Tackling climate change -- Initiatives based on TCFD recommendations and the challenge to achieve carbon neutrality --
Nihon Parkerizing announced its support for the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in January 2024 and has joined the TCFD consortium, composed of companies and financial institutions that support the recommendations. We will fulfill our accountability to stakeholders regarding the status of our response to climate change through information disclosure based on the TCFD framework. We will also take appropriate measures according to the business and financial impact assessed from the risks and opportunities identified through the climate change scenario analysis.
Governance
The Sustainability Committee discusses scenario analysis results based on the TCFD recommendations, issues related to measures to address climate change, and issues associated with establishing and progressing qualitative and quantitative targets. The committee reports these deliberations to the Executive Committee and the Board of Directors at least once a year. The Board of Directors oversees the company's sustainability activities.
Strategies
Based on short-, medium-, and long-term time perspectives, we have assessed and identified risks and opportunities that we estimated would have a significant impact on our business, from among transition risks attributed to policies, regulations, and market changes that climate change will bring to the value chain, as well as physical risks such as extreme weather events, according to the risk and opportunity assessment process that we have established. In addition, we have conducted a scenario analysis of how our business environment could have changed in 2030 from a long-term perspective, given the unique nature of the issue of climate change. In the scenario analysis, we referenced multiple existing scenarios published by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC). We assumed three scenarios: the below 1.5 °C scenario, the below 2 °C scenario, which assumes that decarbonization has accelerated, and the 4 °C scenario, where the temperature will rise most sharply. The risks and opportunities expected to impact the business significantly were identified as follows, and we quantified the financial impact in 2030 to the extent possible.
*Transition risk: IEA NZE, IEA APS, IEA STEPS Physical risk: SSP1-1.9, SSP1-2.6, SSP5-8.5
Scenario analysis (below 1.5°C scenario)
| Scenario | Type of risk/opportunity | Impact on business | Period | Overall evaluation | Remedies | ||||
|---|---|---|---|---|---|---|---|---|---|
| Short term | Medium-term | Long term | |||||||
| Below 1.5°C | Transition risks | Policy and legal regulations |
Decarbonization policy breakthrough | Cost increase resulting from the introduction of carbon tax and use of carbon credits | Medium |
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| Difficulty in procuring raw materials | Medium |
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| Market | Demand for decarbonization and energy conservation | Growing customer demand for low-carbon products and services | High |
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| Technology | Response to customers | Responding to customers' technological innovations | |||||||
| Physical risks | Acute | Increase in natural disasters | Difficulty in procuring scarce raw materials | Low |
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| Shutdowns resulting from natural disasters caused by extreme weather conditions | |||||||||
| Opportunities | Products and services |
Market changes | Expansion of existing markets | Low |
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| Serving new markets | High |
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| Scenario | Below 1.5°C | Below 1.5°C | Below 1.5°C | Below 1.5°C | Below 1.5°C | Below 1.5°C | Below 1.5°C | |
|---|---|---|---|---|---|---|---|---|
| Type of risk/opportunity | Transition risks | Transition risks | Transition risks | Transition risks | Physical risks | Opportunities | ||
| Policy and legal regulations | Market | Technology | Acute | Products and services | ||||
| Impact on business |
Decarbonization policy breakthrough | Demand for decarbonization and energy conservation | Response to customers | Increase in natural disasters | Market changes | |||
| Cost increase resulting from the introduction of carbon tax and use of carbon credits | Difficulty in procuring raw materials | Growing customer demand for low-carbon products and services | Responding to customers’ technological innovations | Difficulty in procuring scarce raw materials | Expansion of existing markets | Serving new markets | ||
| Shutdowns resulting from natural disasters caused by extreme weather conditions | ||||||||
| Period | Short term |
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| Medium- term |
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| Long term |
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| Overall evaluation | Medium | Medium | High | High | Low | Low | High | |
| Remedies |
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Key strategies based on the below 1.5°C scenario
Strategy 1
Introduction of the carbon tax
We estimate that emissions from business activities will increase with business growth if we take no remedies. Assuming the introduction of a carbon tax, the impact on operating income could be hundreds of millions of yen. We have, therefore, set an ambitious emissions reduction target of reducing CO2 emissions per unit of sales (Scope 1 and 2) by 30% (compared to FY2020) by 2030 and will ensure that we promote measures to address this risk.
Strategy 2
Difficulty in procuring raw materials
We anticipate that procurement of new raw materials may be required due to environmental regulations. If it is difficult to procure raw materials, the impact on operating income could be billions of yen. As we have set "building a sustainable supply chain" as one of our key issues (materiality), we will establish a stable supply system for raw materials in cooperation with suppliers. Further, we will seek to develop products using alternative raw materials and switch to alternative products as appropriate.
Strategy 3
Decarbonization measures
Customer demand for decarbonization is increasing. Failure to meet this demand could result in a decrease in orders and the loss of billions of yen in operating income. As we have set forth "developing new products and technology that are environmentally friendly" and "contributing to reducing the environmental load" as our key issues (materiality), we will work to reduce the environmental impact of our customer's manufacturing processes and promote carbon footprint (CFP) calculation for each product and service to visualize CO2 emissions, thus indeed driving measures to address this risk.
Strategy 4
Serving new markets
The movement toward carbon neutrality is accelerating worldwide, with the rapid expansion of decarbonization markets and the development of innovative technologies required in these markets. As we have set "developing new fields making the most of surface modification technologies" as one of our key issues (materiality), we will actively develop products for new markets based on the proprietary surface modification technologies we have cultivated over many years as a leading company.
Risk management
Process for identifying and assessing climate-related risks
At Nihon Parkerizing, our Sustainability Committee identifies and assesses climate risks. In contrast, the Risk Management Committee identifies and evaluates other business risks.
The Sustainability Committee conducts scenario analysis based on TCFD recommendations to identify critical risks and opportunities and assess the degree of impact.
For business risks, climate-related transition and physical risks were identified and assessed in light of risk assessment criteria, such as impact and probability of occurrence, using a standard risk sheet of the overall company. The impact is evaluated on a four-point scale based on operating income. In contrast, the probability of occurrence is assessed on a four-point scale based on the frequency of occurrence. Ultimately, risks are rated on a 16-point scale based on their importance, and priorities to be addressed are set by examining the relative relationships among risks from the management perspective.
Process of managing climate-related risks
The organization devised and implemented measures to address business and other risks based on their materiality. Their progress is managed, and improvements are made on an ongoing basis. We reflect measures to tackle climate-related transition risks and opportunities in our environmental strategy, incorporate them into our targets and plans, promote and develop environmental performance improvement and risk management efforts, and make improvements through the PDCA cycle.
Integration with comprehensive risk management
The Group has established a Risk Management Committee to effectively and efficiently manage various risks that may hinder the achievement of its business objectives. This committee oversees risk management activities focused on management risks (operational risks), assesses such risks, evaluates and manages them, examines measures to address them, and reports to the Internal Governance Committee. The Sustainability Committee takes the lead in managing risks related to climate change, and the two organizations work closely and cooperatively with each other in company-wide risk management activities.
Metrics and targets
To achieve carbon neutrality by 2050, the Company aims to reduce its Scope 1 and 2 GHG emissions by 5% by FY2024 and by 30% by FY2030 on a non-consolidated basis compared to FY2020. We are actively introducing renewable energy sources and considering continued energy-saving activities, including the generation of solar power for our consumption. We expect to meet the FY2030 target ahead of schedule. We plan to set GHG emissions reduction targets for ourselves and our domestic consolidated subsidiaries. The entire Group is committed to achieving carbon neutrality.
Scope 1, 2, and 3 GHG emissions
To ensure the transparency and reliability of the disclosed GHG (greenhouse gas) emissions, we received assurance from an external organization (SOCOTEC Certification Japan) as a third party.