Strategy (aligned with TCFD recommendations)

Risk Importance Assessment

As a preliminary step in selecting a set of climate change scenarios, we referred to the types of climate-related risks in the TCFD recommendations and extracted risks and opportunities that could potentially affect our group's business.

1. Transition Risks
   1. Policies/Legal Regulations
      • carbon price
        • Increased raw material prices due to the introduction of a carbon tax (steel, rubber, glass, etc.)
        • Importance: High, Occurrence period: Between 3 and 5 years
      • Orders and regulations on existing products and services
        • Sales of existing products decline due to GHG emission regulations.
          • Importance: High, Occurrence period: Between 3 and 5 years
        • Increased development costs to comply with GHG emission regulations
          • Importance: Medium, Onset time: Within 3 years
      • Stricter regulations in the shipping industry
        • Rising shipping costs due to the passing on of the costs of building new low-GHG vessels and acquiring emission credits.
          • Importance: High, Occurrence period: Between 3 and 5 years
   2. technology
      • Existing products and services are being replaced with those that produce fewer GHG emissions.
        • Sales of existing products decline due to GHG emission regulations.
          • Importance: High, Occurrence period: Between 3 and 5 years
      • Transition to low GHG emissions
        • Increased development costs to comply with GHG emission regulations
          • Importance: Medium, Onset time: Within 3 years
   3. market
      • Rising energy prices
        • Increase in factory operating costs
          • Importance: Low, Onset time: Within 3 years
      • Changing customer behavior
        • Sales of existing products decline due to a shift in demand towards low-GHG products.
          • Importance: High, Occurrence period: Between 3 and 5 years
   4. reputation
      • Stakeholder reputation
        • Delays in addressing climate change lead to stock price down, capital cost increase, and difficulties in securing talent.
          • Importance: Medium, Onset time: Within 3 years
2. Physical Risks
   1. acute
      • The increasing severity and frequency of extreme weather events
        • Increase severity of natural disasters leads to disruptions in supply chains, production stoppages, and lost sales opportunities.
          • Importance: Medium, Onset period: Between 3 and 5 years
   2. chronic
      • Rising average temperatures, rising sea levels
        • Rising temperatures are making work at construction sites more difficult.
          • Importance: Low, Occurrence period: Between 3 and 5 years
3. Opportunity
   1. Reducing energy consumption through the introduction of energy-saving equipment.
      • Importance: Low, Occurrence period: Between 3 and 5 years
   2. Sales of low-GHG products are expanding due to GHG emission regulations.
      • Importance: High, Occurrence period: Between 3 and 5 years
   3. Increased sales of low-GHG products due to a shift in demand for low-GHG products.
      • Importance: High, Occurrence period: Between 3 and 5 years
   4. Increased demand for products due to the rise in disaster recovery and disaster prevention construction projects.
      • Importance: Medium, Onset period: Between 3 and 5 years

• External information referenced in the definition of the scenario group
  • Intergovernmental Panel on Climate Change (IPCC) "Sixth Assessment Report (AR6) SSP1-1.9 Scenarios, SSP3-7.0 Scenarios"
  • International Energy Agency (IEA) "World Energy Outlook 2021 (WEO-2021) NZE Scenario, STEPS Scenario"
• 1.5°C Scenario: A scenario with a significant impact from policy transitions.
  • Introduction of a carbon tax and strengthening of taxation.
  • Exhaust gas regulations, GHG emission regulations, etc. have been significantly strengthened.
  • Raw material costs and ocean freight rates are soaring.
• 4°C Scenario (Current Trend): Scenario with significant physical impacts
  • There will be no significant tightening of regulations.
  • Damage caused by extreme weather events such as typhoons, hurricanes, and floods is expanding.

Business Impact Assessment, Definition of Countermeasures

Using a logic tree, we have organized the progression of climate change impacts and corresponding countermeasures for each scenario. The Paris Agreement has established an international consensus to keep the global average temperature increase well below 2°C above pre-industrial levels and to strive to limit it to 1.5°C or less, leading to increased social interest in and expectations for companies' response to climate change. Although climate change occurs over the medium to long term, making predictions highly uncertain, we will accept this uncertain and wide-ranging future, consider the impact of climate change on our business and countermeasures, and incorporate resilience (flexibility and toughness) into our management to enable flexible responses.

In this scenario analysis, we quantitatively calculated the business and financial impacts. We quantitatively evaluated the likelihood and timing of risk materialization, as well as its importance if it materializes, and classified the impact into large, medium, and small.
 

* The degree of impact is as follows:
Large: Over 2 billion JPY
Middle: Between 500 million yen and less than 2 billion JPY
Small: Less than 500 million JPY
-: No impact, or minor impact.