Business Risk

As a business that relies on city gas manufacturing and supply facilities, large-scale natural disasters could damage production (e.g., LNG terminals) and distribution infrastructure, potentially disrupting city gas supply and incurring restoration costs that may impact financial results.
To address this, main facilities are constructed to withstand major earthquakes like the Great Hanshin-Awaji and Great East Japan Earthquakes, and additional measures are in place to prevent secondary disasters. We have established a Business Continuity Plan (BCP) to address large-scale seismic events as assumed by the Cabinet Office as well as emergency systems for earthquakes, typhoons, tsunamis, and volcanic eruptions of Mt. Fuji. Regular training and resilience measures to counteract recent severe typhoons and water-related disasters are also implemented to minimize the impact of such events.

Given the essential nature of our city gas production, supply, and power generation businesses, major gas leakages, explosions, or supply disruptions could result in both tangible and intangible losses, including societal responsibility, and could materially affect business performance.
If power generation is disrupted, market-based electricity procurement as a substitute could result in increased costs. The Group has developed BCPs for large-scale gas supply disruptions, conducts planned safety protocols, maintains an emergency response framework, and regularly conducts drills to mitigate such risks. Furthermore, the existence of multiple mutually supportive LNG terminals reduces the likelihood of total supply stoppage.

In pursuit of a decarbonized society, we have expanded renewable power sources including solar and biomass. While we implement planned inspections, repairs, and safety measures, unforeseeable technical challenges, natural disasters, or output curtailments beyond initial assumptions may increase countermeasure costs or reduce capacity utilization, leading to decreased sales and impact on financial performance.
To address these risks, we are engaged in technical collaborations with experienced industry players, maintaining spare modules and power conditioners at selected solar sites, and enhancing resiliency with equipment upgrades and security systems.

If serious infectious diseases affect Group employees and hinder city gas production, supply, or power generation, this could impact financial results and cause tangible and intangible losses, including the incurrence of societal responsibility.
Though it is difficult to predict outbreaks, we implement BCPs and emergency response frameworks to minimize potential adverse effects.

Strengthening the supply chain is a critical management issue. To mitigate risks from supplier’s financial deterioration, labor shortages, geopolitical tensions, or natural disasters, we conduct an inventory and risk assessment of key components and diversify procurement, stock minimum essential inventories, and verify alternative materials as needed.
We also implement a "Sustainable Procurement Guideline" incorporating perspective of human rights due diligence and "Partnership-Building Declaration" aiming for mutual prosperity in the supply chain, to ensure a robust and sustainable supply chain to address supply chain risks.

With overseas expansion under "Tokyo Gas Group Medium-term Management Plan for FY2026-2028", fluctuations in crude oil, gas, power prices, and exchange rates can significantly affect our results.
Notably, with the acquisition of a natural gas E&P company through TG Natural Resources in December 2023 and entrance into a shale gas joint development agreement with Chevron in March 2025, exposure to Henry Hub gas price fluctuations has increased. We are striving to stabilize earnings through hedging, cost reductions, securing stable offtake, and expanding business across the midstream and downstream in the US. Furthermore, we will seek to secure stable earnings by investing in growing LNG infrastructure in the Asia-Pacific region.

Given that the majority of consolidated revenue comes from city gas and electricity sales, abnormal weather (e.g., heatwaves or warm winters) can cause sales volumes to fluctuate, affecting business performance.
We seek to rebalance our business portfolio through increased industrial/co-generation sales, which are less affected by weather, as well as through expansion in LNG trading, solutions, overseas and urban development businesses as stated in our 2026-2028 Medium-term Management Plan.

Intensified competition, commodity price fluctuation, and institutional/consumer shifts driven by decarbonization could cause LNG to lose competitiveness, leading to lower demand and negative financial impact.
To address this, the Group is committed to enhancing our competitiveness by promoting high-efficiency, eco-friendly, and high-comfort gas equipment, while driving cost reductions through thorough operational streamlining. Simultaneously, we will rebalance our business portfolio by expanding LNG trading, solutions, overseas and urban development businesses.

Ongoing liberalization and unbundling in the gas and electricity sectors continue to reshape the operating environment. Future policy directions and competitive developments could significantly impact the Group’s business performance.
To adapt, we focus on maximizing efficiency and competitiveness in gas, simultaneous expansion and efficiency in electricity, and developing new business pillars under the "IGNITURE" solutions brand.

Regarding climate change, while the influence of the Trump administration in the U.S. and recent geopolitical tensions in the Middle East have caused a short-term shift in the global momentum toward decarbonization, we believe it is essential to maintain our efforts from a medium- to long-term perspective.
As outlined in our Carbon Neutral Roadmap 2050, in the near term, we are preparing for the decarbonization of our gas and electricity businesses by continuing to promote the advanced utilization of natural gas while also fostering the use of decentralized resources like renewable energy. We are also developing a city gas tariff menu that qualifies for a zero adjusted emission factor under Japan's Mandatory GHG Accounting and Reporting System (the SHK System).

Looking ahead to the 2030s, we will implement and scale up decarbonization technologies. We aim to reduce our CO₂ emissions by 60% by 2040 compared to fiscal year 2022 levels, and to make 50% of the gas and electricity we supply to domestic customers carbon neutral. These efforts are all part of our commitment to achieving full carbon neutrality by 2050.
With the full-scale launch of the GX-ETS this fiscal year, the Group will take appropriate action in accordance with the government-defined BM and GF frameworks, particularly for our target entities: Tokyo Gas Engineering Solutions, Kawasaki Natural Gas Power Generation, and Ohgishima Power. In doing so, we remain committed to driving the progress of Green Transformation (GX).

Medium-to-long-term trends in energy conservation and structural changes may lead to a reduction in industrial and commercial city gas demand, and household demand may also decline due to demographic and lifestyle shifts, and adoption of energy-saving appliances.

We are expanding decarbonization-related solutions as stated in "Compass2030" and the 2050 Carbon Neutral Roadmap to lead the shift to a carbon neutral society and establish new earnings bases alongside gas and power.

Liberalization and technological innovation could intensify competition for existing gas products and erode competitiveness. Policy or institutional changes could further worsen the competitive landscape.
Following "Compass2030" and the Carbon Neutral Roadmap 2050, we seek to accelerate the shift to carbon neutrality, build co-creation ecosystems, expand market reach through digital marketing, and provide solutions leveraging both physical and digital strengths, especially in low- and zero-carbon products.

The Group bears safety responsibility both for city gas supply and usage by end appliances. Any accidents arising from supply or appliances could result in direct and indirect losses.
We remain committed to safe gas use through consistent safety inspections at gas activation and periodic maintenance, as well as the promotion of residential gas alarms and commercial kitchen safety enhancements. As a result, serious accidents involving gas have been steadily decreasing.

Inadequate customer service can rapidly spread via social media, resulting in brand image deterioration and both tangible and intangible damages, such as the loss of existing customers, decline in competitiveness, and adverse financial impact.
We are driving group-wide improvements in CS by promptly sharing customer feedback with the relevant departments and implement effective actions.

Should we lag behind competitors in developing or adopting technologies necessary for future CO₂ reductions, we might be unable to benefit from new technologies or might face higher intellectual property or alternative technology costs, ultimately affecting competitiveness and medium- to long-term performance.
To lead a seamless transition to a carbon-neutral society, as outlined in our Carbon Neutral Roadmap 2050, we are driving decarbonization with a two-pronged strategy, introducing RNG and e-methane (synthetic methane) for our gas business and expanding renewable energy for our power business. To accelerate the widespread adoption of these solutions, we are leveraging the Green Innovation Fund to pursue several key technological advancements. We aim to:

-Develop innovative and highly efficient methanation technology that significantly surpasses conventional methods.
-Establish continuous manufacturing and construction techniques for floating foundations used in offshore wind power.
-Develop advanced cell stacks for water electrolysis to enable the production of low-cost green hydrogen.
Furthermore, we strategically leverage open innovation with a strong focus on speed and intellectual property (IP) management. We routinely monitor and visualize the progress of both our in-house development and our integration of external expertise, ensuring the timely and effective management of these initiatives.

In light of the declining birthrate, aging population, and shifting labor market conditions, we may face challenges in securing the necessary workforce, which could potentially impact our business operations.
To address this, wee reinforce human resource development for essential tasks through education/training programs, digital transformation for improved efficiency and productivity, and creating a work environment that supports diverse working styles, thereby mitigating talent shortages and ensuring operational stability.

If accidents or serious issues related to gas production, supply or consumer appliances occur, or if other infrastructure or system failures, occupational accidents, or natural disasters arise during our business activities, there is a possibility that the Group could incur both tangible and intangible loss.

To mitigate these risks, we are committed to ongoing efforts during normal times to enhance city gas disaster prevention measures and improve the safety of gas equipment. We also conduct through facility maintenance, ensure stable system operations, and maintain rigorous safety and health standards. Furthermore, we strive to inform customers, government authorities, and the media about our safety initiatives and the proper, safe, use of gas. In the event of an accident or disaster, we will collaborate with relevant organizations and ensure the timely and appropriate disclosure of information to promote stakeholder understanding and reduce public concern.

AI integration is a core pillar of our Digital Transformation (DX) strategy. By fundamentally reinventing our existing operations and launching new AI-driven business models, we are successfully boosting profitability. However, we recognize that the improper handling of AI input data or outputs could lead to legal and compliance breaches, potentially damaging our brand reputation and impacting our financial results.

To mitigate these risks, we have focused on balancing effective AI utilization with risk management since the early stages of adoption. We have established a clear AI Policy and implemented specific guidelines to address the unique challenges posed by AI. As the technology evolves and its applications expand, we continue to strengthen our governance by updating our guidelines, refining our internal review processes, and providing training to enhance employee AI literacy. Through these initiatives, we are fully committed to the practice of "Responsible AI."

Any leakage of customer personal information could cause direct costs as well as intangible damages such as loss of trust and brand image, potentially impacting business results.
Accordingly, we have built a group-wide information security framework, strengthened governance and education, conducted regular self-audits, clarify escalation protocols for incidents, and monitor security rigorously. Technical measures are in place to prevent personal data breach and minimize the impact of such security incidents.

Core business IT system failures may reduce or delay customer service, breach commitments, impair brand image, and lead to additional costs for alternative operations. IT system outages and malfunctions can be caused by a variety of factors, such as defects in software, operating systems, databases, or hardware.
To minimize such risks, we maintain robust, disaster-hardened data centers and cloud services, regular security reviews, and conduct periodic training. Should issues arise, we thoroughly investigate root causes, share findings, and review all systems as needed. City gas supply systems are protected by dedicated backup and independent radio systems, minimizing the risk of supply disruption due to IT outages.

Cyberattack risks, including increased sophistication and complexity, are rising. Such incidents could result in leakage of personal information, core business IT system failures, and cessation of city gas or power generation control systems, all with significant tangible and intangible losses and major financial impact such as stagnation in customer support, an erosion of trust from severely affected customers, and damage to our Group's brand reputation.
We have strengthened cross-functional governance, expanded group-wide controls, and conducted regular security and incident response training. We comply with relevant laws, such as the Basic Act on Cybersecurity and the Economic Security Promotion Act, maintaining readiness as a critical infrastructure operator and taking measures to minimize effect of cyber-attacks.

As we expand our overseas business, the risk of compliance violations is becoming increasingly prominent. This is driven by rising social awareness of corporate integrity, alongside the tightening and increasing complexity of legal regulations worldwide. Any inappropriate conduct, disclosure failure, or violations of social or ethical norms could result in both direct and indirect losses, damaging business performance.
We emphasize compliance as a management foundation. Under the leadership of the President-chaired Corporate Ethics Committee, a group-wide compliance action plan is implemented, ensuring adherence through internal audits and ongoing educational activities.

Respecting human rights is a critical management issue, with increasing international awareness—especially for companies expanding overseas. Failure to adequately address risks in the supply chain may result in lawsuits and a loss of social credibility, with subsequent financial consequences.
We have established the "Tokyo Gas Group Human Rights Policy" based on UN Guiding Principles, reinforcing due diligence measures and risk identification and preventing and mitigating such human rights issues. We strive to address human rights throughout the supply chain by updating the "Sustainable Procurement Guideline", conducting surveys, and improving remedies.

Profitability may be affected by the outcome of contract renewals or price negotiations with LNG suppliers, as LNG prices are primarily linked to crude oil prices and settled in US dollars, meaning both oil price and exchange rate fluctuations impact financials.
Events such as increased demand beyond long-term contracted volumes, reduced demand due to economic slowdowns (including pandemics and geopolitical risks), transport or shipping issues, or delays in new LNG project supply can necessitate spot procurement or resale at prevailing market prices, further affecting results.
We address these risks by diversifying supply sources and contract terms and by strengthening global LNG trading capabilities. Additionally, under the Gas Rate Adjustment System, up to a five-month lag, raw material cost changes are reflected in gas pricing. However, if the average adjusted cost exceeds the adjustment cap, excess costs may become unrecoverable. Timing mismatches across fiscal years may also impact reported earnings.

Fluctuations in electricity and LNG prices can affect business performance. We engage in comprehensive market risk management on both the demand and supply sides.

Changes in the market value of assets, including real estate, holdings equities, and other securities, or underperformance of pension assets due to economic shifts may result in recognized losses as per accounting standards. Interest rate fluctuations may also increase interest payments on interest-bearing debt.
We seek to mitigate such losses by focusing on long-term stable income-producing real estate, selling less strategically significant equity holdings, and practicing diversification in pension asset investments. Furthermore, most of our interest-bearing debt is at fixed rates and maturities are staggered, limiting the impact of interest rate changes.

All investments, whether in facilities, equity, loans, or guarantees, undergo profitability and risk assessments by the Investment Evaluation Committee and are further discussed and decided in the Executive or Board meetings based on the results.
However, large-scale investments to reinforce the supply base (e.g., pipelines, LNG terminals), power business, renewables, energy services, overseas resources and transport, IT, or large real estate undertakings may, due to changing economic conditions, fail to yield intended benefits or may result in special losses impacting the bottom line.
We closely monitor economic trends and reflect any short- and medium-term risks of unrecovered investments in the financial results as necessary.