Information Disclosure Based on TCFD Recommendations

Outline of TCFD Response

Climate change is a global challenge for all countries and regions, and the reduction of greenhouse gases is a global long-term target. The Nisshinbo Group believes that it is crucial to incorporate business opportunities caused by climate change and appropriately respond to risks. Accordingly, in FY2021 the Group began analyzing climate change scenarios in accordance with the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD). In June 2022, the company expressed its agreement to the TCFD recommendations.

Through climate change scenario analyses, the Group will identify the risks and opportunities that climate change may pose to the business in future, develop more flexible and robust strategies by leveraging the opportunities in the development of business strategies, and increase the resilience against future risks.

TCFD Disclosure Item

• Governance
• Strategy
• Risk Management
• Metrics and Targets

Governance

As shown in the diagram below, the Nisshinbo Group established and operates a framework for appropriately responding to risks and opportunities related to climate change. In order to make risk an opportunity for sustainable growth, the Group will constantly identify and analyze changes in the various business environments. Based on the business policies derived from the Group's corporate philosophy, the Nisshinbo Group will create new growth opportunities by contributing to society as an Environment and Energy Company group. Responsibilities for climate-related issues are borne by such meetings as the Board of Management, which is composed of the president and executive officers, and reports to the Board of Directors. The Board of Directors discusses responses to the reported climate-related issues and oversees goals and the progress made.

Governance Structure

Strategy

An Overview

Since the Nisshinbo Group has a wide range of businesses, a climate change scenario analysis was conducted in stages starting in FY2021, and an analysis of the Group's major businesses was completed^* in FY2023. In FY2021, the Group targeted the Solutions business in the Wireless and Communications business, the Automobile Brakes business, and the Chemicals business that are expected to have a large risk/opportunity impact. In FY2022, the analysis was conducted in major businesses with production activities by covering the Marine System, ICT/Mechatronics, and Mobility business in the Wireless and Communications business, the Micro Devices business, the Precision Instruments business, and the Textiles business. For FY2023, the scope of the program includes Medical Equipment business in the Wireless and Communications business, Real Estate business, and Other businesses, as well as initiatives in the Business Development Division. The climate change scenarios used are for a world where warming progresses (warming progression scenario, 2.5°C to 4°C) and a world where warming is controlled and active transitions occur (decarbonization scenario, 1.5°C to 2°C).

* Excluding Hitachi Kokusai Electric Inc., which became a subsidiary in December 2023.

1. Assess Materiality of Climate-related Risks

As the first step in the scenario-analysis, the Nisshinbo Group identified the material risks and opportunities for each of the targeted businesses with reference to the external literature related to TCFD Final Report and industries. Because the impacts of climate change have the potential to materialize over the medium to long term, the Group qualitatively assessed the risks and opportunities on a large, medium, and small basis, not only in the short term but also over the medium to long-term time horizon up to 2050. As a consequence, the following table shows the significant risks and opportunities associated with business continuity and the creation of new businesses.

:Wireless and Communications		:Micro Devices	:Automobile Brakes	:Precision Instruments	:Chemicals
	:Textiles	:Real Estate	:Others	:Business Development Division

:Wireless and Communications		:Micro Devices	:Automobile Brakes
:Precision Instruments		:Chemicals	:Textiles
:Real Estate	:Others	:Business Development Division

2. Identify and Define Range of Scenarios

The Nisshinbo Group analyzed climate-related risks and opportunities under the warming progression and decarbonization scenarios using 2050 years as the time axis. For the analysis, see the following literature.

* IEA scenarios, etc. are based on the latest data available at the time of analysis of each project, and there may be slight differences in conditions and other factors.

* Prepared by Nisshinbo Holdings Inc. from the IPCC Fifth Assessment Report

The Nisshinbo Group organized the global view of the warming progression scenario and the decarbonization scenario.

In the warming progressive scenario, while some sites will be affected by flooding and other damage, sales opportunities for countermeasure products and services as temperatures rise will increase, and demand for disaster prevention-related products and services is expected to rise.

In the decarbonization scenario, countries will tighten emission reduction targets and introduce high carbon taxes, while demand for decarbonization-related products and environmentally friendly products, especially EVs/renewable energy, is expected to increase. Each image looks like the following:

*1 xEV: Electric Vehicle (electric cars)

*2 ZEH/ZEH: Net Zero Energy House / Net Zero Energy House

3. Evaluate Business Impacts

In the scenario analysis, the Nisshinbo Group evaluated the financial impact by business segment. The following is a summary of the impact on the Nisshinbo Group as a whole by scenario.

• ・Under the global warming progression scenario and while insurance coverage has minimized the impact, a certain amount of cost increases will be required to deal with property damage from flooding, sales of products related to EVs, new energy vehicles, smart mobility, and fuel cells, as well as friction materials for brakes, are expected to increase.
• ・In the decarbonization scenario and while the challenge will be to reduce carbon tax costs, sales of EVs, new energy vehicles, smart mobility, and fuel cell-related products are expected to increase more than in the global warming scenario, and sales of decarbonization-related products and environmentally friendly products are expected to expand, including increased sales of insulation materials due to the spread of ZEB/ZEH.
• ・In both scenarios, the Business Development Division is expected to see significant potential opportunities, such as increased sales opportunities for fuel cell-related products, driven by the widespread use of hydrogen infrastructure.

The results of the impact assessment for each business segment are as follows:

In Solutions Business in the Wireless and Communication business, although there are differences in scale perceptions, demand for disaster prevention products and services is expected to grow in all possible scenarios in line with the increase in damage from natural disasters, such as floods. In the Marine System, ICT/Mechanics, and Mobility business, demand for EV and ship-related products is expected to increase in both scenarios, although there are differences in scale perceptions. In the Medical Equipment business, demand for products that respond to changes in disease associated with climate change is expected to grow under the global warming scenario. In addition, the development of products and services for telemedicine and other applications is expected to provide significant opportunities under both scenarios.

In the Micro Devices business, demand for EV-related products is expected to expand under both scenarios, and demand for water level gauge sensors is expected to increase in response to flood damage. In addition, under the decarbonization scenario, the response to the reduction of carbon tax costs will become an important issue in the future.

In both scenarios, the Automobile Brakes business is expected to increase demand for friction materials for brake assemblies with increasing demand for motor vehicles, but in the decarbonization scenario, the increase in demand for friction materials for braking replacements is expected to be limited by the prolongation of friction materials due to the widespread use of EVs. In addition, the scenario contains increased risks because future carbon regulations will be a factor in the reduction of benefits; therefore, decarbonization-related responses will be an important issue in the future.

In the Precision Instruments business, demand for wind power generation-related components and machine tools for CFRP^* materials is expected to increase under both scenarios. In addition, under the decarbonization scenario, a response will be required in order to reduce carbon tax costs.

In the Chemicals business, increased sales of separators are expected to provide potentially significant opportunities in both scenarios from the proliferation of fuel cells. In addition, in the decarbonization scenario, the popularization of ZEB/ZEH is expected to increase the demand for insulation materials for building materials, increase the demand for additives as demand for bioplastics expand, and the demand for cross-linking agents will also increase from the expanded use of cold-drying paints.

In the Textiles business, the decarbonization scenario will require measures to address the significant impact of carbon taxes, while demand for environmentally friendly products is expected to grow, requiring the capture of demand for industrial materials and environmentally oriented apparel.

In the Real Estate business, physical damage to rental properties and other assets due to flooding is limited in both scenarios. In addition, rents are expected to increase for environmentally friendly properties in the decarbonization scenario.

In the Other business, although raw material costs for wheat and fats and oils will increase in both scenarios, the impact will be limited because of changes in sales strategies, and demand for environmentally friendly products in frozen meals and plant-based meat is expected to increase.

In the Business Development Division, both scenarios are expected to offer potentially significant opportunities for increased sales of fuel cell-related products, driven by the spread of hydrogen infrastructure, and capturing demand is required.

* CFRP: Carbon Fiber Reinforced Plastics

:Wireless and Communications		:Micro Devices	:Automobile Brakes	:Precision Instruments	:Chemicals
	:Textiles	:Real Estate	:Others	:Business Development Division

:Wireless and Communications		:Micro Devices	:Automobile Brakes
:Precision Instruments		:Chemicals	:Textiles
:Real Estate	:Others	:Business Development Division

Category	Assessment Item	Assessment of Impacts*1
		Warming Progression Scenario	Decarbonization Scenario
Carbon price	Increased cost of procuring raw materials from suppliers and manufacturing costs at factories due to carbon taxation
Energy mix	Increase in energy costs due to fluctuations in city gas, crude oil, and electricity prices
Customer and market changes	Increase in sales for related products due to increased demand for marine transportation as a result of modal shift
	Increase in energy costs due to response to GHG reduction requests from customers
	Increase in sales of brake friction materials due to change in demand for automobiles
	Increase in sales of insulation materials due to the popularization of ZEB/ZEH
	Increase in sales of cross-linking agents due to rising demand for cold-drying paints
	Increase in sales of machine tools for CFRP materials due to an increase in the number of companies working to reduce GHG emissions
	Expand sales of other environmentally oriented and environmentally friendly products and services (Increase sales of products for environment-oriented apparel and environmentally friendly industrial materials, frozen meals, plant-based meat to reduce food loss, and implement higher rents for properties with ZEB and energy certifications)
Spread of low-carbon and energy-saving technologies	Increase in sales for products related to EVs, new energy vehicles, smart mobility, and fuel cells
	Increase in sales of energy-saving GaN power semiconductors and electronic device related products
	Increase in sales of wind power generation related parts
	Increase in sales of related parts due to change in demand for ICE vehicles
	Increase sales opportunities for fuel cell-related products as hydrogen infrastructure becomes more widespread	*2	*2
Average temperature rise, and Change in Precipitation and Weather patterns	Increase in sales for disaster prevention products and services due to increased flood risk
	Increase in sales for air conditioner parts due to more frequent use of air conditioning in summer
	Decrease in product costs due to lower raw cotton prices
	Decrease in profit due to higher purchase price costs resulting from lower yields of wheat and oilseeds; increase in profit due to change in sales strategy
	Increase in sales of clothing for heat protection
	Expand opportunities to market products and services that address long-term changes in disease structure and access to healthcare due to climate change	*3	*3
Severity of extreme weather events	Increased costs due to physical damage and loss of business interruption caused by flooding

*1	Assessment of Impacts	:	:Positive Impact/ :Negative Impact
	Degree of Impacts	:	Less than 1 billion yen: / , More than 1 billion yen but less than 5 billion yen: / , More than 5 billion yen but less than 10 billion yen: / , 10 billion yen or more: /
	(The size of the impact after taking into account the currently assumed countermeasures is described)
*2	The size of the impact of the Business Development Division may fluctuate because of future business development and uncertainties of the information and data used.
*3	The magnitude of the impact of the Medical Equipment business is targeted at products and services related to analyzers for the increasing number of diseases associated with climate change, telemedicine and medical big data, but the scale of the business may fluctuate because of future business development and uncertainties of the information and data used.

4. Identify Potential Responses

In the future, based on the results of the scenario analysis, all business divisions will minimize risks related to greenhouse gas emissions while focusing on capturing the actual and potential opportunities related to the products and services of each business division in the medium to long term. The Nisshinbo Group has completed scenario analysis for its major businesses in FY2023 and will continue to revise the content as appropriate based on changes in the business environment.

Business	Outline of Business Impacts	Direction of Responses
Common to all projects	・Risk of incurring additional costs due to the introduction and higher cost of carbon taxes. In addition, suppliers may increasingly request GHG emission reductions and be forced to respond to such requests. ・Potential for physical damage and loss of business interruption caused by increased flooding	・Avoidance of carbon tax and reduction of energy costs through GHG reduction/energy conservation ・Prevention and mitigation of physical damage and loss of business interruption caused by flooding
	・Increased demand for marine transportation due to modal shift may expand sales opportunities for ship-related products ・Demand for EV-related products may increase due to growth in EV sales ・Demand for energy-saving devices may expand and sales opportunities for energy-saving devices may increase ・ Frequent occurrence of natural disasters may increase flood risk, thereby increasing demand for disaster prevention-related products and services ・Potential for increased demand for offshore wind power related products due to increased demand for renewable energy ・Expand opportunities to market products and services that address long-term changes in disease structure and access to healthcare due to climate change	・Capturing demand for shipping-related products ・Expand development and manufacturing of EV-related products ・Application of energy-saving related products (GaN power semiconductors, electronic device related products, etc.) to the electric power field ・Capturing demand for ships to support offshore wind facilities ・Development and manufacture of millimeter wave radar water gauge for disaster prevention, capturing demand for disaster prevention products and services ・Capturing demand for products and services related to analysis of diseases that are increasing with climate change ・Development of products and services for telemedicine and medical big data through collaboration of medical devices and wireless/communication technologies
	・Potential increase in sales of smart mobility-related products due to social developments toward a smart mobility society ・Potential for increased demand for low-carbon and energy-saving products ・Frequent occurrence of natural disasters may increase flood risk, thereby increasing demand for disaster prevention-related products	・Development and manufacture of smart mobility-related products along with the expansion of the smart mobility society, and enhancement of the related parts production system ・Development and manufacture of energy-saving products to respond to demand for low-carbon and energy-efficient products ・Capturing demand for water gauge sensors to address increased flood risk
	・Although demand for brake friction materials is expected to increase due to rising demand for automobiles, the longer service life of brake friction materials may reduce demand for brake repairs as the percentage of EVs increases	・ Providing products and services that comply with the changes and regulations associated with the promotion of decarbonization
	・Increasing environment-oriented in the supply chain may expand sales opportunities for machine tools for CFRP materials ・Demand for wind-related products may increase as the introduction of renewable energy increases ・Sales opportunities for new energy vehicle-related products may increase due to growth in EV sales, while sales opportunities for ICE vehicle-related products may shrink ・Increased demand for air conditioners due to global warming may expand sales opportunities for related products	・Capturing sales opportunities for machine tools for CFRP materials to respond to the environmental needs of the supply chain ・Development and manufacture of wind power generation related products along with expansion of renewable energy introduction ・Development and manufacture of parts processing and assembly-only machine related to new energy vehicles as EV sales increase ・Development and manufacture of air conditioning parts to meet the growing demand for air conditioning during the summer season
	・Potential for increased demand for cross-linking agents due to expanded use of low-temperature drying paints ・Potential for demand for insulation materials for building materials to increase due to the spread of ZEB/ZEH ・Potential for sales of fuel cell bipolar plates to grow in proportion to the expansion of the fuel cell market	・Capturing demand for cross-linking agents due to increased demand for low-temperature drying paints ・Capturing demand for heat insulating materials due to the spread of ZEB/ZEH ・Capturing demand for fuel cell bipolar plates due to the spread of fuel cells ・Providing products and services that comply with the changes and regulations associated with the promotion of decarbonization
	・Changes in environment-oriented in the supply chain may expand opportunities to sell to more environment-oriented customers and to sell environmentally friendly products ・Fluctuations in raw cotton costs due to climate change, but also the possibility of increased sales opportunities for products of heat-related protection due to rising temperatures	・Capturing demand for products for apparel to promote decarbonization, and development and manufacture of environmentally friendly industrial materials ・Development and manufacture of clothing for heat protection
	・Implement higher rents for properties with ZEB and energy certifications	・Capturing demand through operation of environmentally friendly properties
	・Higher purchase price costs due to lower yields of wheat and oilseeds, and lower wheat sales volume due to higher costs ・Increase sales of frozen meals and plant-based meat to reduce food loss	・Price pass-through and other measures to deal with increased oil and fat procurement costs ・Capturing demand by procuring and selling environmentally friendly food products
	・Potential for growth in sales of fuel cell-related products in proportion to the expansion in the size of the fuel cell market against the backdrop of the spread of hydrogen infrastructure	・Capturing opportunities through the development and enhancement of fuel cell-related product development and manufacturing systems ・ Research and development of hydrogen infrastructure-related products

Risk Management

The Nisshinbo Group has established and operates a risk management system to appropriately respond to management risks of business and to minimize losses in the event of management risks. With regard to the risks and opportunities related to climate change that the Group should be aware of, the Nisshinbo Group will primarily identify, analyze, and evaluate the risks in each business segment based on the "Risk Management Regulations." Each business segment director will prioritize the risks and assume the magnitude of impact on the business under future scenarios. The Corporate Strategy Center is responsible for the overall mapping of this data, which is then discussed in the Board of Management and the Board of Directors.

Risk Management System

Risks and opportunities are assessed on a five-point scale based on the probability of occurrence and the degree of influence. Items whose products are more than constant are identified as important risks.

Taking into account the economic impact of identified risks, the Nisshinbo Group strives to respond by category to any of the four types of risk that can be avoided, mitigated, transferred, and held.

Risk Analysis Steps

The details of the risks and opportunities that the Group perceives as having the potential to have an important impact on the linkage performance and response can be found on the "Risk Management" page.

Metrics and Targets

The Nisshinbo Group aims to capture climate change-related business opportunities and reduce risks. To reduce climate-related risks, the Nisshinbo Group actively promotes climate change measures, such as reducing energy conservation activities and PFCs (perfluorocarbons)^* emissions with the aim of carbon neutrality by 2050.

* PFCs (perfluorocarbons): Fluorinated greenhouse gases used in dry etching and other processes in semiconductor

The business activities and environmental impact of the Group can be found in the "Material Balance" section.