Disclosure based on TCFD recommendations
(Response to Climate Change)

Support initiative for TCFD recommendations

In February 2021, the Group announced its agreement with the TCFD recommendations. In addition to switching to electricity from renewable energy sources and increasing the sales ratio of products that contribute to the SDGs, we formed a company-wide cross-organizational task team and began full-scale efforts to disclose information based on the TCFD recommendations.

Governance

The Group has positioned the Sustainability Promotion Committee (chaired by the President & Executive Officer) as a high-level committee that formulates, deliberates, and decides on measures that contribute to the realization of a sustainable society, including the SDGs. The committee is responsible for achieving CO2 reduction targets on climate change issues, risk management, and achieving sales ratio targets for SDG-contributing products and technologies (including contributions to climate change issues). In this way, the committee is responsible for the execution of measures related to climate change response, and its supervision is the responsibility of the Board of Directors. Regular reports on climate change issues and important decisions made by the Sustainability Promotion Committee are reported to the Board of Directors by the President & Executive Officer. A TCFD Task Team was formed under the Risk Management Committee of the Sustainability Promotion Committee to work on the TCFD scenario analysis.

Sustainability Promotion Structure

Strategy (impact on the organization’s business, strategy, and financial planning)

As part of its efforts to address and strengthen its response to climate change, the Group has established Environmental Vision for 2050 (net zero), with the goals of reducing CO2 emissions by 46% (compared to fiscal 2013) by 2030, and the 2050 target of taking on the carbon neutrality challenge. We have decided to introduce electricity from renewable energy sources at all plants and laboratories in Japan from January 2022. As a result, a domestic reduction of more than 60% is expected to be reached ahead of schedule. The TCFD Task Team also led a climate-related scenario analysis project for the year 2040 (long-term), identifying potential risks and opportunities associated with climate change. We have identified the following risks and opportunities that we expect will have a relatively large financial impact.

The 1.5/2°C scenario

<Risks>

The significant risks we have identified include increased operating and transportation costs due to higher carbon prices, higher electricity prices due to advances in low-carbon technologies, and higher prices for biomass feedstocks, and higher prices for various plastic feedstocks due to higher naphtha prices resulting from lower gasoline demand.

<Opportunities>

In the current social environment, the movement of people and goods is being replaced by digital means due to incentives to avoid physical contact and the increased burden of travel costs. We think this presents opportunities to expand sales of semiconductor-related products. In addition, we will pursue new business opportunities by developing new technologies, products, and services with an eye toward a low-carbon society and a recycling- oriented economy. These include 3R + Renewable products, electric vehicle (EV)-related products such as battery materials and lightweight automotive materials, as well as food packaging films with room-temperature storage and freshness preservation functionality.

The 4°C scenario

<Risks>

Assuming that the introduction of electricity from renewable energy sources will be systematically promoted toward the 2050 goal of taking on the carbon neutrality challenge, we can foresee that the impact of transition risks, such as fluctuations in fossil fuel prices (especially crude oil and natural gas) and higher operating costs due to soaring electricity prices caused by stricter GHG emission regulations, would be greater than under the 1.5/2°C scenario.

We have also identified significant physical risks associated with rising atmospheric temperatures. These include reduced sales due to supply disruptions of key raw materials and the shutdown of operations at our own manufacturing sites that could be caused by the occurrence or increased frequency of extreme weather events, such as cyclones and floods.


<Opportunities>

Sales of various sheeting products for building materials and waterproof sheeting products and services are expected to increase amid the promotion of efforts to build resilient cities that can withstand extreme weather conditions and major disasters. These include building materials and waterproof roofing sheet products that are lightweight, highly durable, impact resistant, highly insulating/heat shielding, fire-resistant, and have other functions. Due to severe environmental changes, including rising atmospheric temperatures, demand for packaging materials for long-term preservation of foods and processed foods is expected to increase as the numbers of livestock used for meat decreases, and as demand for packaging materials for fruits and vegetables is expected to increase with declines in crop yields, leading to higher sales of various packaging film products.

With regard to diseases and mobility restrictions associated with climate change, we anticipate increased need for home care, including treatment and medication, and increased opportunities for diagnosis at local hospitals and immediate remote diagnosis at home (Point-Of-Care Testing, or POCT) for infants and the elderly, who are particularly sensitive to rising atmospheric temperatures. We expect to expand our healthcare business, including various medical devices and diagnostics, and our medical device and pharmaceutical packaging business. By further improving the performance and environmental adaptability of these products, we will contribute to solving social issues on a global scale. The GHG emission reduction targets for 2030 and 2050 will be implemented as a response to the carbon price increase, tighter GHG emission regulations, and changes in fossil fuel prices (these are identified as risks in the 1.5/2°C or 4°C scenarios). We will work to accomplish these efforts ahead of time as we convert long-term transition risks into short- and medium-term business opportunities to expand sales.


Based on the three-year Medium-term Business Plan starting from fiscal 2021, the Sustainability Promotion Committee and Risk Management Committee will play a central role in fiscal 2022 (by backcasting from the results of this scenario analysis) to materialize short-term measures, which will be deployed to relevant internal departments and implemented and promoted with speed. In the medium- to long-term, we will update our scenarios and financial impact estimates as appropriate in light of changes in the macro environment, and work to enhance corporate value through the development of new technologies and products that contribute to a low-carbon society and a recycling- oriented economy. We will also work to enhance the sophistication of our management strategy by reforming our foundational organizational culture and strengthening our human resources.

The 1.5/2°C scenario analysis

Drivers Plausible scenario components
(world developments)
Our Group impact Impact assessment Risks
Opportunities
Policies & regulations Carbon price increase
• Carbon price rise
<Carbon prices under the 1.5°C scenario
(advanced industrial nations)>
2030: 130USD/t- CO2
2040: 205USD/t- CO2
(2021 IEA World Energy Outlook)
• Increase in operating costs due to higher manufacturing energy costs
Risks
• Transport cost increase
Risks
Market Low-carbon technology progress
• Higher electricity prices due to greater demand for electricity from renewable energy sources
• Operating cost increase
Risks
• Rising prices of raw materials due to increasing demand for biomass-derived raw materials
• Soaring prices of biomass feedstock
Risks
Reduced demand for gasoline associated with low-carbon technology progress
• Naphtha gains status as a main product, rather than its conventional by-product status
• Along with gasoline and diesel, naphtha is in stable supply, but prices are rising
• Increase in purchase and procurement costs due to higher naphtha prices
Risks
Digital alternatives to the movement of people and goods
• Carbon taxes and GHG emission regulations make movement of people and goods more costly
• Increased demand for semiconductors used in digital devices
• Sales increase due to sales expansion of semiconductor- related products
Opportunities
Low-carbon technology progress
• Resource recycling requirements from customers
• Accelerate switchover to 3R + Renewable (sustainable resource) related products
• Sales increase due to expanded sales of low-carbon products and services
Opportunities
Increased demand for low-carbon technology products
• Shift to a low-carbon society
• Tightening of carbon tax and GHG emission regulations
• Progress in development of CO2 transport technologies sensitive to economic efficiency, and infrastructure buildup
• Sales increase due to expanded sales of low-carbon products and services
Opportunities
Increased EV-related demand (Battery materials, lightweight automotive materials)
• EVs steadily increase as a percentage of total vehicle sales volume
• Sales increase due to expanded sales of products/services for EVs
• Increased sales of lightweight automotive materials
Opportunities

The 4°C scenario analysis

Drivers Plausible scenario components
(world developments)
Our Group impact Impact assessment Risks Opportunities
Market Fossil fuel price fluctuations
• Crude oil and natural gas prices rise
Crude oil 2019: 63USD/barrel
→ 2030: 77 → 2050: 88
Natural gas Japan 2019: 10.1USD/barrel
→ 2030: 8.5 → 2050: 8.9
Decrease in Japan. Increases in other regions (2021 IEA World Energy Outlook)
• Increase in raw materials costs due to higher purchase and procurement costs
• Increase in operating costs due to higher manufacturing energy costs
Risks
Physical risk: Acute Cyclones, flooding and other extreme weather events increase in frequency and severity Intensifying and increasing frequency of cyclones, torrential rains, floods, droughts, etc.
• Major raw material suppliers: Operations suspended
• In-house manufacturing sites (domestic and overseas): Operations suspended
• Reduced sales due to temporary suspension of operations
Risks

Resilient urban development promoted
→ Increased demand for building materials and industrial materials resistant to natural disasters (Examples of required functions: lightweight, highly durable, impact resistant, highly insulating/ heat shielding, fire-resistant)

• Increase in sales of various sheeting products for building materials and waterproof sheeting products and services
Opportunities
• Decrease in meat livestock → increased demand for packaging materials for long-term preservation of foods and processed foods
• Decrease in crop yields → Increased demand for fruits and vegetables packaging materials
• Increase in sales of various packaging film products
Opportunities
Infectious diseases/ rising temperatures leading to illness and restrictions on mobility
• Increased need for diagnosis at local hospitals, homes, remote diagnosis
• Increased healthcare treatment opportunities for young children and the elderly who are sensitive to environmental changes (diagnosis and treatment) → Point-Of-Care Testing (POCT)/ increased demand for medical devices
• Expanded sales of healthcare products/increase in sales
• Increased demand for pharmaceutical packaging
Opportunities

Risk management

The identification and approval of major risks in our group is conducted annually according to the following process.

  • The Risk Management Committee collects responses to the Major Risk Identification Questionnaire from the supervising officer of each business department and individual risk management department. Response entries include the nature of the risk, the impact if the risk materializes, the likelihood of occurrence, the degree of impact, and the current major responses undertaken as a business unit or individual risk management department. Interviews are also held with the president.
  • Among the risks identified in the Major Risk Identification Questionnaire, those with high risk values, calculated by multiplying the impact and likelihood of occurrence, are designated as candidate major risks. The Risk Management Committee then creates a risk map, selects and approves major risks, and reflects them in the next fiscal year’s response plan for major risks.
  • The Sustainability Promotion Committee approves the major risk selections and the plans to address them, then reports to the Board of Directors.

Selection levels for probability of occurrence

Levels Guidelines for selecting the level of likelihood of occurrence
Likelihood of occurrence Low Approximately once every 100 years to once every 10 years
Likelihood of occurrence Moderate Approximately once every few years to once every year
Likelihood of occurrence High Twice or more each year

Guidelines for selecting level of impact

Levels Guidelines for selecting the level of impact (If more than one of the following applies, select the item with the highest level of impact)
Monetary impact Human life Reputation Impact on operations
Level of impact Low to ¥50 million Injuries or illnesses requiring medical attention occur Resolved through routine daily management Affects operations for a few days at one location only
Level of impact Moderate ¥50 million to ¥1 billion Injuries or illnesses requiring hospitalization occur Minor (negative) coverage in conventional and online mass media Trust is partially diminished among business partners and consumers Affects operations for several weeks at one location only Affects operations for a few days at multiple locations
Level of impact High ¥1 billion or more One or more deaths occur Numerous cases of injury and/ or sickness occur Major (negative) coverage in conventional and online mass media
Trust is considerably diminished among business partners and consumers
Affects operations for several months at one location only Affects operations for several weeks at multiple locations

The six major risks selected for fiscal 2021 are: (1) disasters, accidents and pandemics, (2) raw material supply problems and price fluctuations, (3) product quality, (4) measures to reduce environmental impact, (5) compliance with laws and regulations, and (6) information security incidents. Of these, the risks associated with climate change are (1) disasters, accidents and pandemics, (2) raw material supply problems and price fluctuations, (4) measures to reduce environmental impact, and (5) compliance with laws and regulations. As we move forward with the TCFD scenario analysis, we will consider our impact evaluation in accordance with the above process.

Metrics and targets

We will respond to the risks identified in the 1.5/2°C and 4°C scenarios, such as carbon price increases, stricter GHG emission regulations and fluctuations in fossil fuel prices by proceeding with the GHG emissions reduction targets of a 46% reduction of CO2 emissions (compared to fiscal 2013) by 2030, and taking on the challenge of carbon neutrality by 2050.
With regard to the development of new technologies and products that contribute to a low-carbon society and a recycling-oriented economy included in these opportunities, the Group decided in fiscal 2018 to incorporate the SDGs as one of its corporate policies and started a certification system for SDG-contributing products, technologies and activities in fiscal 2019. Contributing to the response to climate change (measures to counter global warming, reduce environmental impact, etc.) is part of the opportunity to achieve the goals of the SDGs, and we hope to contribute to a sustainable society through our business.

With the aim of providing products and technologies that contribute to the SDGs, the Corporate Planning and R&D departments, among others, examine R&D and sales strategies, then incorporate them into specific goals and plans to manage progress. Although we were working toward a goal of increasing the ratio of revenue from SDG-contributing products to sales to 30% in fiscal 2021, our actual result for fiscal 2020 was 37.2%. Having achieved our target one year ahead of schedule, the Sustainability Promotion Committee has decided to set a new target value of 50% or greater for our fiscal 2023 ratio of revenue from SDG-contributing products, and we are proceeding with these activities.

Moving forward, we will undertake a series of initiatives that will contribute to the sustainable enhancement of corporate value. We will periodically confirm and update the risks and opportunities identified in our climate-related scenario analysis with an eye to changes in the external environment and market conditions, and will fulfill our responsibility for accountability by disclosing information to stakeholders as appropriate upon quantifying the financial and other impacts, and specifying and enhancing Metrics and targets.

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