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

The Nisshinbo Group is involved in a wide range of businesses; consequently, the following steps were taken to analyze climate-change scenarios. The first step was for the Solutions business in the Wireless and Communications business, the Automobile Brakes business, and the Chemicals business where risks and opportunities are expected to have a significant impact. In FY2022, the Group completed an analysis of its major businesses with production activities by targeting the Marine System, ICT/Mechanics, and Mobility business in the Wireless and Communications business, the Micro Devices business, the Precision Instruments business, and the Textiles business. 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).

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	：Brakes
：Precision Instruments	：Chemicals	：Textiles

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 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.

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 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 Group evaluated the financial impact of each business.
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 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.

：Wireless and Communications	：Micro Devices	：Brakes
：Precision Instruments	：Chemicals	：Textiles

Category	Assessment Item	Assessment of Impacts*
		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 or decrease in energy costs due to fluctuations in city gas/crude oil/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 products for environment-oriented apparel and environmentally friendly industrial materials
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
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
	Increase in sales of clothing for heat protection
Severity of extreme weather events	Increased costs due to physical damage and loss of business interruption caused by flooding

*	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： /

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.
In FY2023, the Nisshinbo Group will expand the scope of analysis to all its businesses by conducting climate change scenario analysis for businesses that have not yet done so.

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
(Solutions, Marine System, ICT/Mechanics, Mobility business)	・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	・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
	・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

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 "Materiality, Risks and Opportunities" 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.