Response to Climate Change

The NITTO KOGYO Group considers the preservation of the global environment to be one of the most important issues common to humanity.
Climate changes such as global warming as well are considered a major management issue affecting Group business.
In recognition of the risks and opportunities for business presented by climate change, we have taken active measures as we work to contribute to the sustainable society and improve our corporate value.

Information disclosure based on TCFD recommendations

Based on recommendations from the Task Force on Climate-related Financial Disclosure (TCFD), we have started climate change scenarios analysis to identify the risks and opportunities climate change will have on our business. We are also working to disclose information in line with the TCFD framework.

Governance Structure

In order to further advance its initiatives toward the realization of a sustainable society, NITTO KOGYO Group, guided by the Sustainability Committee established with the President as chair and in collaboration with the existing Internal Governance and Environmental Conservation Committees among others, will monitor risks and opportunities as well as plan and execute strategies for environmental issues.
Regarding the status of climate change initiatives and future strategies, the Board of Directors will receive reports from this Committee, oversee its progress, and give directions on its measures.

Strategy (Analysis of climate scenarios and the risks and opportunities present in them)

We identified risks and opportunities that climate change has on our supply chain and analyzed the effects they would have on business.
Looking ahead to 2030 and 2050, we have qualitatively and quantitively analyzed and evaluated the impact of a 4℃ scenario and a 1.5℃ scenario by referencing the climate change scenario predictions of the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA).
Based on our view of the expected world, we are working to increase our business activity resilience by responding both flexibly and strategically to any potential climate change scenario.

4℃ scenario

(SSP5-8.5: if we continue to depend on fossil fuels)

Demand will increase for products to prevent and mitigate damage brought about by increasingly intense extreme weather events, products to provide countermeasures against heat, and high-performance products.
It will be difficult to obtain fossil fuels, and stocking prices will increase as prices for commodities increase.

1.5℃ Scenario

(SSP1-1.9: if the temperature rise is limited to 1.5℃)

Demand will increase for environmentally-friendly products, products related to energy management and EV-related products brought about by promotion of renewable energy and changes to consumer behavior. On the other hand, environmentally-friendly technology is going to be required, and research and development costs are going to increase.
Rising carbon prices will lead to increased operational costs as a result of the purchase of greenhouse gas emission rights, and electricity costs will rise via the impact of the promotion of renewable energy.

Risks and Opportunities

Type			Indicator	Risks	Opportunities	Impact
Transition risks	Policy/ regulation	Rising carbon prices	Profits Expenses	The governments of various countries will raise their carbon prices, resulting in an increase in energy costs, prices of commodities, and operational costs.	Rising carbon prices will prompt energy switching, expand demand for renewable energy, and, consequently, increase demand for products related to energy management.	Medium
		Carbon emission targets / policies for each country	Profits Expenses	Energy-saving regulations will be reinforced and greenhouse gas emission reductions　will be made mandatory, which will increase the capital investment costs needed to improve the environmental performance of our facilities. If greenhouse gas emissions cannot be reduced, additional costs will occur as a result of the purchase of greenhouse gas emission rights, etc.	There will be increased demand for environmentally-friendly products, widespread use of electric vehicles, and increased demand for charging infrastructure development and EV-related products as a result of decarbonization promotion policies.	Large
		Recycling regulations	Profits Expenses	Stricter regulations related to plastic will lead to an increase in costs brought about by the adoption of alternative materials, etc.	Making an early switch to alternative materials, such as recycled plastics, etc.,will increase business opportunities.	Large
	Market	Energy price trends (Changes in energy mix)	Profits Expenses	There is a call for a switch to renewable energies, so costs will increase via things such as investment in our own facilities and green power purchases.	Expansion of investments into and increased utilization of renewable energy will bring about an increase in demand for products related to energy management.	Large
	Market	Increase /decrease in important products	Profits Expenses	A shift to demand for products with high environmental performance will lead to reduced demand for products that have a high environmental load. Development costs will increase due to requirement to display products' carbon footprints.	Energy-saving countermeasures will become increasingly important and necessary, resulting in an expansion of solution businesses that improve factory facility productivity and increase energy-saving performance, which will increase demand for products in the factory automation industry. The promotion of digital transformation of production will bring about an increase in demand for products in the factory automation and information / communications industries. An expansion of demand for renewable energy will increase demand for products related to energy management. There will be increased demand for environmentally-friendly products, widespread use of electric vehicles, and an expansion of demand for EV-related products as a result of decarbonization promotion policies. Demand will increase for products that are low carbon or decarbonized, those that have their carbon footprint displayed, and other environmentally-friendly products.	Large
	Technology	Widespread use of low-carbon technologies (Widespread use of next generation technologies)	Profits Expenses	There will be a shift in needs towards products and materials that have higher environmental performance, and this will intensify competition for energy-saving performance of products, resulting in increasing costs for investment, research and development of environmentally-friendly technology.	We will be able to differentiate ourselves from other companies by quickly developing and selling products with high environmental performance and link this into improved sales. Improvements to the performance of environmentally-friendly facilities will lower fuel expenses and other operational costs. Reinforcement of energy-saving initiatives will bring about reductions in greenhouse gas emissions and link into cost reductions. Establishing a formulation technology that meets market demand (fire resistance, mechanical strength, price) will expand our biomass plastics market reach and give us an advantage.	Small
	Reputation	Investor and customer behavior change	Profits Capital	The raising awareness of customers toward the environment means that companies that cannot respond appropriately to climate change will see their corporate brand decline and sales drop as they are abandoned by customers. Additionally, if the details of what we disclose are insufficient in the eyes of the investors and customers who have made information disclosure requests, our external evaluation will decrease.	Responding appropriately to climate change and improving our corporate image will increase our evaluation from investors. Responding appropriately to the growing public concern over climate change will garner us the trust of stakeholders and increase our reputation. If we expand our lineup of energy-saving products and environmentally-friendly products in line with changes in customer behavior, we will gain an advantage in the market and this will link into increased profits.	Small
Physical risks	Acute	Increasingly intense extreme weather events	Profits Expenses Assets	If employees or manufacturing bases are afflicted by more frequent and violent climate abnormalities and natural disasters, there will be additional costs borne out of halted operation at manufacturing bases, a loss of business assets, increased facility repair costs, and so on. Suppliers being afflicted and logistics networks being broken will cause issues with material procurement.	More frequent and violent climate abnormalities and natural disasters will increase demand for products to prevent and mitigate damage. Setting up counter-disaster bases and reinforcing the supply chain with regard to products and logistics will allow us to flex our business continuation ability rather than simply minimizing damages.	Medium
	Chronic	Rising average temperatures	Profits Expenses Assets	The workplace environment will worsen at each business location due to heat stress and productivity will decrease. Increased HVAC loads will bring increased HVAC facility costs, such as increased energy costs.	Demand will increase for products that provide countermeasures against heat brought about by rising average temperatures.	Small
		Changes to rainfall and weather patterns	Profits Expenses Assets	If employees or manufacturing bases are afflicted by more frequent and stronger heavy rainfall, there will be additional costs borne out of halted operation at manufacturing bases and a loss of business assets, increased facility repair costs, and so on. An increase in the occurrence of lightning and tornadoes brings the risk of power outages that increase the possibility of operations stopping at manufacturing bases, which will lead to an increase in costs, such as additional investment and insurance costs for facility recovery.	Increased frequency and severity of heavy rainfall will bring about increased demand for highly weatherproof, high-performance products.	Medium
		Rising sea levels	Expenses Capita	There are risks of employees living in coastal regions not being able to get to work and a breakdown of the supply chain overall.	ー	Small
		Droughts	Profits Expenses	Raw material prices will increase due to rising water prices.	Amid shortages in the supply of safe water, we will be able to contribute to water positivity by incorporating anti-fouling technology into society.	Small

Countermeasures and their definition

By identifying risks and opportunities in the 4℃ scenario and the 1.5℃ scenario, we will increase our business activity resilience by continually investigating policies to avoid or ameliorate risks and to increase the feasibility of opportunities.

Scenario	Risks and Opportunities	Direction of Policies	Countermeasures (example)	Impact on profits*1
Scenario	Risks and Opportunities	Direction of Policies	Countermeasures (example)	2030	2050
4℃ scenario	Increased demand for disaster prevention/mitigation products	Creation of new products and services	Establishment of disaster prevention/mitigation businesses Downsizing of production for low temperature countermeasure products (heaters, etc.)	＋＋	＋＋＋
	Increased demand for heat countermeasure products			＋	＋＋
	Increase in demand for high-performance type products, like weatherproof cabinets			＋＋	＋＋＋
	Increased cost of purchase	Reduction to materials used	First-pass yield improvements	ー	ーー
	Impact of physical risks	Extreme weather countermeasures	Increase of expenses for BCP countermeasures (at our own company and at suppliers)	ー	ーー
Common across scenarios	Increased energy costs	Switch to energy saving, suppression of electricity used	Introduction of cost-effective energy-saving facilities	ーー	ーーー
Common across scenarios	Increased HVAC usage will bring about an increase to electricity charges as electricity usage will increase	Switch to energy saving, suppression of electricity costs	Change to HVAC facilities that are highly efficient at cooling	ー	ーー
1.5℃scenario	Carbon prices will increase, and there will be more additional costs from operational costs and the purchase of greenhouse gas emission rights, etc.*2	Achievement of carbon neutrality and switch to carbon positivity	Setting of greenhouse gas emission reduction targets Carbon neutral (positive) declaration	ーー	＋
	Increased investment costs for facilities with high environmental performance and for renewable energies	Energy creation and storage	Introduction of energy creation and storage facilities	ー	ーー
	Increased sale of environmentally-friendly products	Creation of new products and services	Development of even more environmentally-friendly products	ー	ーー
	Stricter recycling regulations (for plastic material, etc.) will lead to an increase in costs brought about by the adoption of alternative materials, etc.		Implement alternative products before regulations are reinforced	ー	ーー
	Increased sales for products related to energy management and EV-related products		Expansion of energy management and electric vehicle business	＋＋	＋＋＋
	Increased sale of information /communications industry products		Development and expansion of sales for digital transformation-related products	＋	＋＋
	Increased demand for safe water		Incorporation of anti-fouling technology	＋	＋＋
	Incorporation of anti-fouling technology		Scaling back of development of technologies and products that are not environmentally friendly	＋	＋＋

*1. The effect that main business items will have on profit in each scenario is noted with "+" or a "-". They are relatively evaluated in three levels.
*2. We assume we can mitigate the impact of rising carbon prices and the resulting increase in costs by reducing our greenhouse gas emissions.

Risk Management

Our Internal Governance Committee and Sustainability Committee work together to identify, analyze and evaluate climate change risks to ensure that we can sustainably develop our business.
We take the measures necessary to mitigate each identified risk at a department level.
Both the Internal Governance Committee and the Sustainability Committee report about the response to serious risks to the Board of Directors, which then supervises the progress of said response.

Indicators and Targets

The NITTO KOGYO Group has established the following targets toward realizing a sustainable society and improving corporate value, with measures in progress to reduce supply chain emission amounts.

GHG (greenhouse gases) Reduction Targets

2050 goal: Realization of carbon neutrality

[Long-term targets]

	Target value
Scope 1, 2	30% reduction from FY2020 by FY2030
Scope 3	30% reduction from FY2020 by FY2030

[Scope of GHG (greenhouse gases) emissions reduction targets]

	Range
Scope 1, 2	NITTO KOGYO, Aichi Electric Works Co., Ltd., Taiyo Electric Mfg. Co., Ltd., ECAD Solutions Co., Ltd., SunTelephone Co., Ltd., NANKAIDENSETSU Co., Ltd., Kitagawa Industries Co., Ltd., NITTO KOGYO BM (Thailand), Gathergates Group, ELETTO (Thailand), NITTO KOGYO (China)
Scope 3	NITTO KOGYO, SunTelephone Co., Ltd., Kitagawa Industries Co., Ltd.

FY2020 NITTO KOGYO emission amounts
(Scope 1, 2)

FY2020 Other indirect emission amounts
(Scope 3)

GHG (greenhouse gases) Reduction Initiatives

In order to further supply chain emission amount reduction initiatives, NITTO KOGYO Group has grasped and disclosed not only its own emission amounts (Scope 1, 2) but also other indirect emission amounts (Scope 3).
Calculation and data collection methods for Scope 3 are to be further revised to increase their accuracy, leading to more accurate figures.

Regarding our own emission amounts (Scope 1, 2), energy saving during product manufacturing will make progress through improved productivity and the introduction of energy-saving equipment. In addition, along with a shift to energy with lower greenhouse gas emissions, we will work to create energy through the introduction of photovoltaic power generation facilities.

Regarding other indirect emission amounts (Scope 3), we will work with suppliers to reduce greenhouse gas emission amounts based on calculation results, as well as creating product and service value based on their environmental aspects. By providing customers with products and services for their use with lower greenhouse gas emissions than their conventional equivalents, we contribute to the reduction of greenhouse gas emissions throughout society.
In addition, because the electrical and information infrastructure is essential in realizing the zero-carbon society, we will work to provide, develop, and promote products and services such as EV chargers which reduce the environmental load, in accordance with society's needs.