Dialogue 05

Tony Goldner, Executive Director of TNFD Secretariat, Had a Dialogue with the Senior Executive Officer in Charge of CSV Strategy of Kirin Holdings, in June 2022

The Executive Director of TNFD Secretariat, who visited Japan on the occasion of the TNFD Consultation Group of Japan establishment meeting, and the Senior Executive Officer in charge of CSV Strategy of Kirin Holdings had a dialogue on June 15, 2022. The TNFD intends to provide a framework for organizations to report and act on nature-related risks, with the aim of supporting a shift in financial flows away from nature-negative outcomes toward nature-positive outcomes.

Thoughts on the Kirin Group's holistic approach

Mr. Goldner: When I attended a TNFD webinar at the end of May hosted by the Keidanren Committee on Nature Conservation, the Kirin Group presented a case study on tea leaves in Sri Lanka. I listened with great interest to your company's approach to the tea supply chain, and I looked forward to visiting Kirin and hearing about it firsthand experience during my visit to Japan. I am very interested in the fact that you engaged in initiatives in both climate change and natural capital in Sri Lanka. Why did you start this kind of initiative?

Mr. Mizouchi: We feel it is our duty to make society aware of the impact of climate change on agriculture. We believe that environmental issues such as climate change, biological diversity, and water are not separate issues, but are interrelated and must be treated holistically. We initiated our activities on Sri Lanka, an important producer of tea leaves, as a vulnerable region with respect to both climate change and natural capital.

Mr. Goldner: I am very sympathetic to the idea that companies should deal with environmental issues holistically. On the other hand, many companies are so focused on climate change-related initiatives that they don't have the leeway to look at natural capital. What about the Kirin Group?

Mr. Mizouchi: Our business is primarily beverages and pharmaceuticals, so we depend on natural capital. We believe that the necessity to address the challenges surrounding water and agricultural resources, which are our raw materials, has helped us understand the need for holistic approaches. I think this kind of opportunity is rare for non-food companies, but water is a universal agenda and is closely related to climate change. So, if I were you I would start with water for expanding TNFD.

Mr. Goldner: That's good advice for many companies since there are a lot of metrics already established for measuring water. How much have you analyzed the exposure of your business to nature-related risks?

Mr. Mizouchi: We believe that we have some understanding of nature-related risks related to the beverage business. We conducted a materiality analysis and prioritized paper, tea leaves, palm oil, soybeans, and coffee beans. Those are the areas we hope to contribute to sustainable forestry and farming through procurement. Although our pharmaceutical business uses biotechnology, it is not depending very much on biological resources.

On TNFD's trial disclosure

Mr. Goldner: I think you will be the first in the world to try LEAP^*1 and publish^*2 it in the public domain, so congratulations. What are your thoughts after trying and publicizing LEAP?

Mr. Mizouchi: Having worked on climate change and biological resources in a holistic manner, we were able to intuitively understand the concept of the LEAP approach, which focuses on "location" and "dependency". Our TCFD scenario analysis^*3 also covers biological resources and water as physical risks.

Mr. Goldner: Do you think this kind of disclosure on natural capital is useful for corporate decision-making?

Mr. Mizouchi: I think it is very beneficial. Water issues and biological resource issues are location specific and depend on the area, different from greenhouse gases, which have global impacts on climate change. The issues raised by LEAP related to "location" and the approach of separating physical risk from systemic risk are also good ways of viewing natural capital issues and climate change issues from a sustainability perspective.

Mr. Goldner: Systemic risk is more for central banks. It's for the policymakers to worry about. It's interesting that the Kirin Group, a manufacturer, found that very helpful. What were the most difficult aspects for you? Was it the metrics, or finding data?

Mr. Mizouchi: Metrics. How we set our targets is still under consideration. Actually, water may be relatively close to greenhouse gas emissions and easier to set targets than biological resources. But KPI setting for biological resources is difficult.

Mr. Goldner: While a variety of metrics have been proposed, there are concerns about setting the right KPIs. Companies have been very focused on the one-way impact that business has on nature. Unlike your company, in talking to other companies, there's almost a blind spot around how the business is dependent on natural capital, for example, the risk of ecosystem services such as pollination. SBTN^*4 is helping companies set their own targets for natural capital, but it seems to us there's a problem before that. Companies’ targets should be in reference to the long-term sustainability of the ecosystem. But how can you set a target as a company if you don't know what the health of the ecosystem is? Do you think the governments or other organizations should set targets to deal with this situation, for example?

Mr. Mizouchi: If we have a global target and that is cascaded down, it is easier for us to adopt that target. But we cannot wait for the external targets to be set because we are already facing a severe impact from climate change in our business. We have to find our own target. For example, two years ago, the California bushfires affected our vineyards with smoke damage. The smell of smoke made it impossible to use red wine grapes, and the wine industry was severely affected. We also had typhoon impacts. We in the food industry, who best understand the risks to natural capital such as biological resources, feel that we have to speak out and let society know the risks. If the risk is widely shared and countermeasures are taken, it will eventually benefit the business. For this reason, a scientific approach to target setting is key.

Mr. Goldner: Dialogues around a biological diversity framework, such as the COP15^*5, have been delayed partly because of COVID-19. Unlike climate change, natural capital impacts vary depending on the area and should be replaced with targets related to ecosystem impacts at the local level. There are still many issues to be addressed about how to translate global targets to the local level, and it will take time to develop a consistent way to measure the health of an ecosystem. I look forward to progress in the dialogues at COP15.

Outlook for the future

Mr. Goldner: TNFD plans to conduct a pilot test of a global supply chain. We hope that you will join us and use the knowledge you have gained so far.

Mr. Mizouchi: Yes, absolutely. We are also participating in the SBTN water self-pilot test. A Lion plant in Australia is the target under consideration.

Mr. Goldner: In the future, the TNFD framework and SBTN target setting should be linked. We expect that your company's knowledge in working on these two areas will be helpful in exploring measures for collaboration between TNFD and SBTN.

Mr. Mizouchi: In the Environmental Report released this year, we made a pilot disclosure using the LEAP approach proposed by TNFD because we want to work with international organizations like SBTN, TNFD, and TCFD to help achieve a sustainable society.

Mr. Goldner: I think it's a great idea. I believe that the LEAP disclosures made public in your Environmental Report will be helpful not only to the TNFD Secretariat but also to many other companies. TNFD believes that by working with the ISSB^*6, we can create rules and a standard global baseline related to sustainability reporting.

Mr. Mizouchi: I am also a member of the Japanese government's study group to formulate opinions on the ISSB's exposure draft. We recently submitted an opinion letter to the IFRS Foundation based on the results of our study.

Mr. Goldner: The ISSB is focused on climate change now, but dialogues have begun on what the next agenda should be. TNFD wants "nature" on top of its agenda. Ideally, the IFRS Foundation will put "nature" in its process early next year.

Mr. Mizouchi: I think that’s a great idea.

Mr. Goldner: I would very much appreciate your support.

Mr. Mizouchi: I am sure that in 10 years Japan will lead the world not only in decarbonization but also in the conservation of natural resources and sustainable use of natural capital. This is because natural capital is very linked and familiar to Japanese culture. I believe that Japan can leverage its strengths in this field to foster the growth industries of the future.

Mr. Goldner: I believe that the G7 summit to be held in Japan next year will be a good leadership opportunity for Japan. Japan has the largest number of companies participating in TNFD's Forum. Many policymakers assume that natural capital might be at the top of their agenda for next year. This will be the perfect time to push from a policy perspective. Thank you so much for today.

1. LEAP: The approach to assessing nature-related risks and opportunities proposed in the beta version of the TNFD framework. LEAP refers to the four approaches of Locate, Evaluate, Assess, and Prepare.
2. TNFD's LinkedIn page featured a case study of the Kirin Group's pioneering use of the LEAP approach proposed by TNFD for nature-related risk and opportunity assessment in the 2022 edition of its Environmental Report. (August 15, 2022)
   https://www.linkedin.com/posts/taskforce-on-nature-related-financial-disclosures-tnfd_tnfd-naturalcapital-nature-activity-6964860358343692288-IfR2/?utm_source=linkedin_share&utm_medium=member_desktop_web
3. TCFD Scenario Analysis: Our latest scenario analysis is disclosed at the site below.
   https://www.kirinholdings.com/en/impact/env/tcfd/
4. SBTN: An abbreviation for Science-Based Targets for Nature, an organization that sets science-based targets for natural capital to achieve a sustainable earth system. The Kirin Group is the first in Japan's pharmaceutical and food industry to participate in the SBTs for Nature Corporate Engagement Program (CEP), a natural capital goal-setting initiative.
5. COP15: Fifteenth meeting of the Conference of the Parties to the Convention on Biological Diversity.
6. ISSB: The International Sustainability Standards Board (ISSB), a newly established body in November 2021 by the IFRS Foundation responsible for developing International Financial Reporting Standards (IFRS). It aims to develop international disclosure standards on sustainability.
7. IFRS Foundation: A private, non-profit organization responsible for the development of International Financial Reporting Standards (IFRS).