Information Disclosure Based on TCFD Recommendations

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In July 2020, our group endorsed the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).
Based on the TCFD recommendations, we disclose important information related to climate change as outlined below.

Governance

Our group is aware that climate change and other environmental issues are serious business issues.
Our management direction related to climate change is reviewed and monitored at the CSR and Sustainability Committee chaired by the President, which is held twice a year with the attendance of all directors, including outside directors. For detailed activities, the Environmental Committee (twice a year), which is subordinated to the CSR and Sustainability Committee, checks progress towards the targets and confirms issues to be addressed in order to make continuous improvement. Furthermore, risks associated with climate change are assessed in light of company-wide risk management at the Risk Management Committee (twice a year).

Examples of what was discussed and determined in terms of climate change

  • Approval of the priority issue (materiality): “CO Emissions: 30% Reduction [compared to that of 2018] (FY2030)”(CSR and Sustainability Committee in March 2020)
  • Endorsement of the TCFD recommendations (Corporate Management Committee in July 2020)
  • Approval of “Eco Vision 2030”(Environmental Committee in March 2021)
  • Approval of “Aiming for carbon neutrality in 2050”(CSR and Sustainability Committee in March 2021)

Strategy (Risks & Opportunities)

Climate-related risks

With regard to climate-related risks, we examined the following risks according to the TCFD risk categories: risks related to the transition to a lower-carbon economy, which may emanate mainly in the course of a 2℃ scenario; and risks related to the physical impacts of climate change, which may emanate under a 4℃ scenario without achieving global targets for reducing CO2 emissions.

< Main scenarios and projections used in the study >
2℃ scenario: IPCC RCP2.6, IEA ETP 2DS, etc.
4℃ scenario: IPCC RCP8.5, IHS Markit Automotive "Mobility and Energy Future" service data, etc.

The three terms used below, “short term,” “medium term” and “long term,” have the following meanings:
 Short term: until around 2025 in line with the target year of our medium-term management plan
 Medium term: until around 2030 in line with the target year of our long-term management plan
 Long term: until around 2040 in line with the vison of our long-term management plan

Risk item Business impact (risk) Assessment
(impact)
Timing of the impact
Risks related to the transition to a lower-carbon economy Policy and legal Carbon tax ・If a carbon tax is introduced, taxes levied on fuel will increase procurement costs, resulting in a rise in the costs of energy and raw materials. Large Short to long term
Carbon border tax ・If a carbon border tax is introduced, taxes will be levied on products to be exported, resulting in the reduction in the cost competitiveness of the products. Large Short to long term
Regulations on carbon emissions ・The achievement of GHG reduction targets will be required, resulting in increases in the costs of, for example, making capital investments and purchasing electricity generated from renewable energy sources. Large Short to long term
Sale of gasoline-powered vehicles ・In countries that ban the sale of gasoline-powered vehicles, OEM demand will disappear, resulting in a decrease in sales. Large Medium to long term
Technology Proliferation of energy-saving and renewable-energy technologies ・The introduction of new energy-saving and renewable-energy technologies will increase the cost of, for example, making capital investments. Medium to large Short to long term
Development of new technologies ・Expenditures on the research and development of new technologies will increase. Large Short to long term
Market Shift in customer preferences ・After the 2030s, the number of people who choose ZEVs even as used cars will increase, resulting in a decline in demand for spark plug replacement and eventually a decrease in sales.
・Products that emit less CO2 in their life cycle will be chosen, resulting in a decrease in the sales of conventional products.
Large Long term
Reputation Shift in investor preferences ・Investors’ opinions will turn against internal combustion engines, resulting in divestments. Small to medium Medium to long term
Shifts in job-seekers’ preferences ・Job seekers’ opinions will turn against internal combustion engines. Accordingly, job seekers will not choose us as their place to work. Small to medium Short to medium term
Risks related to the physical impacts of climate change Acute Increased severity of extreme weather events ・Typhoons and other extreme weather events will cause damage to plants and other facilities, resulting in shutdown or a decrease in production. Furthermore, additional costs will be incurred to restore equipment. Non-life insurance premiums will also increase. Small to medium Short to long term
Chronic Sea level rise ・Rising sea levels will increase the risk of flooding and storm surges. Plants and transport infrastructure located in coastal areas will be damaged and supply chains will be broken, resulting in the extra costs of addressing these problems. Small to medium Long term
Changes in precipitation patterns and variability in weather patterns ・Plants in areas facing severe water shortage will be forced to shut or slow down operations due to limitations on water usage, resulting in the cost of shifting production to other plants, increased transportation costs and the like. Small to medium Long term
Rising mean temperatures ・Employees who work in extreme heat will frequently get heat stroke. To reduce their increased physical burden, the cost of dealing with extreme heat and labor costs will increase. Small to medium Long term

For our key business bases, we carried out a risk potential assessment in terms of flooding, drought, storm surges and the like under the present circumstances. In consideration of expected damage severity and frequency, it has been found that severe damage is unlikely to occur.
We will continue to keep track of physical risks by, for example, making an assessment with consideration given to changes in future risks, and take measures when necessary.

Climate-related opportunities

With regard to climate-related opportunities, we examined, according to the TCFD categories, opportunities for management reform to be accomplished through efforts to mitigate and adapt to climate change.

Aspect Major opportunity
Resource efficiency ・The increasing adoption of new energy-saving and renewable-energy technologies will reduce energy costs.
Energy source ・The increased demand for hydrogen as a fuel exempt from carbon tax will provide new opportunities in the hydrogen energy market.
Products and services ・To conform to fuel efficiency regulations, demand for high value-added products will increase.
・The hydrogen energy market is expected to grow due to mandatory reduction of GHG emissions. Increased demand for hydrogen technologies and SOFCs will provide business opportunities.
・In disaster preparedness, local consumption of locally-produced energy (distributed power generation) will receive attention, resulting in increased demand for SOFCs.
Markets ・The development of new climate-related technologies that meet social needs will provide business opportunities.
Resilience ・In disaster preparedness, the continuous reinforcement of the BCM and BCP of our group, including our supply chain, will help enhance our resilience.

Business risks, opportunities and responses under the climate-related scenarios

To further clarify climate-related risks and opportunities, we examined business environments and responses by business type under both 2℃ and 4℃ scenarios.

As a result of our examination, no existential impact from physical risks has been identified.
With regard to our business related to internal combustion engines, whose sales revenue makes up 80% of the total at present, we are facing a major change. On the other hand, geared toward the realization of a decarbonized society, hydrogen-related and other new needs and markets are expected to arise. Therefore, in the 2030 Long-Term Management Plan NITTOKU BX, we take up “Environment & Energy” as one of the business fields to focus on. Toward 2040, we will push forward with a business portfolio conversion (40% ICE related business, 60% non-ICE related business).

Examined business Product Responses to future business risks and opportunities Financial impact Sales revenue target in our long-term management plan
Automotive related business Spark plugs, glow plugs, sensors Under the 2℃ scenario, sales of internal combustion engine parts are expected to decline in the future due to stricter regulations on vehicles with internal combustion engines.
On the other hand, opportunities will arise in the electric vehicle market and other new markets.
Under a 4℃ scenario, further energy conservation and toxic-gas-emission control will be required in terms of internal combustion engines. Therefore, we will take measures to improve the performance of internal combustion engines.
Impact on part of the sales revenue of 338.6 billion yen (FY2020) 450 billion yen (FY2029)
Fuel cell business Fuel cells Under either a 2℃ or 4℃ scenario, demand for non-fossil energy sources is expected to grow. Therefore, we will continue to enhance our measures taken in the relevant markets.
Under a 2℃ scenario, the proliferation of hydrogen infrastructure is expected. Therefore, the market may grow at an increasing rate.
Impact on part of the sales revenue of 83.6 billion yen (FY2020) 300 billion yen (FY2029)
Other businesses SPE, packages, oxygen concentrators, cutting tools, bearing balls, etc. Under either a 2℃ or 4℃ scenario, the impact on risks and opportunities is small.
  • For the automotive related business, under 2℃ scenario, sales are expected to decline in the future due to stricter regulations. Therefore, a business portfolio conversion is required.
  • For other business types, under either a 2℃ or 4℃ scenario, we will conduct business flexibly and strategically while keeping a close watch on market trends. Thus, we have high resilience in terms of both medium- and long-term perspectives.

Risk Management

Conducting business globally in many fields, our group faces various risks and opportunities in each type of business. Therefore, we grasp and respond to risks and opportunities on a business company by business company basis. We respond to climate-related risks and opportunities in the same way.
The Risk Management Committee conducts a risk assessment from a company-wide perspective in terms of whether or not the risk will have great impact on our business activities. A risk assessed as a key risk is considered a priority risk. For such a risk, a responsible department is assigned to check the status of measures against the risk.
Meanwhile, the CSR and Sustainability Committee checks key opportunities. The Committee incorporates, when necessary, these opportunities into our management strategy and priority issues (materiality).

Metrics and Targets

In the 2030 Long-Term Management Plan “NITTOKU BX”, which was announced in May 2020, our group has set the goal: “CO2 Emissions: 30% Reduction [compared to that of 2018] (FY2030).”
Meanwhile, to enhance environmental conservation activities from a long-term perspective, we formulated Eco Vision 2030 in April 2021. It stipulates the achievement of carbon neutrality by 2050 as a long-term goal.

Furthermore, we are also working to reduce CO2 emissions throughout the supply chain.
We ask our business partners (suppliers) to set a target for reducing CO2 emissions and work toward achieving the target. We also offer support for them as deemed appropriate.