean cargo transportation including LNG and ammonia, actively utilize AI to improve transportation efficiency, and strive to achieve further CO₂ emission reductions. Further, we will also consider the introduction of internal carbon pricing in the future and explore shipboard CO₂ capture and storage.

We plan to invest 150 billion yen (including the Scope 3) in the environment by 2030. We will aggressively invest in next-generation fuel vessels that use clean energy to realize a decarbonized society. In the future, we will phase out investments in carbon-intensive assets and products.

In the Real Estate Business, we will shift to renewable energies by altering the energy mix in the buildings we own and purchasing non-fossil value certificates, and also promote the introduction of energy-efficient equipment (LED lighting, air conditioning equipment, solar panels, etc.). In addition, we will also take part in the development of next-generation office buildings expected to reduce CO₂ emissions (ZEB and wooden construction) while endeavoring to gain knowledge. To oversee these efforts, in June 2022, the Environmental Promotion Working Team was established within the Sustainability Promotion Department to take over from the IINO Environmental Task Force. The team will gather information on international laws and regulations related to climate change and trends at other companies on a joint basis with the Environmental Management Section and ensure that climate change action filters down through the organization.

Initiatives

Progress towards the Group's Medium- to Long-Term GHG/CO₂ Emissions Reduction Targets and Short-term Reduction Targets

As of FY2022, GHG reductions of 13.5% (from FY2020 levels) in the Shipping Business and CO₂ emission reductions of 21.8% (from FY2013 levels) in the Real Estate Business had been achieved. Towards meeting the FY2030 targets and achieving the 1.5°C scenario, we will continue to pursue initiatives based on the mid-term management plan and drive strategies informed by scenario analysis.

Data List (GHG/CO₂ emission reduction rates)

Responding to Climate Change

As an initiative based on the assumption that climate change due to global warming will occur in the future, we are promoting measures in the Shipping Business and Real Estate Business that include adaptions to mitigate the effects of climate change.

In the Shipping Business, due to typhoons that have become larger and more frequent around the world in recent years from the effects of climate change, the safe operation of vessels and cargo transportation are being threatened. The IINO Group naturally takes the utmost care to ensure the same running of all vessels it operates. By collecting meteorological and oceanographic data via satellite communications and making use of services provided by weather information companies that help select optimal routes, we ensure that the appropriate information is relayed from shore to ships and engage in ship-shore coordination in an effort to safely navigate vessels.

In the Real Estate Business, as a measure to deal with heat stroke due to rising temperatures, in the IINO Forest on the grounds of the IINO Building, we disperse mist each summer and have arranged tall trees to provide shade. We also take measures to prepare for major disasters, including fires and earthquakes, and conduct BCP drills at the office buildings we own.

Data List (Energy Consumption)

Climate Change Initiatives in the Shipping Business

The operation of ships involves emissions of CO₂ and other greenhouse gases. The IINO Group is considering and implementing various actions for each ship type and individual vessel, including the promotion of dual-fuel main engine vessels. In addition, through management procedures (SEEMP: Ship Energy Efficiency Management Plan)*¹ associated with regulations for the appropriate management of ship energy efficiency going into effect, we are continuing to monitor and analyze per-voyage fuel consumption data every six months while also responding to reporting systems for fuel consumption results, such as EU MRV regulations that took effect in Europe, and the fuel oil consumption results reporting system (DCS: Data Collection System) regulations prescribed by the IMO*².

*1

Created by relevant shipowners as a facet of measures to reduce greenhouse gas emissions from oceangoing ships, these plans are required to be carried by the vessel.

*2

Relevant shipowners annually collect consumption results as part of measures to reduce greenhouse gas emissions from oceangoing ships, and the system then requires reporting to the Ministry of Land, Infrastructure, Transport, and Tourism or Classification Society.

Data List (Change in CO₂ Emissions in the Shipping Business)

Measures to Improve Fuel Efficiency Through Efficient Operations and Use of New Technologies That Aim to Improve Propulsion Performance

CO₂ emissions can be controlled by reducing fuel use via efficient operations. In addition to maintaining SEEMP manuals, we apply the Energy Efficiency Design Index (EEDI)* to newly built vessels and have implemented a fuel consumption results reporting system (DCS: Data Collection System). In addition, we have newly started operating the Energy Efficiency Existing Ship Index, EEXI, which limits CO₂ emissions per unit transportation volume, and the CII (Carbon Intensity Indicator) Fuel Consumption Performance Rating System. We continue to operate appropriate steps to comply with these regulations, as well as efforts to improve fuel efficiency, including, for example, more in-depth onboard training on carbon dioxide emission control and the adaptation of energy-saving LED lighting.

Additionally, by improving the advancement of propulsion performance in our vessels, we can reduce fuel consumption and control CO₂ emissions. For newly constructed vessels, we are actively promoting the installation of stern additions that improve the propulsion efficiency of propellers and the use of the latest low-friction hull paint. In existing vessels, we are working to maintain and improve propulsion efficiency via initiatives including the use of low-friction hull paint that reduces vessel drag and cleaning propellers and ship bottoms as required.

Furthermore, the new vessels to be built have been equipped with a system that enables constant monitoring of navigation information and engine operation status from shore, and we are working to upgrade the system to provide appropriate support from shore while maintaining an accurate grasp of operational status.

*

EEDI is an index effective since 2013 that requires new shipbuilders to reduce CO₂ emissions per unit transport volume to a certain level at the time of design, with the aim of building highly fuel-efficient vessels. The regulation value will be gradually tightened every five years.

Climate Change Initiatives in the Real Estate Business

The Company measures energy use at its main buildings for lease and works to implement energy conservation measures in cooperation with office tenants. Additionally, at the IINO Building and the Shiodome Shiba-Rikyu Building, which have been designated as Specified Global Warming Countermeasure Offices *¹ by the Tokyo Metropolitan Government, a global warming countermeasure report is prepared annually, and reports are made on emissions reduction measures for greenhouse gases, including CO₂. At the IINO Building, facilities with excellent energy conservation properties have been installed, realizing both excellent environmental performance and comfortable office spaces. Owing to cooperation from each tenant company, we work toward efficient facilities management that reduces greenhouse gas emissions under a unified management structure. Due to such measures, it has been certified as an Outstanding Specified Global Warming Countermeasure Office (Top-level Facility) *² for FY2015 and FY2020 under the Tokyo Environmental Preservation Ordinance.

*1

Based on the Ordinance on an Environment to Secure the Health and Safety of Tokyo Residents, the Tokyo Metropolitan Government requests the preparation of a Global Warming Countermeasure Report by large-scale offices with high greenhouse gas emissions. By submitting this report and designating a reduction in emissions volume, the IINO Group is working to control emissions of CO₂, etc., during the course of business activities.

*2

Top-level facilities are offices that are certified as having exceptionally outstanding management systems to reduce CO₂ emissions, building facility capabilities, and level of advancement of their operation, based on Tokyo Metropolitan Government ordinances to promote global warming countermeasures. The reduction requirement for CO₂ emissions volume is halved for offices with this certification.

Data List (Change in CO₂ Emissions in the Real Estate Business)

Promoting the Acquisition of Environmental Certifications for Owned Office Buildings

The IINO Building has earned the highest ranking of 5 stars under BELS (Building-Housing Energy-efficiency Labeling System), as well as LEED Platinum certification (for the IINO LINES office floor on the 27th floor). In addition, the IINO Building and Shiodome Shiba-Rikyu Building have obtained DBJ Green Building certification as buildings that consider the environment and society, earning 5 and 4-star ratings respectively.

Data List (Percentage of Owned Office Buildings with Each Type of Certification)

Reducing Energy Consumption

The IINO Group advances efforts to reduce building-wide energy usage in a variety of ways in the buildings it owns, such as the use of cutting-edge technologies, facilities, and equipment, and the introduction of systems to visualize energy consumption.

Data List (Power Consumption and CO₂ Emissions)

Initiatives to Reduce Energy Consumption

1. Introduction of building energy management systems
   At the IINO Building, we have introduced a building energy management system (BEMS), we will engage in the efficient operation and management of equipment and facilities and promote the visualization of energy usage as part of efforts to reduce energy usage. Additionally, to meet customers' needs, we prepare various reports on global warming countermeasures to be submitted to the Tokyo Metropolitan Government and reports to comply with the Act Concerning the Rational Use of Energy, while also providing data on energy used for air conditioning.

2. Green lease agreements
   At the Shiodome Shiba-Rikyu Building, we have signed green lease agreements* with tenants for the use of LED lighting in their exclusive areas in an effort to reduce power consumption together with tenants.

   *

   Agreement that is entered into between a building owner and a tenant to renovate and operate the building with the aim of working together to reduce environmental impact.

3. Introduction of smart meters
   In the IINO Building, we have introduced smart meters that enable energy usage to be viewed for tenant's exclusive sections. In addition, to promote understanding and utilization of the environmental performance provided by the building, an Internet-based hub for communication with tenants has been built. By providing visualized energy information and other data on a dedicated portal site for tenants, we are helping to improve the efficiency of energy usage and reduce overall energy usage on the part of tenants.