Measures Against Climate Change

Basic ideas and policies

Governance

Role of board of directors and monitoring system

Sustainability is a building block for our company management, and we define our Purpose as “change society through the power of chemistry.” To this end, we have established Sustainability Vision 2030, identified material issues for sustainability including climate actions to implement the major strategies of our long-term vision, and raised awareness throughout the Company.
The Group CEO supervises the risks and business opportunities, targets, and specific initiatives associated with climate change, while the Group CSO takes responsibility for promoting actions. After being discussed at the Carbon Neutrality Project, those issues are deliberated at the Sustainability Promotion Council and the Management Committee. The progress of each initiative is regularly monitored, and remedial measures are discussed when needed.
The Board of Directors receives periodic reports of what the Sustainability Promotion Council and the Management Committee discussed, and on which points they made decisions and deliberates and supervises them from the perspective of maximizing corporate value. From 2022, we have aligned the evaluation indexes for inside directors and executive officers with the initiatives in the long-term vision and countermeasures against sustainability issues, including climate change, with the aim to strongly incentivize them to manage the Group from a long-term perspective and promote the sustainable growth of the Group.
 

Positioning of carbon neutrality project (As of June 30, 2023)

Strategies

Short-, medium- to long-term climate change-related risks and opportunities and responses to them

Amid the successful transition to a carbon-neutral society, the Group sees climate change as both a risk and opportunity. The Group will exercise its social responsibility as a company and build further competitive advantages to reduce GHG emissions across the value chain by providing products and services that contribute to decarbonization, achieving co-creation with partners, improving energy efficiency, and increasing usage of renewable energy.
Given the above, the Group analyzes risks and opportunities to evaluate the impact of climate change on the Group businesses under the following two scenarios: (1) The average global temperature will increase by 4°C or more and (2) The average global temperature rise can be kept well below 2°C and continue efforts to limit it to 1.5°C based on the Paris Agreement, which were released by the Intergovernmental Panel on Climate Change (IPCC) or the International Energy Agency (IEA). Based on the analysis, we determine the necessary countermeasures.

Transition risks affecting the Group businesses include increased operating costs due to a rise in energy taxes including carbon pricing. We aim to reduce CO₂ emissions to about 3.2 million t-CO₂ by 2030, or a 30% reduction from 4.6 million t-CO₂ in 2013. Assume that Scope 1 and 2 emissions in fiscal 2030 resulting from sales growth are estimated to be about 5 million t-CO₂, the carbon pricing is set at ¥10,000/t-CO₂ based on the IEA’s 2°C scenario (SDS)^*1 and others, and we need to offset the portion that falls short of reduction target through emission trading. In that case, if we fail to reduce emissions by 30%, the operating cost will increase by about ¥18 billion per year, implying that hitting the reduction target will lead to reducing operating costs. As a company that interrelates with society, we will continue to use other scenario analyses to contribute to realization of a carbon-neutral society in various ways, take measures against climate risks, and achieve a sustainable growth.

• *1 2°C scenario (SDS): Sustainable development scenario
• *2 Time frame: Short term: less than three years; Medium term: three to less than 10 years; Long term: 10 to 30 years
• * Adopted scenarios: 1.5/2°C scenarios (IPCC/RCP2.6, IEA/SDS, IEA/NZE [partial]), 4°C scenarios (IPCC/RCP8.5, IEA/STEPS)

Risk Management

Process to assess, identify, and manage risks

The Group conducts a scenario analysis to assess “transition risks” and “physical risks” arising from climate change for each business, identifies material risks for the Group, and then develops countermeasures against them. Material issues in identifying risks and developing countermeasures are reported to the Board of Directors. We will continue to conduct the scenario analysis to update risks and countermeasures, along with monitoring the progress of the existing countermeasures.

Integration into enterprise risk management

Given the importance of building an enterprise risk management system, the Group pursues integrated risk management using a common framework across the Group. Information on climate change and other risks with the potential to impact the Group’s management is registered in an integrated manner into our risk management system via companywide risk identification activities (as part of risk assessment procedures). Top risks, which are deemed to have a particularly high frequency or degree of impact, are deliberated by a dedicated committee (Risk Management Committee). Important matters examined by the Sustainability Promotion Council and the Risk Management Committee are submitted to the Management Committee for deliberation and decision before being reported to the Board of Directors.
 

Risk management structure (as of June 30, 2023)

Indicators and Targets

Toward carbon neutrality in 2050, upon the formation of the new company, we reviewed our GHG emissions reduction targets for 2030 in 2021 and set the target of a 30% reduction relative to the 2013 level. We will review medium- to long-term plans for each business, aiming to create a low-carbon economy. To achieve our GHG emissions reduction targets for 2030, we will further reduce our GHG emissions and promote energy conservation. Carbon neutrality will also be pursued leading up to 2050, to accomplish the goal of becoming a company that contributes to a sustainable global society as put forth by our long-term vision. In 2022, we reduced our GHG emissions by 7.3% compared to the level in 2013, due to a decrease in production volume in some products and a procurement of renewable energy.

* Given the integration of the two companies, the actual reduction has been revised. Also, we consider starting the calculation and disclosure of Scope 3 emissions from upstream activities before setting a reduction target.

In order to reduce the environmental impact associated with logistics, we are promoting a modal shift from truck to rail and ship transportation as well as making efficient use of large trucks and increasing their loading efficiency to reduce our CO₂ emissions.While transportation volume increased in 2022, CO₂ emissions remained almost the same, resulting in a year-on-year improvement in unit transportation energy consumption.