Theme 2
SDGs and Sumitomo: Climate Change

One-point explanation: Typhoon Hagibis struck Japan in October 2019, leaving a wide swath of destruction, including deaths and missing persons, in its wake. In view of the fear that rising seawater temperatures resulting from climate change will lead to more frequent occurrence of powerful typhoons such as Hagibis and accompanying flood damage, the importance of the Sustainable Development Goals (SDGs) as climate change mitigation measures is being discussed with greater frequency. Climate change is treated as a serious and important issue in the SDGs and is mentioned not only in Goal 13, Climate Action, but also in Goal 1, No Poverty, and Goal 2, Zero Hunger.; The Sumitomo Group’s wide-ranging measures to address climate change are attracting attention. Notable examples are Meidensha’s smart manhole covers, which are used to monitor the water level in sewer pipes and can be expected to contribute to damage limitation through prediction of the effects of heavy rain caused by typhoons, and SMBC Nikko Securities sustainable financing, which promotes investments that contribute to solving ESG problems, such as climate change.

Koichi Kozuka
Director, SDGs Design Center
Nikkei BP Consulting

Sumitomo Osaka Cement Co., Ltd.: Operation of optimal biomass power generation facilities reflecting plant location and regional characteristics

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.: Focusing on environmental performance during product operation, reducing CO₂ emissions through improved fuel efficiency of mainstay construction machinery

SMBC Nikko Securities Inc.: Promoting climate change mitigation measures through green bond underwriting

Meidensha Corporation: IoT-based sewer water level visualization usable for flood countermeasures in the climate change era

Sumitomo Osaka Cement Co., Ltd.

Operation of optimal biomass power generation facilities reflecting plant location and regional characteristics

Sumitomo Osaka Cement engages in biomass power generation using wood chips, sludge, and other materials as primary fuel and supplemental fuel at its three cement plants in Japan and at Hachinohe Biomass Power Generation, a joint venture with Sumitomo Forestry and other company. The photo shows a power generation facility at the Tochigi Plant, located in Sano City, Tochigi Prefecture.

Reducing emissions of greenhouse gases is considered the most effective means of alleviating climate change on a global scale. In particular, a broad spectrum of measures ranging from reduction to recovery and recycling are being taken to counter the effects of carbon dioxide (CO₂).

In these circumstances, biomass power generation—a method of generating electricity by using biomass, such as food waste and forest thinnings, as fuel—is attracting attention for its utility and sustainability. Biomass power generation is acclaimed for two reasons. It is carbon neutral, meaning that although of course CO₂ is emitted at the time of fuel combustion, the emissions are offset by the amount of CO₂ absorbed during the growth process of the organic matter used as fuel. And, it is unaffected by weather conditions, in contrast to wind power and solar power generation. For this reason, an increasing number of companies in Japan are installing biomass power plants. Sumitomo Osaka Cement has been in the vanguard of biomass power generation in its industry since 2004.
A distinctive characteristic of biomass power generation at Sumitomo Osaka Cement is that the company has introduced the most suitable power generation method for each plant, taking into account plant location and regional characteristics.

The company’s Kochi Plant crushes nearly 20,000 tons of forest thinnings per year and uses them as fuel.

For instance, the company’s Kochi plant uses fluidized bed boilers, which are capable of burning a wide variety of fuels, for power generation and uses both building scrap wood and forest thinnings as fuel for the burners. Kochi Prefecture has a forest area ratio of approximately 84%, the highest in Japan, and the Kochi Plant has developed a system for obtaining a stable supply of biomass fuel in cooperation with local forest owners. Forest thinnings from the Shikoku region have long been used as a raw material in papermaking. However, the volume of paper production has been declining nationally since around 2000, leading to lower demand for thinnings. The use of excess thinnings as biomass fuel contributes to the effective utilization of forest resources and helps sustain the forestry industry.

Since the Ako Plant in Hyogo Prefecture uses pulverized coal-fired boilers as power generation facilities, its biomass ratio is only 2%. However, an important characteristic of the plant’s power generation method is that three-fourths of the biomass used is solid fuel produced using sewage sludge as a raw material. This fuel includes carbonized fuel produced in Osaka City’s Hirano Sewage Treatment Plant Sludge and Solid Fuel Project. Sewage sludge is currently attracting attention as a carbon-neutral biomass resource, and the stable use of a newly developed fuel is a measure aligned with the principles of the SDGs.

A characteristic of the Tochigi Plant is that it operates with a high biomass ratio of 93%. The plant, which had a biomass ratio of 65% to 70% when it introduced biomass power generation in 2009, has achieved the highest biomass ratio in the company by improving facilities and operations. Also, Hachinohe Biomass Power Generation Co., Ltd., a joint venture that Sumitomo Osaka Cement established together with Sumitomo Forestry and other company, operates facilities that generate electricity for sale using mainly forest thinnings as fuel. Although the company currently relies on imported palm kernel shells (PKS) for a portion of its fuel, it is investigating the possibility of shifting entirely to materials sourced in Japan in the future.

At a time when ways of reducing CO₂ are being studied nationwide, how can a single business operator contribute to CO₂ reduction? Sumitomo Osaka Cement intends to continue using biomass power generation as its own unique SDG project while pursuing research and closely watching global trends.

Many of the thinnings are procured from mountains near the plants, a practice that helps sustain the local forestry industry.

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

Focusing on environmental performance during product operation, reducing CO₂ emissions through improved fuel efficiency of mainstay construction machinery

For many people, the term “construction machinery” may conjure up an image of machines emitting large amounts of CO₂ as they perform their tasks at a construction site wreathed in billowing dust. However, in recent years government emissions regulations have become stricter in step with growing environmental awareness, and the use of fuel-efficient construction machinery with low CO₂ emissions has become widespread. Sumitomo Construction Machinery’s development and manufacture of fuel-efficient construction machinery as its mainstay products predates adoption of the SDGs by many years.

The energy-saving technologies used in fuel-efficient construction machinery are contributing to CO₂ emissions reduction at construction sites around the world.

When it comes to environmental activities at manufacturers, attention is first focused on production sites. Although Sumitomo Construction Machinery has pursued CO₂ emissions reduction in manufacturing processes, given that its products are construction machines equipped with engines, it has also long pursued improved fuel efficiency as a vital element of its product development concept.

In the company’s construction machinery lineup, 20-ton class hydraulic excavators account for the highest shipment volume. At first, in developing the SH200-5 excavator model, the company succeeded in reducing fuel consumption by 20% compared to the previous model. In 2007, in recognition of environmental performance achieved through a new engine and hydraulics control system, the SH200-5 became the first construction machine to be awarded the Grand Prize for Energy Conservation in the rigorous judging process of the Grand Prize for Excellence in Energy Efficiency and Conservation awards program. The company subsequently continued its efforts to improve fuel efficiency, and the SH200-6 and SH200-7 (the newest model) received the Japan Machinery Federation Chairman's Award as excellent energy-saving machines in 2013 and 2018, respectively. The company’s excavators also received Good Design Awards in 2014, 2016, and 2017. Receipt of these awards has helped elevate the company’s brand image as an eco-friendly construction machinery manufacturer globally.

According to the company’s estimates, following the introduction of the SH200-6 and SH200-7, which offer further improvements in fuel consumption, worldwide CO₂ emissions of its construction machinery declined by 40,000 tons (assuming the same number of units and operating time), or 6.4%, in 2018 compared to the base year 2007, when the SH200-5 was the mainstay excavator model. This emissions reduction attributable to enhanced fuel efficiency more than offsets the entire annual amount of CO₂ emitted during production at the company’s three plants in Japan and overseas (some 27,000 tons). Visualizing and publicizing these figures enhances the company’s reputation in the market and boosts the motivation of the development teams and other employees.

Another point of emphasis at Sumitomo Construction Machinery in addition to improved fuel consumption is cycle time reduction through improvement of operating performance. The ability of construction machinery to perform many tasks in a short period of time contributes to greater reduction in CO₂ emissions. The company estimates that it will achieve CO₂ reductions roughly equivalent to those from improved fuel efficiency compared to the 2007 level through operating performance improvements. Going forward, the company will accelerate fuel efficiency improvement while also expanding its efforts to include environmental contributions made through worksite efficiency improvement utilizing information and communication technology and the creation of new businesses, such as recycling and reuse of parts.

The energy-saving technologies realized in development of the SH200 series hydraulic excavators have been applied to other machinery that proves its worth day after day at diverse construction sites around the world.

SMBC Nikko Securities Inc.

Promoting climate change mitigation measures through green bond underwriting

In what amounts to a definite trend, bond markets are increasingly supportive of the fundraising activities of companies that pursue environmental initiatives. The issuance of green bonds, which are earmarked for environmental projects, is increasing, mainly in Europe. In Japan, the Declaration in Support of SDGs and the setting of targets by the Japan Securities Dealers Association (JSDA) in March 2018 have given industry-wide promotion of SDG initiatives greater momentum. It is in this context that SMBC Nikko Securities clearly indicated its intention of supporting client’s projects that contribute to accomplishment of the SDGs through its business by establishing the SDGs Finance Department in September 2018.

The members of the SDGs Finance Department, established within the Capital Markets Origination Division, crisscross Japan to provide consultation on bond issuance and conduct workshops.

ESG investment reached approximately 3,400 trillion yen worldwide in 2018, and ESG investment in Japan rapidly expanded from about 1.0 trillion yen in 2014 to 232 trillion yen in 2018. An announcement by the Government Pension Investment Fund (GPIF) that it would boost ESG investment triggered the expansion, and there are signs that ESG investment will further spread. Although bonds whose use is limited to projects that contribute to solving environmental and social issues are called “ESG bonds,” in fact no commonly accepted definition of the term exists. Ordinarily, three types of bonds are considered ESG bonds: “green bonds,” which are limited to projects expected to have environmental benefits, “social bonds,” which are limited to projects that contribute to solving social issues, and “sustainability bonds,” which have elements of both green bonds and social bonds. Incidentally, the JSDA calls bonds that are issued by organizations thought to contribute to the SDGs and that demonstrate benefits “SDG bonds.”

By issuing ESG bonds, a company can expect not only to raise funds, but also to enhance its corporate value and brand image. SMBC Nikko Securities provides information on ESG bonds and offers support extending to submission of bond issuance proposals and bond issuance. It also focuses on educational activities, such as the holding of workshops on ESG bonds nationwide. The company believes that in this way it can contribute to climate change mitigation measures and improved environmental performance on a number of fronts, such as through technological innovation in the renewable energy industry.

The company focused on the environment long before the SDGs were adopted and has pioneered environmental initiatives in the financial sector. For instance, it began handling eco funds in 1999. It was also SMBC Nikko Securities that underwrote the first green bonds issued by a private-sector entity in Japan, Sumitomo Mitsui Banking Corporation, in 2015. In July 2019, the company underwrote 6.0 billion yen in green bonds that Meidensha Corporation issued to finance mass-production facilities for electric vehicle (EV) motors and inverters. This highly symbolic deal, the first in Japan by an EV-related manufacturer, is expected to drive the popularization of green bonds in Japan, which is home to many manufacturers.

Now that a year has passed since the establishment of the SDGs Finance Department, SMBC Nikko Securities says that it sees signs of an increase in demand. Interest in climate change mitigation measures has spread not only to investors, but also to consumers, and the company is prepared to continue pursuing environmental initiatives through its business.

In response to growing interest in ESG bonds, the SDGs Finance Department actively conducts educational workshops for clients.

Meidensha Corporation

IoT-based sewer water level visualization usable for flood countermeasures in the climate change era

Japan has been hit by a series of massive typhoons and localized downpours occur frequently around the country. In these circumstances, sewer overflow has emerged as a serious problem, flooding roads etc. With sewer networks in Japan, including manholes, have a total length of about 470,000 kilometers (as of March 31, 2018), the ability to monitor water levels and use the data has an important bearing on the effectiveness of urban flooding countermeasures. Meidensha commercialized a manhole cover with a built-in antenna in 2016. Called the “smart manhole cover,” this IoT device performs real-time visualization of sewer water levels.

A smart manhole cover, an IoT device enabling real-time visualization of water levels in sewer pipes that can simply replace a conventional manhole cover. Smart manhole covers have been installed at over 100 locations around Japan.

Sensors mounted on smart manhole covers monitor water levels in sewers and data are sent to the cloud via cellular phone networks. Equipped with a sensor, a communication device, and an antenna, the battery-driven smart manhole covers can simply replace conventional ones. Their use enables remote monitoring of water levels, eliminating the need for local government staff to continually visit sites in the field to check water levels. A decisive advantage is that the collected data can be used for swift implementation of flood countermeasures.

Having long been a provider of monitoring services for sewage treatment plants using sensors, Meidansha wanted to contribute to flood countermeasures by applying the technology to sewer pipes. Meidensha accumulated know-how on sewer pipes by conducting demonstration testing of smart manhole covers jointly with the City of Kumamoto that involved their pre-commercialization installation for actual sewer systems. Moreover, jointly with the City of Kumamoto and the Japan Institute of Wastewater Engineering and Technology, Meidensha is doing research on a system that would use statistical modeling to predict sewer water levels one hour in advance by combining data on water levels in sewer pipes with data from radar weather forecasting, rainfall information, and a geographical information system. Development of this system is underway with a view to commercialization.

Indicating the tolerances of manholes

Water levels are indicated on a sewer system cross-sectional diagram, taking into account the level above or below sea level of each manhole and depths of sewer pipes.

Many local governments have already introduced smart manhole covers for use in issuing evacuation information for residents. The Flood Control Act revised in July 2015 requires local governments to ensure the evacuation of underground shopping arcades in areas prone to inundation. A city in Kanagawa Prefecture has installed smart manhole covers near train stations and is considering the timing of issuing evacuation information. Going forward, application of smart manhole covers may expand from local governments’ use for evacuation information to various investigations, such as detection of aged sewer pipes causing leakage and of places likely to be subject to flooding. Meidensha is also promoting research into a system for urban flood risk prediction and provision of information to residents as part of the Program on Open Innovation Platform with Enterprises, Research Institute and Academia (OPERA) of the Japan Science and Technology Agency (JST).

By offering solutions based on smart manhole covers, Meidensha is supporting disaster prevention and mitigation to facilitate development of communities capable of withstanding climate change. Furthermore, the company wishes to help equip communities with disaster-resilient infrastructure while also enhancing the operational efficiency of pumps to save energy based on prediction of the inflow water volume from sewer systems to sewage treatment plants.

Theme 2 SDGs and Sumitomo: Climate Change