Disclosure Based on TCFD Recommendations
Disclosure Based on TCFD Recommendations (July 29, 2024)
1. Response to TCFD Recommendations
As countries around the world intensify their efforts to address climate change in accordance with the Paris Agreement, the Japanese government announced in October 2020 its policy goal of reducing emissions of greenhouse gases, as typified by carbon dioxide (CO2), to virtually zero by 2050. Accordingly, companies are expected to be more proactive than ever in their efforts to transition to a decarbonized society.
The Group considers the impact of climate change on its business as one of our most important management issues, and we believe that enhanced disclosure of climate-change-related information is a key factor in building a relationship of trust with our stakeholders. Accordingly, in June 2021, we registered our support for the TCFD* Recommendations, and in accordance with the TCFD Recommendations, the Group will continue to enhance our disclosure of information on the impact of climate change on our business activities. Going forward, we will also continue to respond to the disclosure standards of the International Sustainability Standards Board (ISSB) and the Sustainability Standards Board of Japan (SSBJ).
- *The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) in 2015 in response to requests from the G20 for climate-related disclosures. The TCFD published its final report in June 2017, in which it recommends companies to disclose items related to climate change-related risks and opportunities.
2. Governance
In April 2010, the Proterial Group established the Group Basic Policy on Environmental Preservation to clarify the Group’s unified approach to environmental management.
In June 2021, we registered our support for the TCFD Recommendations, and in August of that year, following a report to the Board of Directors, we established a new environmental policy named “Aiming for Green Growth While Taking Risk as Opportunity.”
The Proterial Group Environmental Committee (Group Environmental Committee, hereinafter) has been established as a framework for promoting environmental activities such as climate-change countermeasures. The Group Environmental Committee is chaired by the Environment Executive Officer, and its executive office is the Environmental Strategy Department, Manufacturing & Engineering Division. Its activities are promoted in cooperation with the environmental managers of each business unit, 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.
Policies and targets concerning environmental activities are discussed and set by the Group Environmental Committee as annual environmental action plans. With regard to climate-change countermeasures, the Environmental Action Plan sets targets for CO2 emissions within the Group. On the basis of those targets, energy-saving activities and the use of renewable energy are being promoted at each manufacturing site. The status of CO2 emissions is monitored regularly, and the Group Environmental Committee meets once a year to share the results of the previous fiscal year, 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 climate-change measures, are reported twice a year to the Executive Committee and the Board of Directors, where important issues related to climate change are also deliberated and decided.
Status of reporting and decision-making on important climate-change-related items in fiscal year 2023
| Month/Year | Important issues related to climate change | Meeting body |
|---|---|---|
| April 2023 | Membership of the GX League | (President’s decision) |
| May, June 2023 | Environmental strategy and status of initiatives (initiative results for FY2022, initiative policy for FY2023, update of TCFD disclosure content (review of scenarios and Scope 3 disclosure)) | Executive Committee, Board of Directors |
| October, November 2023 | Environmental strategy and status of initiatives (initiative status for FY2023, setting of GX League targets) | Executive Committee, Board of Directors |
| January 2024 |
|
Executive Committee |
Environmental Promotion Structure
■ Environment Executive Officer ◎
The executive officer in charge of manufacturing and technology is in charge as an Environment Executive Officer who is well acquainted with environment-related issues and exercises overall control through the Group Environmental Committee.
■ Proterial Group Environmental Committee
Deliberates and determines policies, targets, etc. related to environmental management activities within the Group.
■ Chief Environmental Management Officer
Oversees environmental management activities within the business units.
■ Environment Committee
Deliberates and determines policies, targets, etc. related to environmental management activities at each business site.
■ Environmental Managers
Take responsibility for and promote environmental-management activities of each business site.
3. Strategy (Scenario Analysis)
The Group conducted “scenario analysis” to clarify the risks and opportunities posed by future climate change and to develop business strategies to reduce risks and expand opportunities. While we recognize that scenario analysis should cover the entire group, including the supply chain, in fiscal year 2022, we conducted an analysis of our domestic business. In fiscal year 2023, we reevaluated our domestic business in line with the transition to the new system. In fiscal year 2024, we conducted analysis that included major overseas operations.
■ Scenario-analysis process
Scenario analysis-consisting of the four steps shown in Figure 1-aims to assess (i) financial and business impacts under different scenarios and (ii) resilience of the Group strategy in regard to climate-related risks and opportunities.
■ Assumptions for scenario analysis
- Scenarios:
- Refer to the “below 2℃ scenario” for transition risks and opportunities and the “4℃ scenario” for physical risks.
- Target businesses:
- FY2022: Advanced Components & Materials Division (Domestic sites) and Advanced Metals Division (Domestic sites)
FY2023: Each division (Domestic sites)
FY2024: Each division (Domestic sites and major overseas sites)
- Target Fiscal Year:
- Impact by 2030
■ Reference scenario
| Classification | Main reference scenario |
|---|---|
| Below 2℃ scenario |
|
| 4℃ scenario |
|
■ Scenario-analysis steps (figure 1)
The following table shows the results of our review of the risks and opportunities posed by climate change
| Classification | Type | Content | Business/financial impact | Our response | |||
|---|---|---|---|---|---|---|---|
| Specialty Steel |
Roll | Automotive castings |
|||||
| Risk | Transition | Policy/ regulations |
Increased production and operating costs due to tighter regulations on carbon pricing (CP), including carbon taxes, taxes on fuel and energy consumption, and emissions trading. | Medium | Medium | Medium | Currently, we are working towards improving energy consumption per unit of production by 1% or more per year by promoting various energy-saving measures (LED lighting, replacement and introduction of high-efficiency equipment) and productivity improvement measures. Aiming to become carbon neutral by 2050, we plan to actively promote fuel conversion and introduction of renewable-energy facilities (installation of solar panels) as additional measures to achieve the 2030 CO2 reduction target. |
| Increased procurement risk due to strengthened CP regulations for raw materials. | Medium | Small | Small | As for principle raw materials, we will strengthen surcharges and cultivate new suppliers. From the perspective of life-cycle assessment (LCA), we will increase the utilization ratio of scrap (which generates low CO2 emissions) and nurture new suppliers |
|||
| Technology | Increase in operating costs due to capital investment involved in the introduction of manufacturing processes (electrification and alternative fuels) to meet decarbonization requirements. | Small | Small | Large | When introducing new manufacturing processes, we will examine equipment specifications with the aim of reducing its impact on operating costs | ||
| Market | Decreased demand for peripheral components of internal combustion engines owing to the expansion of xEVs and decrease in sales due to excessive competition with competing xEV suppliers. | Medium | Small | Large | As for capturing demand for components of automotive internal-combustion engines, we will target the commercial-vehicle and agricultural/construction-equipment fields | ||
| Decrease in sales due to delays in responding to customer requests for decarbonization and lost opportunities to expand new sales. | Small | Small | Medium | As for reducing CO2 emissions from manufacturing processes, we will continue to promote both energy conservation and renewable energy, and we will focus on how to respond to customer requests for decarbonization. | |||
| Physical | Acute and chronic | Orders and sales decreased owing to delays in delivery accompanying the suspension of operations caused by natural disasters due to abnormal weather. | Small | Small | Large | We will systematically improve our production systems in anticipation of extreme weather events. We will expand the BCP system and refine the action manual for emergencies. |
|
| Classification | Type | Content | Business/financial impact | Our response | ||||
|---|---|---|---|---|---|---|---|---|
| Magnetic materials |
Power electronics |
Electric wires |
Automotive components |
|||||
| Risk | Transition | Policy/ regulations |
Increased production and operating costs due to tighter regulations on carbon pricing (CP), including carbon taxes, taxes on fuel and energy consumption, and emissions trading. | Medium | Large | Small | Medium | We are reducing CO2 emissions by promoting various energy-saving measures (e.g., LED lighting and renewal/introduction of high-efficiency equipment) and measures to improve productivity. From now onwards, aiming to achieve our CO2 reduction target for 2030, we will actively promote fuel conversion and purchase of renewable electricity as well as the introduction of renewable energy (i.e., installation of solar panels). |
| Increased procurement risk due to strengthened CP regulations for raw materials. | Small | Medium | Medium | Small | As for principle raw materials, we will work to strengthen surcharges and cultivate new suppliers. In the magnet business, we will continue to develop materials that use fewer heavy rare earth elements and introduce them to the market. In the electric wire business, we will reduce the amount of copper used by improving productivity, develop and commercialize aluminum alloy conductor cables, and further expand the ratio of recycled copper. |
|||
| Technology | Increase in operating costs due to capital investment involved in the introduction of manufacturing processes (electrification and alternative fuels) to meet decarbonization requirements. | Small | Small | Small | Small | When introducing new manufacturing processes (e.g., introduction of the latest energy-saving technologies), we will examine equipment specifications with the aim of reducing their impact on operating costs. And the increased costs will be passed on to sales prices. | ||
| Market | Decreased demand for peripheral components of internal combustion engines owing to the expansion of xEVs and decrease in sales due to excessive competition with competing xEV suppliers. | Small | Large | Small | Small | We will reduce costs by introducing high-efficiency equipment, improving productivity, and procuring parts locally. | ||
| Decrease in sales due to delays in responding to customer requests for decarbonization and lost opportunities to expand new sales. | Small | Large | Small | Large | We will improve the ratio of renewable energy use by promoting introduction of renewable energy and selecting electric power companies with high RE power-generation ratio. | |||
| Physical | Acute and chronic | Orders and sales decreased owing to delays in delivery accompanying the suspension of operations caused by natural disasters due to abnormal weather. | Small | Medium | Medium | Large | We will systematically improve our production systems in anticipation of extreme weather events. We will expand the BCP system and refine the action manual for emergencies. |
|
| Classification | Type | Content | Business/financial impact | Our response | ||
|---|---|---|---|---|---|---|
| Specialty Steel |
Roll | Automotive castings |
||||
| Opportunity | Resource efficiency |
We will increase sales by increasing product value through efficient production and efficient use of materials and energy. | Small | Small | Small | To achieve the 2030 CO2 reduction target, we plan to promote energy-saving measures through fuel conversion for industrial furnaces and boilers, introduction of high-efficiency equipment and waste heat utilization, and actively promote further introduction of solar power generation facilities. We will also proceed with PR activities relating to our efforts and achievements. |
| Source of energy | We will increase sales by improving customers’ supplier selection evaluation through decarbonization efforts. | Small | Small | Small | We will promote CO2 reduction by introducing renewable energy and switching to carbon-neutral fuels. | |
| Products/ Services |
We will increase sales by developing and launching environmentally friendly products onto the market. | Large | Small | Small | We will promote new orders and increase market share of target products by shortening development lead times and reducing costs of environmentally friendly products. We will continue to expand sales of environmentally friendly products, which are expected to be in greater demand in the future.
|
|
| Classification | Type | Content | Business/financial impact | Our response | |||
|---|---|---|---|---|---|---|---|
| Magnetic materials |
Power electronics |
Electric wires |
Automotive components |
||||
| Opportunity | Resource efficiency |
We will increase sales by increasing product value through efficient production and efficient use of materials and energy. | Small | Medium | Small | Medium | To achieve the 2030 CO2 reduction target, we plan to promote various energy-saving measures (LED lighting, renewal and introduction of high-efficiency equipment, etc.) and productivity-improvement measures while promoting fuel conversion and introduction of renewable energy (i.e., installation of solar panels). We will also proceed with PR activities relating to our efforts and achievements. |
| Source of energy | We will increase sales by improving customers’ supplier selection evaluation through decarbonization efforts. | Small | Small | Small | Small | We will reduce electricity consumption by improving productivity and increase the utilization rate of renewable energy. | |
| Products/ Services |
We will increase sales by developing and launching environmentally friendly products onto the market. | Large | Large | Small | Medium | We aim to expand sales by developing products that contribute to a low-carbon society.
|
|
Definition of assessment of business/financial impact
Large: cost or effect is equal to or greater than 5% of sales*1
Medium: cost or effect is equal to at least 1% but less than 5% of sales*1
Small: cost or effect is less than 1% of sales*1
- *1Net sales of target businesses
As described above, in response to the assessment of domestic sites disclosed in October 2023, we have reverified the response to risks and opportunities for each business, including major overseas sites, and we have confirmed that our environmental strategy is resilient.
4. Risk Management
The Group has established a “Risk Management Committee” (RMC) under the supervision of the Chief Risk Control Officer (CRCO) executive officer. The function of the RMC is to identify various risks surrounding the Group, and comprehensively manage risks by summarizing the status of controls against those risks and assessing and weighting the degree to which they manifest and their level of impact. Risks related to climate change identified by the Group Environmental Committee, corporate departments, and business divisions are reported to the RMC together with other risks as one of the risks related to environmental regulations. The RMC meets twice a year to share the status of risk controls and related monitoring results, and to report to the Executive Committee.
Risk management structure
5. Indicators and Targets
■ About Scopes 1 and 2
The Group has set the Scopes 1 and 2*2 targets for CO2 emissions as shown in the illustration below. In promoting carbon neutrality, we will continue our conventional energy-saving activities while striving to improve processes such as capital investment, convert to alternative fuels for melting furnaces, heating furnaces, and other manufacturing processes, develop technologies based on carbon-free fuel, and introduce renewable energy.
Target for CO2 emissions (whole Group)
- *2Scope 1: Direct emissions of greenhouse gases by business operators themselves (fuel burning and industrial processes)
Scope 2: Indirect emissions associated with use of electricity, heat, and steam supplied by other companies
Group-wide Scope 1 and 2 results
(kt-CO2)
| Target | FY2021 | FY2022*3 | FY2023*4,*5 |
|---|---|---|---|
| Scope 1 | 876 | 818 | 234 |
| Scope 2 | 1,340 | 1,096 | 828 |
| Scope 1 + Scope 2 | 2,216 | 1,914 | 1,062 |
- *3CO2 emissions (Scopes 1 and 2) in fiscal year 2022 have been certified by a third party.
- *4CO2 emissions (Scopes 1 and 2) in fiscal year 2023 are being verified by a third party as of July 2024.
- *5CO2 emissions in fiscal year 2023 significantly decreased compared to the previous fiscal year due to the impact of business portfolio revision, among other things.
■ About Scope 3
The Company calculated CO2 amount for Scope 3 Categories 1 to 7 and 13 according to “Basic Guidelines on Accounting for Greenhouse Gas Emissions Throughout the Supply Chain.”CO2 emissions in fiscal year 2023 totaled 2,287 kt-CO2, of which “Category 1: Purchased Goods and Services” accounted for the largest share (77.7%).
Group-wide Scope 3 aggregated results
| Category | Category description | FY2021 | FY2022 | FY2023 | |||
|---|---|---|---|---|---|---|---|
| Emissions [kt-CO2] |
Ratio [%] | Emissions [kt-CO2] |
Ratio [%] | Emissions [kt-CO2] |
Ratio [%] | ||
| 1 | Purchased goods and services | 1,746 | 74.1 | 1,787*6 | 76.5 | 1,778*7 | 77.7 |
| 2 | Capital goods | 115 | 4.9 | 106 | 4.5 | 115 | 5.0 |
| 3 | Fuel and energy related activities not included in Scopes 1 and 2 |
412 | 17.5 | 391 | 16.7 | 348 | 15.2 |
| 4 | Upstream transportation and distribution |
38 | 1.6 | 24 | 1.0 | 21 | 0.9 |
| 5 | Waste generated in operations | 27 | 1.1 | 11 | 0.5 | 9 | 0.4 |
| 6 | Business travel | 4 | 0.2 | 3 | 0.1 | 3 | 0.2 |
| 7 | Employee commuting | 12 | 0.5 | 12 | 0.5 | 11 | 0.5 |
| 13 | Downstream leased assets | 2 | 0.1 | 2 | 0.1 | 2 | 0.1 |
| Total | 2,356 | 100.0 | 2,336 | 100.0 | 2,287 | 100.0 | |
- *6CO2 emissions (Scope 3 Category 1) in fiscal year 2022 have been certified by a third party.
- *7CO2 emissions (Scope 3 Category 1) in fiscal year 2023 are being verified by a third party as of July 2024.
- Scope of data: Categories 1 to 7 (excluding Category 4) and Category 13 are figures for the whole Group. Figures in Category 4 are based on domestic operations only.
Calculation method:
FY2021, FY2022: Ministry of the Environment DB3.1 and IDEA database Ver. 3.2 were used.
FY2023: Ministry of the Environment DB3.4 and IDEA database Ver. 3.3 were used.
Scope 3 FY2023 results
■ Executive compensation
Compensation for our Executive Officers is based upon the achievement of annual targets. From fiscal year 2022, we have added the Group’s CO2 emissions target as an evaluation item for climate-change response. We have also applied this indicator to management staff, and we are working on carbon-neutrality measures as it’s an important issue facing our business operations.
■ Internal carbon price
To promote CO2 reduction, we have added the concept of “internal carbon pricing” to our internal regulations related to capital investment. In detail, we set a carbon price (8,000 yen/t CO2) based on the total amount of CO2 emissions after capital investment, and the effect of the CO2 reduction of the capital investment is calculated as profit. The concept has been implemented since October 2021, and as a result of the carbon price review, we have decided to maintain the price with reference to the carbon taxes, carbon credits, and procurement prices of renewable energy, both in Japan and overseas. We will continue to review the carbon price periodically.