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.

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.

Our LNG terminals are supplied with highly reliable power systems, making power supply interruptions unlikely. Nonetheless, depending on gas demand and facility conditions, production and supply could be affected, impacting business performance.

We have drawn up BCPs anticipating large-scale blackouts in the Kanto region and have taken measures to minimize disruptions. Should commercial power be lost, gas demand is expected to decrease, and gas supply can be maintained at a certain level with in-house generation. Multiple LNG bases enable mutual support, ensuring continued production even if one base is offline.

Furthermore, as gas regulators are powered by gas pressure rather than electricity, city gas supply can be maintained even during major blackouts. Monitoring and disaster-response facilities use commercial power, but in the event of a power outage, they switch to backup power and remain operational.

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.

Although difficult to foresee, accidents at other companies could significantly damage public trust in the industry, causing tangible and intangible losses.

We reinforce disaster prevention and appliance safety measures and proactively communicate our initiatives and safe usage practices to customers, authorities, and media. In the event of an incident, we strive for transparent and accurate disclosure to ensure stakeholder understanding.

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.

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

a. Decreased Demand Due to Intensified Competition
Full liberalization of the gas retail market, intensified competition, crude oil 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 promotes the adoption of environmentally friendly, efficient, and comfortable gas equipment, strengthens the sales structure, and pursues operational efficiencies to enhance competitiveness.

b. Raw Material Cost Fluctuations
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), 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 Fuel 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.

c. Legislative, Regulatory, and Policy Changes
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.

d. Demand Fluctuations Due to Weather Conditions
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 solutions, real estate, and overseas businesses as stated in "Compass2030" and our 2023-2025 Medium-Term Management Plan.

e. Decline in Existing Demand Due to Changes in Business Environment
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.

f. Delays in Technological Development
Should we lag behind competitors in developing or adopting technologies necessary for future CO₂reductions, 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 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.

g. Supply Chain Risk
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 and diligence and "Partnership-Building Declaration" aiming for material prosperity in the supply chain, to ensure a robust and sustainable supply chain to address supply chain risks.

h. Human Resource Shortages
We reinforce human resource development for essential tasks through cooperation with partner companies, 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.

With overseas expansion under "Compass2030", 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 in December 2023 and a shale gas joint development agreement 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. By diversifying into LNG infrastructure and renewables, we further diversify risk. We also pay close attention to US policy developments to further mitigate risk.

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.

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.

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. Following a July 2024 cyber incident at a subsidiary, we implemented further employee education and technical reviews.

Core 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, 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 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.

Increasing social awareness of corporate compliance worldwide heightens the risks, including in overseas operations. 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.

Global trends toward decarbonization could reduce the competitiveness of fossil fuels, impacting our financial performance.
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. Furthermore, we are considering our approach to the GX-ETS (Green Transformation-Emissions Trading System), which is scheduled for full-scale operation from fiscal year 2026.

Additionally, 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.

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 prioritize CS as a key management issue, rapidly sharing customer feedback with relevant departments and implementing improvement actions company-wide.

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.

The Company has 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" (Revised March 2024), conducting surveys, and improving remedies.

A Human Rights Awareness Promotion Committee, chaired by the Compliance Officer, is responsible for annual human rights awareness plans and activities.

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