Disclosure Based on TCFD Recommendations

MODEC declares its support for the Recommendations of TCFD (the Task Force on Climate-related Financial Disclosures). Fulfilling our mission to secure the stable supply of energy, we contribute to achieving global goals of "Realization of a low or zero carbon society" guided by the SDGs and the Paris Agreement in cooperation with governments, other companies, and local communities.

Governance Framework for Climate Change Response

MODEC manages climate change risk and its response based on its internal governance framework of ERM (Enterprise Risk Management). We have selected climate change as one of the ERM "Significant Risks", which are the risks to be managed with special attention due to the particularly significant impact on management without sufficient countermeasures. Executive Officer in charge of Corporate Planning & Strategies is responsible for the management of ERM process, and Board of Directors (BOD) and Management Board (MB) as well as President & CEO regularly receive reports regarding the Significant Risks, monitor and supervise the progress and the implementation results of the responses.

Selected Scenarios

We have determined two scenarios with range, based on SSP scenarios^*1.
Published scenarios and their analyses^*2 are reviewed to develop the worldview of each scenario.

Forecast of global averages surface temperature（Difference from the 1850-1900 average）

*1 "Shared Socioeconomic Pathways", scenarios of projected socioeconomic global changes up to 2100, which was used in IPCC 6th Assessment Report on climate change published in August 2021.
*2 Below 8 scenarios are reviewed for our climate-related assessments.
- IEA: Stated Policies Scenario/ Announced Pledges Scenario/ Net Zero Emissions by 2050 Scenario
- Bloomberg NEF: Green Scenario/ Gray Scenario/ Red Scenario
- DNV: Energy Transition Outlook/ Pathway to Net Zero

Worldview Assumed in the Scenario Analysis

We have assumed the following two worldview as of 2050 in the scenario analysis.

	4℃ scenario	1.5℃ scenario
Overview	Physical risk increases as low-carbon/ decarbonization trends weaken and demand of fossil fuels and upstream investments remains.	Expansion of carbon regulations and other policies result in establishment of renewable energy and increase of investment in low-carbon technologies: World where both renewable energy and low-carbon are firmly established.
Government	Carbon taxes and emission credit trading continues to expand, but limited No progress in policies support for renewable energy	Carbon taxes and emission credit trading are widely introduced Policies support for renewable energy and green technologies are established Usage of fossil fuel is restricted
Changes in the energy market	Proportion of renewable energy slightly increases in electricity generation Introduction of hydrogen and other new energy sources is stagnant There is sustainable demand of fossil fuels There is sustainable crude oil price	Around 90% of electricity is generated by renewable energy There is increased introduction of hydrogen and other new energy sources Demand of fossil fuels deeply declines, however, the production continues at the most sustainable, efficient, and low emission facilities Because deep water has price competitiveness, deep water remain as main area for growth Crude oil price declines
Energy companies (Customers)	Capital investments in renewable energy and green energy increase while it is less than investment in the World view of 1.5℃ Fossil fuels: - Upstream investment continues persistently - Production continues persistently - Countermeasures to GHG emissions are strengthen	There is increased capital investments in renewable energy and green technologies Fossil fuels: - Decrease in production - Countermeasures to GHG emissions are strengthen - Drastic decrease in upstream investment - Continuous investment in low carbon solution for sustainable production
The floating production system industry	There is increased demand of renewable energy production systems, but the possibility is limited There is increased demand of green energy related systems, but the possibility is limited There is increased demand of Oil & Gas production systems Cost for fossil fuels production systems increases due to the expansion of carbon, but it is limited	There is increased demand of renewable energy production systems (such as wind turbines) There is increased demand of green energy related systems; The introduction of hydrogen and utilization of CCU is firmly stablished Demand of oil & gas production system declines Cost for fossil fuels production systems increases due to the expansion of carbon pricing
Financial institutions/ Investors	Progress in investment in low-carbon, environmentally friendly business, but limited Investments in fossil fuel business continues	Progress in investment in low-carbon, environmentally friendly business Investments to fossil fuel business are stagnant
Physical risk	Extreme weather conditions occur	Extreme weather conditions has been curbed comparing to the 4℃ Scenario
New entrants/ Substitutes	The potential for new entrants is low	There is a possibility that companies which possess knowledge about wind turbine, etc.

Major Risks and Opportunities Associated with Climate Change

The evaluation of climate change risks and opportunities is an ongoing process. It is key to identify and manage the risks imposed by the climate change. At MODEC, we have conducted initial evaluation of business to map potential risks and opportunities using TCFD methodology.

TCFD defines two types of climate risks: transition risks and physical risks.

Transition and physical risks can significantly impact businesses' financial performance and sustainability. Therefore, we have assessed and disclosed our exposure to these risks as part of climate-related financial disclosures.

Transition Risks: These risks arise from the transition to a low-carbon economy, such as policy and regulatory changes, technological advancements, and shifts in consumer preferences. In addition, transition risks can impact businesses through changes in market demand, the availability and cost of resources, and changes in the competitive landscape.

Potential Risks		Scenario	Business Impact
Policies, laws, regulations	Carbon Pricing	1.5/4	Carbon pricing and taxation impact costs due to industrial emissions from the construction to operation phases
Policies, laws, regulations	Regulatory	1.5	Increase of regulatory pressures to accelerate the reduction of fossil-fuel based products and services Early demobilization of assets that do not comply the carbon emissions targets
Market	In the energy mix change	1.5	Reduction of investments in oil & gas projects, shifting the investments to other sources of energy
Market	Reduction of oil & gas demand	1.5	Decrease in orders of FPSO due to the reduction of oil demand Change in consumption patterns towards other products and services
Technology	Pressure to develop next-generation technologies and spread of low-carbon technologies in a short term	1.5	Need to increase investment in R&D to comply with market changes, new regulations and laws Fast–paced outdating of technological solutions currently offered to the market
Reputation	Negative societal evaluation of the oil & gas industry	1.5/4	A negative company's reputation can affect its relationship with stakeholders, including customers, investors and communities A negative reputation can lead to decreased demand for a company's products and services, lower share prices, and increased regulatory scrutiny A company's reputation can affect employee morale and job satisfaction
Financial	Changes in financing accessibility due to new climate-related requirements	1.5	Increase in capital costs due to climate-related aspects valuation Investment and loan reduction due to mitigation of risk of loss by investors and financial institutions
Employees attraction and retention	Lack or reduction of interest of skilled professionals to work for the oil & gas industry	1.5	Hard to attract and retain skilled labor due to uncertain future and industry stigmatization

Physical Risks: These are risks arising from the physical impacts of climate change, such as extreme weather events, sea level rise, and heatwaves. Physical risks can impact businesses directly or indirectly through supply chains or the communities in which we operate. These risks may affect different dimensions of MODEC value chain. The table below shows potential impacts of physical risks to our business.

Potential Risks		Scenario	Business Impact	Short /Mid	Long
Acute	Extreme weather conditions	4	Partial or total interruption of our industrial activities due to extreme weather conditions and changes in weather patterns Interruption of logistics operations that support offshore activitie Damages to offshore assets and equipment Unhealthy working conditions
Chronic	Rising mean temperatures/ Changes in rainfall and weather patterns/ Rising sea levels	4	Risks of adverse effects on operating facilities, such as onshore bases and construction sites Delays in mobilize resources and in project conclusion Unprecedent and constant climate change would limit our ability to read historical data to predict impact trends that may affect our business and the possible mitigation

Opportunities: Efforts to mitigate and adapt to climate change also produce opportunities. The table below shows potential opportunities to our business. The areas of opportunity are based on the TCFD recommendations.

Potential Risks			Scenario	Business Impact
Energy sources	Use of reusable energy		1.5/4	Opening up of new opportunities in renewable energy market(such as floating offshore wind turbine)
Products/ Services	Technology	Expansion of the renewable energy business	1.5/4	Opening up of new opportunities in renewable energy market(such as floating offshore wind turbine)
		Spread of low-carbon technologies	1.5/4	New business opportunities for products and services based on carbon capture and storage technology to reduce greenhouse gas emissions from fossil fuels, increasing the sustainability of our fleet
		Developing next-generation technologies	1.5/4	Strengthening our expertise in digitalization and AI to develop new products and services beyond the oil & gas industry Increase operational efficiency to reduce energy consumption and lower costs while increase safety and sustainability in our fleet
Market	In the energy mix change		1.5/4	Alternatives to oil and gas may increase demand for renewable energy, which can increase a demand for products and services to utilize renewable energy (such as floating offshore wind turbine)
Policies, laws, regulations	Carbon pricing and carbon emission targets/ policies of each country		1.5/4	Opening up of new opportunities of low-carbon energy products and services due to the introduction of carbon pricing (Such as floating offshore wind turbine, decarbonized FPSO and digital solutions) Differentiate our FPSOs based on lower GHG emissions, more efficiency and safety by the application of green technologies and digitalization
Other opportunities			1.5/4	Forecast to expand the business related to renewable energy and low-carbon solutions can promote hiring of skilled engineers

Forecasted Impacts

We have made a preliminary evaluation on the degree of business impacts of risks and opportunities in 1.5℃ Scenario: While the market may shrink, business is expected to expand by decarbonizing technologies and new market creation.

This is our initial evaluation, and further evaluation will be implemented continuously as uncertainties associated with outcomes under the scenario are more assessed based on related information and data that may be updated or become available in the future.

Risks and Opportunities	Short and Mid Term	Long Term
Increased cost due to the introduction of Carbon Pricing		*1
Shrinkage of the market due to the decline of fossil fuel demand
Expansion of the market share because of the decarbonizing technologies for our FPSOs
New market creation by new technologies
Limitation to access finance and increased financial cost for the business related to fossil fuels

*1 It is assumed that increased cost will be borne by clients.

Targets and Roadmap

Diligently pursuing Business Model Evolution, MODEC aspires to achieve Net Zero by 2050

Stable supply of energy has been our dedicated purpose for more than half a century.
Now we take steps towards "stable" and "sustainable" supplies of energy, endeavoring to be a bridge towards the future.
By leveraging our strengths and competencies, we will play two key roles in the energy transition.

A: Continuing contributions to stable oil and gas supply by FPSOs, while minimizing GHG emissions
B: Accelerating the business model evolution to contribute to clean energy generation

Business Strategy

FPSO	"Ongoing" efforts toward stable and low emission FPSO	Asset Integrity Improvement
	"Mid-term" measures (Implementing)	Energy efficient design (e.g. combined cycle) & hydrocarbon recovery
	"Long-term" innovative measures (Developing)	Enables drastic reduction(e.g. post-combustion CCS, external power)
	Next generation MODEC hull (Current development)	Enables of “Long-term” measures
FOW	Full-scale field test is being pursued	To be ready for commercialization by 2030
	Penetration into Japan’s IPP market	400MW class wind farm formation in early 2030’s and further expansion
	Contribution to world’s floating wind industry	Leveraging floating solutions expertise & relationship with strategic clients
Digital	Contribution to MODEC FPSO’s decarbonization	Advanced analytics technology that can reduce downtime and inefficiency
Digital	Contribution to decarbonization of other companies	Improving 3rd party’s operation efficiency by application of our products
Others	Venturing into new business opportunities	Diversifying business portfolio along with the energy transition

FPSO Carbon Intensity: We set "FPSO Carbon Intensity"^* as one of strategic KPIs and aspire to reduce it drastically.

*tons-Co2e per tons-Hydrocarbon

Pathway Toward Net Zero 2050: We aspire to achieve "Net Zero^*1" by 2050 as a result of implementing above business strategy including FPSO decarbonization with significantly reduced FPSO Carbon Intensity and New Business Development.

*1 - The MODEC GHG emissions in Scope 1, Scope 2 and Scope 3 (Category 13 - Downstream Leased Assets only) are to be reduced, and residual emissions are to be offset by GHG reduction contribution through our New Business, for example, we consider generated electricity by FOW as relative reduction contribution against conventional energy.
- In parallel, we study to quantify the other Scope 3 emissions, starting from Category 1 (Purchased Goods and Services).
- In the middle of above pathway, we target to achieve net zero for scope 1 and 2 only by 2030.