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, and in March 2021 we expressed our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Going forward, 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.
  • Matters prescribed in laws and regulations and important managerial matters, including the resolution of issues associated with climate change, are deliberated on and decided by the Board of Directors. In addition, the Sustainability Committee, established as a deliberation committee for the Board of Directors, discusses basic policy plans and strategic measures toward achieving sustainability and reports its results to the Board of Directors.
  • Most recently, we have set Environmental Targets for 2030, endorsed the TCFD recommendations, and established a climate-change response setup (office of Corporate Sustainability Management and Decarbonization Advancement Office).
Strategy
  • In fiscal 2021 the Group launched The Nisshin OilliO Group Vision 2030, which is our long-term vision toward 2030, and a new medium-term management plan, Value Up+, which includes initiatives for the first four years. Under 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 will elevate environmental protection and raw-material sustainability, which constitute the foundations of our business, to the highest global level.
  • Regarding raw-material sustainability, in order to address 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.
  • Moreover, recognizing that product development resulting in low greenhouse gas emissions 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 that use 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 environmental considerations) in raw materials. Recognizing that alignment with this movement will provide business opportunities, the Company aims to become a leading company in cosmetic oils and to increase its presence globally.
Risk management
  • The Risk Management Committee, which is a deliberation committee for the Board of Directors, has identified risks associated with climate change as major financial and strategic risks to our business.
  • Major risks for the entire Group are evaluated in three stages after being analyzed for their degree of impact and likelihood of occurrence. Furthermore, their 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 stipulates how to respond in times of emergency. These risk assessments are reported to the Board of Directors by the Risk Management Committee and are monitored 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 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 purchased goods and services, as well as transportation and delivery (upstream), to set science-based reduction targets by 2026.

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 considered 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.

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 production plants caused by typhoons or other disasters.

Risk classification Impact on business Impact level
Transition risks Policy and legal Carbon pricing There is a risk that the cost of energy, containers, transportation, and so on will increase due to hikes in and further introduction 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 for supply-chain law violations, forest destruction, or human-rights issues. Medium
Technology Switch to decarbonization equipment and production methods Capital investment expenses will 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 and climate change are delayed, or if information disclosure regarding the status of company efforts is inadequate, there could be a risk of declines in our stock price and stalled financing. Furthermore, there is a risk that the spread of unfavorable rumors 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 procurement costs would increase as a result of price rises linked to reduced production. In addition, if production sites were damaged, there is a risk that our production, 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

As an opportunity that would exert a substantial impact on our business operations, we can cite the fact that stable raw-material procurement will be possible since no significant decline in the growth of plants for our raw materials was observed whether the temperature rise was 2℃ or 4℃. Furthermore, since such factors as the development and sale of products curbing CO2 emissions and the use of sustainable raw materials would lead to enhanced customer satisfaction, we see a good opportunity here to increase sales.

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 Responding to customer requirements for reduced supply-chain emissions, we will use renewable energy and manufacture and sell low CO2 emission products (Scope 1 and 2). This will lead to enhanced customer satisfaction and thus 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 order to reduce 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, we recognize that since the supply of certified oil requested by customers leads to strengthened relations with our business partners and the acquisition of new opportunities for sales, 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, the demand for plant-derived products is growing and our sales are expected to increase. 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 the 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 fund procurement advantage. Medium
Promotion of the recycling of containers and packaging and stable procurement 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, our procurement of raw materials for containers can be stabilized and our corporate value improved 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 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 level
  • Extensive energy conservation activities, transition to more efficient equipment, 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
  • Strengthening procurement of certified raw materials giving consideration to the environment and human rights

    - Expansion of the number of palm-oil supply-chain sites certified by the Roundtable on Sustainable Palm Oil (RSPO) (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 within the Yokohama Isogo Plant with the aim of increasing the production capacity of value-added esters and creating a facility eligible for cosmetics certification
  • Expansion of sales globally in anticipation that the cosmetics market centered on China will recover and expand after the COVID-19 pandemic
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 other utilities at the Yokohama Isogo Plant in 2021
  • Securing of a stable supply of raw materials for containers and packaging by investing in companies recycling plastic materials; in addition, promotion of the development of plastic container alternatives