Addressing climate change issues — Information disclosure based on TCFD recommendations

• Basic approach to addressing climate change issues
• Information disclosure in line with TCFD recommendations
• [Strategy] Measures for each category

Basic approach to addressing climate change issues

The CHINO Group recognizes climate change as one of the most important issues in sustainability management, and is working to appropriately respond to risks related to climate change and seize growth opportunities through collaboration with a wide range of stakeholders in order to contribute to a decarbonized society as outlined in the SDGs and the long-term goals of the Paris Agreement.
In May 2022, our Group expressed its support for the TCFD recommendations, given the importance of disclosing climate change-related information. In the scenario analysis disclosed in the same year, we extracted and qualitatively analyzed important risks and opportunities related to climate change based on a 2°C or less scenario, considered measures to address them, and set goals.
From next year onwards, we will regularly analyze and respond to the risks and opportunities that climate change poses to our business, and expand and update our information disclosure in line with the TCFD recommendations.
In this update (June 2024), we have reanalyzed the financial impact and countermeasures of risks and opportunities related to climate change from both qualitative and quantitative perspectives using multiple scenarios, including a 4°C scenario in addition to a 2°C or less scenario, and have expanded the period of the analysis to 2030 and 2050.

Information disclosure in line with TCFD recommendations

1. Governance

In January 2022, the Group established the Sustainability Promotion Committee, chaired by the President and Representative Director, as an organization to review and deliberate on basic policies and important measures related to sustainability management for the entire Group, including responses to climate change.
The Sustainability Promotion Council is held regularly on a regular cycle every year. We formulate policies on sustainability issues, including climate change, identify materiality, discuss the direction of responses, set KPIs including GHG emission reduction targets, and monitor the status of initiatives. The contents of deliberations and decisions are reported to the Board of Directors as appropriate, and are shared with management, the head office, each business division, and group companies through the Decarbonization Project, CSR Promotion Project, and the Sustainability Planning Office.
In addition, in October 2022, we established the Human Resources & Organization development Committee, chaired by the President and comprised of executive officers, in order to promote human capital management in which management strategy and human resources and organizational strategy are closely linked. The committee takes a bird's-eye view of the overall human resource management system, determines policies for human resource development and measures to improve employee engagement, examines specific measures, and confirms the progress of human resources strategies to promote personnel strategies that contribute to the enhancement of corporate value. The Board of Directors receives reports on the contents of deliberations by the Sustainability Promotion Committee and the Human Resources and Organization development Committee, and deliberates and supervises basic policies and important measures for activities.

■ Roles and activities of each organization

Meetings/organizations (frequency)	role	Results of Activities
Board of Directors meetings (14 times a year)	The Sustainability Promotion Council reports on the matters discussed at the Council and deliberates and oversees basic policy and important measures for activities.	In April 2023, we will review the activities of the Sustainability Promotion Council and the KPIs for each materiality.
Sustainability Promotion Meeting (held annually)	The committee was established in January 2022, with the President and CEO as chair. It formulates policies and monitors initiatives related to sustainability activities across the entire group, including "responding to climate change." Resolutions and matters under consideration at the committee are also reported to the Board of Directors as appropriate.	・Set KPIs for each materiality in April 2023 ・In November 2023, we will determine specific measures for Scope 1 and 2 reduction and the direction of company-wide sustainability activities.
Decarbonization Project (-)	The company was established in February 2021 to provide new products and services aimed at solving various issues related to marketing to the decarbonization market. By contributing to the realization of a sustainable society through our group's technologies, we will fulfill our social responsibility and achieve sustainable growth.	・Proposing products and systems for the fields of hydrogen, sensors, and monitoring
CSR Promotion Project (-)	It was established in May 2021 to raise sustainability awareness among all employees and accelerate sustainability activities. As a company-wide organization, it is configuration up of about 20 members from each division, and carries out CSR activities and awareness-raising activities at each base and division, as well as discussing the update of sustainability issues (materiality), including climate change response, and the formulation of drafts for setting specific indicators.	In fiscal 2023, we will work on the theme of making sustainability our own, and in August 2023, we will plan and implement company-wide activities that link each department's operations with sustainability.
Sustainability Planning Office (-)	To promote sustainability management, the Sustainability Promotion Council was established within the Business Management Headquarters on April 1, 2023, to further advance company-wide efforts. The Sustainability Promotion Council shares the content of discussions with the head office, each business division, and each group company, and monitors the progress of the initiatives. In addition to the progress of initiatives, each business division reports climate-related issues and ongoing issues to the Sustainability Promotion Council as appropriate.	・In fiscal 2023, we will conduct scenario analysis and calculate the business impact of climate change. ・Calculation of Scope 1 and 2 will be carried out in FY2023

2. Strategy

Addressing Climate Change

The Group recognizes the risks and opportunities associated with climate change as one of the important elements of its business strategy, and began a qualitative analysis in line with the TCFD recommendations in 2022. In 2023, we conducted a detailed scenario analysis to further strengthen our analysis and response to the risks and opportunities to our business posed by climate change and their financial impacts.

In addition, when conducting scenario analysis, we refer to the "Recommendations for Developing Business Strategies Using TCFD (issued in March 2023)" published by the Ministry of the Environment and consider both qualitative and quantitative aspects in accordance with the following procedure.

List of anticipated risks and opportunities

Through the above scenario analysis, we have assessed the financial impact of climate change-related risks and opportunities on our Group's business by dividing them into three categories: large, medium, and small. We have then described the matters we have determined to be important in light of our basic policies and strategies related to sustainability management.
In the "Decarbonization Scenario" of 2°C or less, the introduction of carbon pricing (carbon tax), increased manufacturing costs due to rising raw material prices, and increased operating costs due to more energy-efficient air conditioning and updating to manufacturing equipment were identified as important transition risks. In the "Global Warming Progression Scenario" of 4°C, it is assumed that the suspension or stagnation of supply chain operations, including company bases, due to the intensification of extreme weather will have a particularly large impact on business activities as a physical risk.
On the other hand, we see the movement towards a decarbonized society, particularly the progress in hydrogen utilization, the electrification of mobility, the growing demand for replay energy, the shift to EVs due to advances in low-carbon technologies, and the growing demand for monitoring the usage of electricity and other energy, as opportunities to utilize our Group's technologies to solve problems and expand sales.In addition, we believe that the growing demand for high accuracy temperature control in the event of a rise in average temperatures, prediction of abnormal weather, and environmental changes will also be important growth opportunities for our Group's business, which is centered on temperature measurement.

List of identified risks

Major Category	Medium classification	Subcategory	Idea	Timeline	Financial Impact
					Below 2°C scenario	4°C scenario	Estimate
risk	transfer	Introducing carbon pricing	The introduction of carbon pricing will increase operating costs according to the company's greenhouse gas emissions	Short-term to long-term	During ~	During ~	○
		Energy Use Policy Regulations	Strengthening renewable energy and energy conservation policies, shifting to renewable energy electricity and installing solar panels at production sites	Mid to long term	Big	Big	○
		Changes in energy costs	As decarbonization progresses, demand for replay energy will increase, and costs such as technological investments at power plants will increase and be passed on to prices, resulting in increased operating costs.	Mid to long term	During ~	During ~	○
		Changes in raw material costs	The introduction of carbon tax and other factors has led to rising costs of raw materials such as metals and plastics, and the shift to raw materials and supplies subject to stricter environmental regulations has led to rising raw material purchasing costs and manufacturing costs	Mid to long term	During ~	During ~	○
	Physics	Frequency of abnormal weather (typhoons, heavy rains, landslides, high tides, etc.)	Increased procurement costs due to damage to our own facilities or supply chain disruptions caused by abnormal weather	Short-term to long-term	Big	Big	○
		Drought	Drought conditions could cause production sites that use large amounts of water to shut down, leading to the depletion of certain materials used in our production activities and making it difficult to produce adequate amounts of materials for our products.	Short-term to long-term	During ~	During ~	○

List of identified opportunities

Major Category	Medium classification	Subcategory	Idea	Timeline	Financial Impact
					Below 2°C scenario	4°C scenario	Estimate
opportunity	transfer	Energy Use Policy Regulations	Strengthening of renewable energy policies will lead to increased demand for energy-saving products in the research, development, manufacture, and use of hydrogen, biomass, and solar power generation.	Short-term to long-term	Big	-	○
		Spread of renewable energy and energy-saving technologies	We expect to improve the energy efficiency of our products and equipment through the widespread use of renewable energy and energy-saving technologies such as solar power generation, biomass power generation, and hydrogen power generation.	Mid to long term	Big	-	○
		Advances in low-carbon technologies	As the shift to EVs progresses, battery efficiency will improve and measures to improve efficiency will become more effective, leading to increased demand for the company's environmentally friendly and energy-saving products.	Short-term to long-term	Big	-	○
		Changes in customer behavior	Demand for energy-saving products is growing, as are demand for products and businesses that meet customer requests to reduce energy use.	Short-term to long-term	Big	-	○
	Physics	Rising average temperatures	The development of greenhouse agriculture, which can adapt to changing weather patterns, is driving demand for indoor temperature and humidity control products	Mid to long term	small	small	○

[Time axis] Short-term: 0-3 years Medium-term: 4-10 years Long-term: 11 years~

Estimating the financial impact of risks and opportunities

The degree of financial impact of the risks and opportunities identified above was qualitatively assessed on a three-level scale (large, medium, and small), and then for the risks and opportunities that can currently be estimated, we estimated the financial impact under the 2°C or less scenario and the 4°C scenario for 2030 and 2050 based on external parameter and our actual results.

Estimated financial impact of risks and opportunities

Prerequisites	Estimation items	Estimation results (unit: 100 million yen/year)
In the 1.5℃ scenario in 2030, the introduction of carbon pricing would: We assume that operating costs will increase in accordance with greenhouse gas (GHG) emissions from our energy use.	-Increasing costs of energy use *Greenhouse gases (Scope 1 + Scope 2) *Taxable * refer: IEA WEO 2023 2030, 1.5℃ → 140USD/t-CO2 2050, 1.5℃ → 2050USD/t-CO2 *Scope 1 and 2 combined: 2020-1990t-CO2, 2050.0t-CO2 *USD/JPY 147.53 (2024/3/13TTM)	2030：3.92 2050：0.00
In the 1.5℃ scenario for 2030 and 2040, As decarbonization progresses, the price of replay energy is rising. Operating costs are expected to increase in line with electricity consumption.	・Increasing costs of power procurement * refer: IEA WEO 2019 (including WEO2020+2022 forecasts) 2030, 1.5℃ → 115USD/MWh 2040, 1.5℃ → 165USD/MWh US electricity cost: 320.2MWh/year *USD/JPY 147.53 (2024/3/13TTM)	2030：11.77 2040：12.56

Responses to identified risks and opportunities

In line with our environmental policy, we will divide the countermeasures for the above risks and opportunities into four categories, consider the direction of each initiative, and proceed with them company-wide.
Regarding "reducing GHG emissions," we have switched the electricity purchased at our major domestic bases to replay energy. At the same time, we are accelerating our efforts toward carbon neutrality by promoting activities related to "effective use of resources," such as reducing energy consumption other than electricity and reducing the final disposal volume of waste, while also promoting energy conservation measures at our offices and production bases.
Furthermore, in order to achieve the goals set out in the Ministry of Economy, Trade and Industry's "Basic Hydrogen Strategy," we have positioned "promoting environmental innovation" as one of our environmental policies, and will continue to contribute to the realization of a decarbonized society with the technologies we have cultivated over more than 30 years in the field of utilizing replay energy, including hydrogen.
Furthermore, to maintain physical resilience, we are working to minimize the damage and impact of climate change and to ensure a rapid recovery by taking measures such as strengthening our BCP for when disasters occur, conducting regular drills, and building a global procurement system.

[Strategy] Measures for each category

3. Risk Management

Our group has established the Risk Management Committee as the governing body for risk management, and it meets regularly at a fixed cycle each year. Chaired by the President and CEO, the Risk Management Committee formulates risk response policies, continuously identifies and evaluates company-wide management risks, including environmental issues, prioritizes and decides on countermeasures for critical risks, and monitors the progress of these measures.
Of the above important risks, the risks related to climate change are being examined in more detail at the Sustainability Promotion Council, taking into account the unique time frame and scale of the risks. The Sustainability Promotion Council uses multiple scenarios to qualitatively and quantitatively analyze and evaluate the financial impact of climate change-related risks and future business resilience, and then considers and promotes countermeasures and execution plans. The progress is shared with the Risk Management Committee and ultimately reported to the Board of Directors.
In addition, to ensure that risk management is carried out appropriately, the Sustainability Promotion Council regularly identifies, evaluates and reviews risks related to climate change across the entire Group, and shares the results with the Risk Management Committee.

4. Metrics and Goals

For Scope 1 and 2 (GHG emissions from our business activities), we have set the mid- to long-term goals of "effectively zero GHG emissions by fiscal 2026" and "completely zero GHG emissions by fiscal 2040," and will proceed with various initiatives to achieve these goals.
Going forward, we will be actively working on formulating indicators and targets for the entire group, including consolidated subsidiaries, data logging on Scope 3 (GHG emissions including the entire supply chain related to our business activities) and considering reduction measures.

Major risks and opportunities and our response policy

	～2022	～2026	～2030	～2040
the goal	◆Indicator: GHG (greenhouse gas) emissions (Scope 1, 2) Scope: Chino Corporation ◆Base year: FY2020 (FY2020 emissions: [Scope 1: 261t-CO2] [Scope 2: 2,449t-CO2])
		Carbon Neutral: Reduce Scope 1 and 2 GHG emissions to virtually zero (Partial carbon offset used)		Carbon Neutral: Achieving zero Scope 1 and 2 GHG emissions
	Scope 1,2 emissions 70% reduction (compared to FY2020)	Scope 1,2 emissions 90% reduction (compared to FY2020)	Scope 1,2 emissions 93% reduction (compared to FY2020)	Scope 1,2 emissions 100% reduction (compared to FY2020)
Specific Initiatives	◆ Switch electricity purchased for business activities to replay energy
	Power procurement in stages replay energy ・October 2021 Yamagata Office ・November 2021 Osaka Head Office January 2022: Kuki Office July 2022 Fujioka Office	・Make 100% of our electricity procurement replay energy	・Power procurement for domestic group companies 100% replay energy	・All Scope 1 and 2 emissions are sourced from replay energy sources
	◆ Scope 3 (supply chain emissions) calculations, goal setting, and emission reductions
	◆ Promoting energy conservation and improving the energy efficiency of production facilities
	◆ Installation of solar power plants at our business locations (Yamagata Business Site - System capacity 732kWh in 2013, Fujioka Business Site - System capacity 40kWh in 2014)

Details of the scope of coverage: (Japan) Head office, branches, sales offices, major domestic production bases (Fujioka Office, Kuki Office, Yamagata Office)

GHG (Greenhouse Gas) Emissions (Scope 1, 2) (t-CO2)

	2020年度	2021年度	2022年度	2023年度	FY2026   (target value)
Scope 1 (mainly gasoline, LPG, etc.)	261	266	265	260	Scope 1, 2 271
Scope 2 (mainly purchased electricity)	2,449	1,621	196	31
Scope 1, 2	2,710	1,887	461	290
Reduction rate from base year	-	30%	83.0% (FY2022 target achieved)	89.3%	90.0%