Response to the TCFD Recommendations

The business operations of The Nisshin OilliO Group are based on plant resources. Our response to climate change, which has a major impact on plant growth, is therefore a key issue for management. In March 2021 we expressed our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We will respond to the TCFD recommendations by analyzing the risks and opportunities associated with climate change, compiling simulations of the financial impact and so on, and proactively engaging in information disclosure.

1.Four Disclosure Items Recommended by the TCFD

Item Description
Governance
  • In creating shared value (CSV) together with society by resolving social issues through our business operations, The Nisshin OilliO Group strives to achieve the sustainable growth of the Group and the sustainable development of society.
  • Issues associated with climate change are deliberated on and decided by the Board of Directors. In addition, basic policy plans and strategic measures for achieving sustainability are deliberated on by the Sustainability Committee of the Board of Directors and approved by the Board.
  • The Board of Directors has responsibility for addressing climate change issues and oversees progress toward its targets. The Board acquires adequate information from the Sustainability Committee and outside experts as necessary and takes active measures to address issues.
  • Incentives for contributing to solutions to climate change issues are reflected in the criteria for payment of bonuses to directors (excluding outside directors) in proportion the degree of achievement of ESG targets.
  • The Company set Environmental Targets for 2030 and established specialized organizations (the Office of Corporate Sustainability Management and the Environment Solutions Office) as initiatives to counter climate change.
Strategy
  • In fiscal 2021 the Group launched The Nisshin OilliO Group Vision 2030, our vision we seek to achieve by 2030, and a new medium-term management plan, Value Up+, which includes initiatives for the first four years thereof. Under The Nisshin OilliO Group Vision 2030, we will continue building on the Group’s core strength of oils and fats, utilizing it to drive growth and create the diverse values of health, good flavor, and beauty. For this purpose, we are working to preserve global environment, which constitutes the foundations of our business. We will also take even greater action on the world’s highest levels to achieve sustainability in raw material.
  • To plan strategies, we conducted climate scenario analysis, and we are examining the Value UP+ short-term strategy for the period until 2024, The Nisshin OilliO Group Vision 2030 medium-term strategy for the period until 2030, and a long-term strategy for achieving carbon neutrality by 2050.
  • Regarding raw-material sustainability, in order to control the risks of decreases in production volume and increases in the price of plant materials due to changes in climate patterns associated with climate change, as well as the increased demand for such sustainability-considerate raw materials as certified oil, we are mitigating risks by purchasing the same raw materials from multiple producing areas and diversifying our supply chains.
  • Recognizing that products with low greenhouse gas emissions and those leading to less environmental impact will provide opportunities for increased sales, we are developing products and services that have a positive impact on the environment. Examples include products that reduce amounts used for cooking, products for which expiration dates and durations of use are extended through our unique production methods, and products with environment-friendly containers and packaging. We will continue to create new value through co-creation with stakeholders.
  • Due to the impact of climate change, there is a growing movement in the cosmetics industry to pursue naturality (plant-based preferences and attention to environment) in raw materials. Recognizing that alignment with this movement will cater to business opportunities, the Company aims to become a leading company of cosmetic oils and to elevate its presence globally.
Risk management
  • The Risk Management Committee, which is a deliberative body of the Board of Directors, has identified major financial and strategic risks to our business and is managing physical risks and transition risks associated with climate change.
  • Major risks for the entire Group are evaluated in three grades after being analyzed for their degree of impact and likelihood of occurrence. Furthermore, management timelines are divided into short, medium, and long term.
  • For each major risk, we specify the responsible department, which performs risk management through the plan-do-check-act cycle and responds in times of emergency. Assessments of these risk managements include reporting to the Board of Directors by the Risk Management Committee and monitoring by the Internal Audit Department.
Metrics and targets
  • The Group has formulated Environmental Targets for 2030 as specific initiatives toward achieving sustainability in accordance with our environmental philosophy and policy. We advocate the reduction of greenhouse gas emissions as a measure to counter climate change and, in compliance with WB2°C science-based targets for Scope 1 and 2 greenhouse gas emissions, aim to reduce them by 31% by fiscal 2030 (compared to fiscal 2016). Regarding Scope 3, we aim to encourage our suppliers, which account for the equivalent of 70% of emissions related to our purchased goods and services, as well as transportation and delivery (upstream), to set science-based reduction targets by 2026.
  • Greenhouse gas reductions include Scope 1 and 2 reductions achieved by introducing high-efficiency equipment and shifting to non-fossil fuel energy, such as solar power and hydrogen, as well as Scope 3 reductions by urging action throughout supply chains based on our decarbonization roadmap for achieving carbon neutrality. Scope 1, 2, and 3 emissions are disclosed in our Integrated Report (Sustainability Data Book).
  • In addition, we are working to effectively use water resources by taking action to reduce water usage per unit of production by 16% compared to fiscal 2016 by 2030 and managing water quality in accordance with laws and regulations so that it can be used in downstream areas.
  • Measures to reduce waste include curtailing the generation of wastes by developing environmentally-friendly products such as lightweight containers and long-life products and reusing resources by introducing biomass boilers that can make use of byproducts from production processes and putting zero emissions into practice.

2.Climate-Change Scenario Analysis

As a premise for our climate-change scenario analysis, we assumed a world in which the temperature has risen 2℃ and 4℃ since the Industrial Revolution and assumed and identified the risks and opportunities in both cases. At the same time, we considered measures for risks and opportunities that would exert a substantial impact on our Group’s business operations and estimated the financial impact. In addition, we are examining the scenario where temperature rise is limited to 1.5°C and the scenario where temperature rise is 4°C or more.

Climate-Related Risks

As risks expected to exert a substantial impact on our business operations, the 2℃ scenario includes increased costs due to carbon taxes and the purchase costs of CO2 emission credits, and the 4℃ scenario includes increased procurement costs as a result of lower raw-material production linked to the greater frequency and severity of natural disasters. In the latter case, it is also expected that there would be reduced capacity to supply our products and corresponding declines in sales due to such incidents as flooding and power outages at manufacturing plants caused by typhoons or other disasters.

Risk classification Impact on business Impact level
Transition risks Policy and legal regulation Carbon pricing There is a risk that the cost of energy, containers, transportation, and so on will increase due to hikes in and revised rules of carbon taxes. Furthermore, due to the introduction of corporate CO2 emissions trading schemes, purchase costs for emission credits could arise. High
Lawsuits As climate change prompts shifts in the social environment and stricter laws and regulations, there is a risk of being subject to lawsuits arising from supply chain law violations, forest destruction, or human-rights issues. Medium
Technology Switch to decarbonization equipment and production methods Capital investment expenses are expected to increase as we proceed with large-scale equipment installations for the decarbonization of our production systems. In addition, there are risks that investments do not prove to be as effective as expected and that breakthrough technologies cannot be introduced due to a shortage of funds. High
Market Increased sustainability-considerate purchasing behavior Regarding palm oil and other materials, purchasing behavior toward products that guarantee sustainability will gain momentum. As a result, there is a risk that raw-material costs will rise. Furthermore, in the case that sustainability cannot be guaranteed, there is a risk that consumers will drift away due to the decline in product value, and sales will drop. High
Reputation Acceleration of investment and financing with consideration for sustainability and climate change If our efforts to address sustainability or climate change are delayed, and if information disclosure regarding the status of company efforts is inadequate, there could be a risk of declines in stock price of the Company and stalled financing. Furthermore, there is a risk that the spread of unfavorable reputation about the company could diminish our corporate value. Medium
Physical risks Acute Greater frequency and severity of natural disasters at raw-material producing areas and production sites If there were a rise in damage from hurricanes, flooding, and so on in raw-material producing areas, there is a risk that our procurement costs would increase as a result of raw-material price hikes arising from reduced production. In addition, if production sites were damaged, there is a risk that our manufacturing, sales, and logistics capabilities would temporarily be diminished, and sales would decrease. High
Chronic Changing weather patterns (rising temperatures, changes in precipitation, etc.) If weather patterns were to fluctuate drastically, there is a risk that our procurement costs would increase due to raw-material price rises linked to the reduced production of soybeans, palm oil, and other core raw materials. Furthermore, there is a risk that the quality and safety of our raw materials, as well as the stability of our product supply, would be adversely affected. Medium

Climate-Related Opportunities

Opportunities to significantly impact business activities include the development and sale of products curbing CO2 emissions and increased sales through enhanced customer satisfaction in our use of sustainable raw materials. We also see the strengthening of business continuity in the event of natural disasters as an opportunity to increase our social value.

Opportunity classification Impact on business Impact level
Resource efficiency Improved energy efficiency As a result of the introduction of efficient equipment and advanced production management, we can improve energy efficiency at production sites and reduce production costs. High
Energy source Use of renewable energy Utilizing renewable energy, selling products that reduce CO2 emissions (Scope 1 & 2), and promoting added value will lead to higher customer satisfaction, as customers seek to reduce supply chain emissions, and increased sales. Medium
Products and services Development of products with low CO2 emissions Responding to customer requirements for reduced supply-chain emissions, we will develop products with low CO2 emissions from a life-cycle assessment perspective　(low oil absorption when cooking, longer shelf life, etc.). This will lead to enhanced customer satisfaction and thus increased sales. High
Markets Increased sustainability-considerate purchasing behavior In light of reducing the impact of climate change, the importance of forest conservation is growing, and demand for sustainability-considerate materials (products) is spreading. In particular, in the case of palm oil, which has the largest production volume among oils and fats sources, we recognize that the supply of certified oil requested by customers leads to strengthened relations with our business partners and the acquisition of new opportunities for sales and thus we can achieve increased sales. High
Growing demand for plant-derived products in the cosmetics industry For the Fine Chemical Business, which targets the cosmetics industry in which naturality (plant-based preferences and environmental considerations) is burgeoning, our sales are expected to increase due to the growing demand for plant-derived products. In addition, its development into a core business second only to the Oil and Fat Business will lead to the stabilization of revenue for the entire Group. High
Resilience BCP strengthening By strengthening our Business Continuity Planning (BCP) in preparation for greater frequency and severity of natural disasters stemming from climate change, it will be possible to maintain product supply systems in times of emergency and raise our corporate social value. As a result, in addition to increased net sales and higher share prices, we believe that this will contribute to our funding advantage. Medium
Promotion of recycling and stable procurement of containers and packaging In response to climate change, the shift away from fossil fuel is making progress. As plastic is our main raw material used for product containers, we plan to stabilize future procurement of raw materials for containers by establishing resource recycling through investment in recycling companies and switching to bioplastic and plastic container alternatives. Medium

Measures for Climate-Related Risks and Opportunities

Measures for the risks and opportunities that could substantially impact the Group’s business operations are shown below. Among other things, we will endeavor to reduce our CO2 emissions, ensure sustainable raw-material procurement that gives consideration to the environment and human rights, comply with laws and regulations and avoid lawsuits, develop and sell value-added products, and strengthen our BCP in consideration of natural disasters.
Going forward, we will continue to examine impact levels and, over the longer term, analyze such matters as the growth of plant materials, core energy sources, and changes in customer demands.

Entries Measures
Risks Opportunities
Carbon pricing Improved energy efficiency
  • Targeting a 31% reduction in greenhouse gas emissions by 2030 compared with the fiscal 2016 results
  • Formulation and implementation of a decarbonization roadmap
  • Thorough energy conservation activities, transition to more efficient equipment, expanded use of renewable energy, and introduction of new technologies
  • Proactive installation of equipment utilizing internal carbon pricing
Transition to decarbonization equipment and production methods
Increased orientation toward sustainability considerations
  • Formulation of The Nisshin OilliO Group Basic Procurement Policy (with policies covering palm oil, soybeans, and cacao) and The Nisshin OilliO Group Human Rights Policy
  • Strengthening procurement of certified raw materials giving consideration to the environment and human rights

    - Expansion of palm oil RSPO supply chain certified sites (segregated [SG] and mass balance [MB])

    - Priority expansion of RSPO-certified SG products required especially in Europe

    - Preparations for the procurement of Malaysian Sustainable Palm Oil (MSPO) and Indonesian Sustainable Palm Oil (ISPO) to enable the sale of multiple certified oils

    - Promotion of procurement activities to improve the sustainability of such raw materials as soybeans

  • Fostering of awareness of certified raw materials among customers and consumers
  • Development of products and services that positively impact the environment, such as the development of low greenhouse-gas-emission products
  • Mitigation of the risk of lawsuits by ensuring strict legal compliance, including by stakeholders involved in our supply chain
Growing demand for plant-derived products in the cosmetics industry
  • New establishment of a fine-chemical products plant in the Yokohama Isogo Plant to increase the production capacity of value-added esters and to adapt the facility to cosmetics certification
  • Expansion of the Asian market as a driver of growth business and promotion of global business in developed markets as a foundation of business
Greater frequency and severity of natural disasters BCP strengthening
  • Diversification of suppliers, dispersion of raw-material producing areas, and enhanced quality check systems to stabilize the supply of raw materials and control the risk of price rises
  • Planning for production base reinforcements to protect against storm and flood damage, earthquakes, and so on; implementation of earthquake resistant reinforcements for shore embankments, oil manufacturing facilities, and facilities for water, gas, electricity at the Yokohama Isogo Plant
  • Achieving stable future procurement of raw materials for containers and packaging by investing in companies recycling plastic materials; promotion of the development of plastic container alternatives