In identifying materiality, our company analyzed and evaluated both the impacts of nature on our group's financial position and the impacts of our group's activities on nature.

In this disclosure, we identified priority areas for all of our direct operations, assessed dependencies and impacts, and analyzed risks and opportunities at two priority sites: Power & Electronics Material and Aero & Industrial Alloy. In the future, we plan to expand the scope of analysis to include other businesses and the upstream and downstream value chains.

Based on the results of Sensitive locations by using the WWF Water Risk Filter and WWF Biodiversity Risk Filter (WWF Risk Filter Suite v2.0) for direct operation sites, and Material locations based on data such as water consumption, we identified priority locations as sites with nature-related issues.

Our company also discloses information on its responses to the TCFD Recommendations. In this disclosure, we have separately disclosed information on our responses to the TNFD Recommendations. However, as climate change and biodiversity issues are interrelated, and the information disclosure framework of the TNFD overlaps with the TCFD in some areas, we plan to consider integrated information disclosure in the future.

In this disclosure, we conducted a scenario analysis assuming FY2030, and identified and assessed risks and opportunities.

Our Group Code of Conduct and the complementary Human Rights Policy stipulate respect for human rights, and our basic stance is to respect the rights of all persons involved in our business activities and to strive not to infringe upon them.

Our group also procures materials from suppliers around the world. We have established a procurement policy to practice fair and equitable procurement activities while being aware of our social responsibility and its impacts. We engage in procurement that takes CSR into consideration with the cooperation of many procurement partners.

Through these efforts, we are striving to minimize impacts and risks to local communities where our bases are located.

In April 2010, the Proterial Group established the Group Basic Policy on Environmental Preservation to clarify the Group’s unified approach to environmental management.

Within our Environmental Promotion Structure, which includes Biodiversity Conservation and Climate Change Measures, we have formed the Group Environmental Committee, which is chaired by the Environment Executive, and whose executive office is the Environmental Strategy Department, Manufacturing & Engineering Division. Activities are promoted in collaboration with the environmental managers of each business division and the environmental managers at business sites and group companies. The Group Environmental Committee is responsible for developing environment-related regulations, setting targets for reducing environmental impact, and confirming that activities are appropriate and effective.

The Group Environmental Committee sets policies and targets for environmental activities in each fiscal year, and deliberates and decides on the Environmental Action Plan. Regarding biodiversity conservation countermeasures, we have set Improvement rate of water use and waste landfill rate targets within the Group and are promoting energy conservation activities, implementing measures to reduce water consumption, reducing waste generation, and improving recycling rates at each manufacturing site based on our Environmental Action Plan. The Group Environmental Committee meets once a year to share the results of the previous fiscal year’s environmental activities, the status of numerical targets for the current fiscal year, and major initiatives to promote continuous improvement of activities.

In addition, the status of efforts toward environmental issues, including Biodiversity Conservation and Climate Change measures, is reported twice a year to both the Executive Committee and the Board of Directors, where important related matters are also deliberated and decisions are made.

Our group promotes global business activities based on respect for human rights, in line with our Corporate Philosophy and Code of Conduct. To clarify this commitment and fulfill our responsibility to all stakeholders, including employees and business partners, we have established the Proterial Group Human Rights Policy. This policy recognizes the human rights stated in the International Declaration of Human Rights and in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work as representing the minimum starting point for such rights. It clearly states that the Proterial Group pursues measures to observe the international principles of human rights. Specifically, we will implement human rights due diligence and appropriate education on the basis of the UN Guiding Principles on Business and Human Rights, while strictly observing the laws of the regions and countries in which we do business.

Our group procures products with a minimal environmental footprint from procurement partners which are working proactively on environmental conservation activities. In1998, we issued the Green Procurement Guidelines to share with our suppliers our views on environmental considerations, including the prevention of global warming, the recycling of resources, and the conservation of biodiversity and ecosystems. Since then, we have repeatedly revised these guidelines in response to the latest laws and chemical regulations and have notified our suppliers of the latest information. The cooperation of our suppliers is essential to effective green procurement. We ask suppliers to continually implement, organize, and improve their environmental protection activities. In addition, we published the Proterial Group Sustainable Procurement Guideline on our website in January 2023. While based on the latest standards that have been acknowledged worldwide, the Guideline was created by encompassing a wide range of CSR concepts recognized as a company’s social responsibility, including respect for human rights, consideration of the environment, fair trading and ethics, occupational health and safety, product quality and safety, information security, and social contribution. The Guideline also stipulates corrective measures to be taken in case of any clear violation discovered among suppliers.

We analyzed and assessed nature-related issues across our Group's direct operations using the LEAP approach recommended by TNFD. In this analysis, we first identified priority areas in the Locate phase based on assessments conducted using tools such as the WWF Water Risk Filter (WWF Risk Filter Suite v2.0) and water consumption and sales in our group. In the Evaluate phase, dependencies and impacts were assessed across all business activities using ENCORE, and material dependencies and impacts were identified by applying corrections that took into account the actual conditions at each location. In the Assess phase, potential risks and opportunities were identified from the material dependencies and impacts identified in the Evaluate phase. In addition, two priority locations identified in the Locate phase were analyzed based on two of the four scenarios presented in the TNFD guidance, namely (1) Ahead of the game Scenario and (3) Sand in the gears Scenario, with a FY2030. Material risks and opportunities were then identified and assessed. Finally, in the Prepare phase, response to address the identified risks and opportunities were considered.

Based on the TNFD disclosure framework (v1.0), we identified locations that fall within Sensitive locations or Material locations and selected them as Priority locations.

Sensitive locations were first analyzed across our Group's direct operations using the WWF Water Risk Filter and WWF Biodiversity Risk Filter (WWF Risk Filter Suite v2.0). In addition, we identified indicators^* related to Sensitive locations as defined by the TNFD: (1) Areas important for biodiversity, (2) Areas of high ecosystem integrity, (3) Areas of rapid decline in ecosystem integrity, (4) Areas of high physical water risks, and (5) Areas of importance for ecosystem service provision, including benefits to Indigenous Peoples, Local Communities and stakeholders. These indicators were scored according to their risk levels. (For example, for (1) Areas important for biodiversity, indicators such as "10. Environmental Factors" identified in the WWF Water Risk Filter and "6.1 Protected/Conserved Areas" identified in the WWF Biodiversity Risk Filter, etc. were assessed, with scores of 1 for Medium Risk, 2 for High Risk, and 3 for Very High Risk, which were then aggregated). As a result, the following five locations were identified as Sensitive locations: “Proterial Hong Kong Ltd. (China)”, “Proterial (India) Private Ltd. (India)”, “Proterial (Thailand) Ltd. (Thailand)”, “Proterial Ltd. Yamazaki Works (Japan)”, “Proterial Malaysia Sdn. Bhd. (Malaysia)”.

Material Areas were identified across our Group's direct operations by combining nature-related data, specifically water consumption, with FY2024 sales data. As a result, three locations were identified as Material areas: “Proterial Ltd. Yasugi Works (Japan)”, “Proterial Cable Solutions, Ltd. (Japan)”, “Proterial Metals, Ltd. Tsuchiura Works (Japan)”.

■Definitions of Sensitive locations, Material locations, and Priority locations:

In order to understand the dependencies on nature and the impacts of all business activities in our group, dependencies on and impacts on nature were evaluated using ENCORE on a five-point scale. In addition, as the ENCORE evaluation is based on the evaluation of general business activities, the evaluation results were adjusted to reflect the actual conditions of our group. For example, some sites manufacturing Sialon ceramics products within Aero & Industrial Alloy Strategic Business Unit (Hereinafter referred to as (A & I)SBU) operate melting furnaces and other facilities subject to the Air Pollution Control Act. However, emissions of soot, dust, NOx and other pollutants are maintained below regulatory limits and are managed in accordance with voluntary standards that are stricter than legal requirements. In addition, no emissions of VOCs, HAPs or other air pollutants have been identified. Accordingly, in the heat map of the impacts on nature, the rating for "Emissions of non-GHG air pollutants" was revised from High (H) to Medium (M).

The heat map summarizing these results is shown in the figure below. Based on the evaluation results, no business unit was identified as having a high~Very high level of dependency on nature. On the other hand, the the manufacturing "Electronic Materials" in the Power & "Electronics Materials Strategic Business Unit (Hereinafter referred to as (P&E)SBU), and the manufacturing of "Aero & Energy Materials," "Molds and tool steel, industrial Materials" in the (A&I)SBU, were identified as potentially having high impacts on nature, primarily due to "Emissions of GHG".

■Heat map of dependencies on nature:

■Heat map of impacts on nature:

Based on the priority locations identified in the Locate phase and the manufacturing products of business units identified in the Evaluate phase as having significant dependencies and impacts on nature, two sites were selected for further analysis and assessment. These sites were the Proterial Ltd. Yasugi Works (Japan), which manufactures "Electronic Materials" in the (P&E) SBU and "Aerospace & Energy Materials," "Mold and tool steel, Industrial Materials" in the (A&I) SBU, and the Proterial Metals, Ltd. Tsuchiura Works (Japan), which manufactures "Electronic Materials" in the (P&E) SBU. Naturerelated risks and opportunities were identified based on the results of the Evaluate phase. Biodiversity Visualization Map (Ministry of the Environment, Japan), IBAT and other tools were used to assess the surrounding environment of the selected sites.

For the scenario analysis, we conducted a scenario analysis assuming FY2030. Two of the four scenarios defined by the TNFD scenario analysis guidance were assessed based on the two key uncertainties represented by the x-axis (Ecosystem service degradation) and the y-axis (Alignment of market and non-market forces). The assessment of ecosystem service degradation was informed by meteorological data and future projections published by the Japan Meteorological Agency and relevant local authorities, while the assessment of market and non-market drivers was based on biodiversity and environmental policies and plans in countries and regions around the world.

The identified risks and opportunities were qualitatively assessed based on their business impact and likelihood of occurrence under two scenarios. High, medium and low risks and opportunities were identified based on the assessment results. The table below summarizes the major risks, opportunities and our response. Based on the results of this analysis and assessment, we identified major risks, including "Increased manufacturing and operating costs due to tighter carbon pricing regulations", "Increased procurement costs due to rising raw material prices caused by stricter environmental regulations at suppliers' manufacturing facilities," and "Increased procurement costs due to rising raw material prices resulting from resource depletion and export restrictions," and so on. To respond these risks, our group will promote various energy-efficiency initiatives and increase the use of recycling within existing production processes. We also identified key opportunities, including "Improved supplier evaluation by customers due to decarbonization initiatives," and others. Going forward, we will continue to advance our decarbonization efforts and other initiatives to further enhance our standing in customer supplier-selection evaluations.