Sustainability

Information Disclosure in Line with TCFD Recommendations

Support for TCFD

Due to consumption of large amounts of fossil fuels such as oil and coal since the Industrial Revolution, greenhouse gas (GHG) emissions, including carbon dioxide emissions, are increasing and global warming is progressing. With the progression of climate change due to global warming, there is concern that various adverse effects on people's lives and the ecosystem will increase, such as increases in natural disasters including heavy rains and floods, reduction of food and water resources, and occurrences periods with intense heat and outbreaks of infectious diseases due to heat waves.

The Paris Agreement, which went into effect in 2016, aims to reduce the rise in average temperature well below 2°C (2°C target) as a long-term international goal in order to slow the progress of climate change and shift to a decarbonized society. In addition, it is stated that further efforts will be made to suppress the rise in average temperature up to 1.5°C.

We support the Paris Agreement, position "mitigation of climate change" as one of the materiality factors, we have set a mid-term target (Scope1 + 2) of "reducing GHG emissions by at least 30% from FY2018 level by FY2027" aiming for achievement of carbon neutrality in 2050. We also support the Japanese government's efforts to curb global warming, and comply with "Act on Promotion of Global Warming Countermeasures" and "Act on the Rational Use of Energy".

In addition, we announced our support for recommendations of Task Force on Climate-related Financial Disclosures (TCFD) in August 2020. The TCFD recommendations set four disclosure recommendation items: "Governance," "Strategy," "Risk Management," and "Metrics and Targets". By disclosing our climate change-related information to all stakeholders, including investors, and promoting dialogue, we will ensure the transparency of information as well as continue to deepen exchanges of opinions with stakeholders, strive to further improve our efforts and disclosure, and further contribute to the realization of sustainable society.

Governance

Our Group considers that the corporate philosophy "Contribute to the protection of the global environment and the existence/development of humanity, offering the value sought by society." is the basis of our business activities. We recognize that practicing this corporate philosophy is an activity that leads to the sustainability of society and our company, and is the basis of our business activities.
Our initiatives to address climate change are examined and deliberated by Sustainability Promotion Committee, Climate Change Committee, Risk Management & Compliance Committee, and Environment & Safety Committee. The Board of Directors meeting supervise these initiatives by discussing and resolving the content of deliberation at each committee.

As we have identified "mitigation of climate change" as one of the materiality factors, we established Climate Change Committee in FY2022 where issues focused on climate change are discussed and examined.

We have also identified "supply of environmentally friendly products and services" as one of the materiality factors, and we are committed to the development of products that contribute to the popularization of environmental energy and bioplastics. Sales plans and investment plans for these products are submitted to the management meeting by the division in charge, and after approval, submitted to the Board of Directors meeting.

Sustainability Promotion Committee

As an organization that considers and deliberates important matters in order to strategically tackle global social issues including climate change-related issues, Sustainability Promotion Committee, which is chaired by the officer in charge of the Sustainability Promotion & IR Department and composed of managing executive officers responsible for divisions and departments, has been established under the Board of Directors meeting. This committee meets twice a year on a regular basis to deliberate policies related to sustainability including climate change, materiality identification and KPI setting / progress management, mid- and long-term plans, and evaluation of the results of annual activities and targets for the next fiscal year based on the evaluation, etc.

At least once a year, the contents of deliberation are validated and reviewed at the management meeting. After approval by the management meeting, the following matters are submitted to the Board of Directors meeting.

• Policy planning related to sustainability
• Mid- and long-term plans and annual plan for sustainability

Climate Change Committee

In order to accurately grasp the risks and opportunities posed by the increasingly serious climate change problem, link them more strongly to management strategies, and strengthen comprehensive climate change measures, Climate Change Committee, which is chaired by the president and composed of heads of business divisions, Planning and Development Division, Purchasing Department, Corporate Planning Department, Sustainability Promotion & IR Department, Finance & Accounting Department, Production Technology Department, and Environment, Safety & Quality Assurance Department, has been established under the Board of Directors meeting as an independent organization.

In addition to being held regularly once a year, this committee meets as needed to analyze risks and opportunities related to climate change, and to consider policies, targets, and plans. After approval by the management meeting, the following matters are submitted to the Board of Directors meeting.

• Scenario analysis and countermeasures for identified risks and opportunities
• Long- and mid-term and annual plans specializing in climate change countermeasures

Risk Management & Compliance Committee

Risk Management & Compliance Committee, which is held twice a year, has been established as an organization to enhance the effectiveness of risk management, and to maintain and promote compliance.

The committee is chaired by the Chief Risk Management Officer (CRO), who is appointed at the Board of Directors meeting, and is composed of the Risk & Compliance Managers of each division / department, plant / laboratory, and domestic consolidated subsidiary appointed by the CRO.

The Risk & Compliance Managers periodically conduct risk identification and assessment including climate change-related risk, formulate countermeasure plans, conduct self-assessment for status of implementation of the countermeasure plan and subject, formulate improvement plan, and regularly perform education and training at each division / department, plant / laboratory, and domestic consolidated subsidiary.

At Risk Management & Compliance Committee, above risk management activities and activity plans of next fiscal year are deliberated. Contents of deliberation are validated and reviewed at the management meeting. After approval by the management meeting, the following matters are submitted to the Board of Directors meeting.

• Identification of Group Major Risks and their countermeasures
• Mid-term plan and annual plan for risk and compliance

Environment & Safety Committee

Responsible Care (RC) activities, which are voluntary activities, aim to ensure environment, health and safety (EHS) throughout the entire processes from development of chemical products to manufacturing, distribution, use, final consumption, disposal and recycling. These activities also serve as a form of communication with society through the announcement of their results. Environment & Safety Committee, which is chaired by the officer responsible for the Environment, Safety & Quality Assurance Department, have been established as the organization in charge of promoting these activities and are held annually. At this Committee, while sharing information with the Sustainability Promotion Committee, mid- and long-term plans including the response to climate change, annual activities in each plant / laboratory, summary of company-wide activities, and the targets, goals, and action plans for RC in the next fiscal year, etc. are deliberated.

At least once a year, the contents of deliberation are validated and reviewed at the management meeting. After approval by the management meeting, the following matters are submitted to the Board of Directors meeting.

• Policy planning related to RC
• Mid- and long-term plans and annual plan for RC

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Risk Management

Overall Risk Assessment Process

In the framework of the Risk Compliance Committee, we clarified risks including climate-change related risk taking into account the business characteristics of each division and the surrounding businesses, including global political, economic and social conditions.

Subsequently, risk assessment was conducted from the viewpoint of probability and impact on the business. By following the assessment, risk map was created and Group Major Risks were identified. The contents of Group Major Risks were deliberated at the Risk Management & Compliance Committee and approved at the Board of Directors meeting.

Management Process of Group Major Risks

The department in charge and the risk owner are decided for each selected Group Major Risk, the Group Major Risks countermeasure plan is formulated mainly by the Risk & Compliance Manager of the department in charge, and after deliberation at the Risk Management & Compliance Committee, and countermeasure plan is resolved at the Board of Directors meeting. Implementation status of countermeasures will be deliberated at the Risk Management & Compliance Committee, and the results of the deliberation will be reported to the Board of Directors meeting.

Regarding typhoon and torrential rain, which are one of the Group Major Risks, we set the KPI of “Update and maintain BCPs for products that account for 50% of ordinary income by FY2027” as a response to the risk of increasing equipment restoration costs and reducing production at major plants, and updated and maintained BCPs where products account for 41% of ordinary income as of the end of FY2022.

Identification of risks and assessment of the impact on the business and the probability are conducted on a regular basis, and the Group Major Risks are reviewed periodically.

Please see the following web page for risk map, Group Major Risks and countermeasures against risks.

• https://www.nissanchem.co.jp/eng/csr_info/risk_management/policy.html

Strategy (Update：July 2023)

The TCFD Recommendations require a scenario analysis to understand how the risks and opportunities caused by climate change give impact on companies’ finances. Scenario analysis is a method for anticipating the effects of climate change and changes in the business environment caused by long-term policy trends related to climate change, and for examining the impact that such changes may have on the company's business and management.

In 2020, we referred both 2°C scenarios in which transition to decarbonized society realizes (mainly transition risk and opportunity) and 4°C scenarios in which climate change progress (mainly physical risk and opportunity), we identified business risk and opportunity, examined their importance, and summarized impact on the Company and our strategies.

However, in response to the agreement that was reached to pursue efforts to limit the increase in average temperature to 1.5°C at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) held in 2021, we revised our scenario analysis in July 2023.

Referenced Scenarios

1.5°C Scenario*1	4°C Scenario*2
・IEA-WEO*3, ETP*4 Net Zero Scenario (NZE) ・IPCC SSP*5　1-1.9, 1-2.6	・IEA-WEO Stated Policies Scenario (STEPS) ・IPCC SSP5-8.5

• *1Scenarios when necessary measures will be implemented to keep global average temperature rise below 1.5°C compared to pre-Industrial Revolution era.
• *2Scenarios in which the global average temperature will rise by 4°C at the end of the 21st century compared to pre-Industrial Revolution era.
• *3International Energy Agency “World Energy Outlook” (2022)
• *4International Energy Agency “Energy Technology Perspectives” (2023)
• *5Intergovernmental Panel on Climate Change (IPCC) “Shared Socio-economic Pathway”

Scope and Period of Analysis

• ●Scope of Analysis：
  Chemicals business, Performance Materials business, Agricultural Chemicals business, Healthcare Business, Planning and Development Division
• ●Period of Analysis：2030 and 2050

Process of Risks and Opportunities Identification

Step1	Clarify the value chain and stakeholders, and sort out the factors that impact our business
Step2	Identify risks and opportunities based on the above scenarios and other external data
Step3	Identify particularly important risks and opportunities from those of Step2, considering the likelihood of occurrence and the impact on our business (human loss, financial impact, etc.)

Climate Change Risks and Opportunities, and Main Measures

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Major Financial Impacts

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As a result of scenario analysis and quantifying the financial impact using the 1.5°C scenario, we identified important risks, such as increased operating costs with the introduction of carbon pricing and decreased sales from an inability to provide low-carbon products. In response to the introduction of carbon pricing and decrease in demand for products with high life-cycle carbon emissions, we will work to reduce the risks by not only further promoting the use of renewable energy and conversion of fuel and feedstock at our plants, something which we have been working on thus far, but also by further promoting decarbonization investments that take into account reducing GHG emissions through the use of internal carbon pricing.

And in response to market changes due to increasing demand for environmental considerations, we assume that demand for environmentally friendly biological agrochemicals and low-carbon products, such as materials for secondary battery, will increase. In terms of biological agrochemicals, we established the Biological Group within Agricultural Chemicals Research & Development Department, Biological Research Laboratories in April 2022 and conduct R&D toward commercialization. Additionally, in the Environment & Energy field, we aim to commercialize the secondary battery materials, the energy harvesting materials, and CCS/CCUS materials, by accelerating the development of them.

Meanwhile, regarding the risk of flood damage, which we recognize as a risk in the 4°C scenario, we have identified the possibility of flooding at our major production and distribution bases as a material risk. To address this risk, we will continue to formulate and revise the BCPs for our plants and major products from time to time, raise the floors and foundations of our plant equipment, secure product inventory, and purchase multiple sourcing of key raw materials.

And in response to market changes owing to rising temperatures and abnormal weather, we assume that demand for agricultural chemicals and disinfectants for drinking water will increase due to the increase in pests and weeds, as well as water shortages and spread of infectious diseases. Based on the prospect of market growth, we aim to expand our opportunities. Furthermore, by building a business portfolio that is less susceptible to the effects of climate change, we will increase the resilience of our business activities and strive to minimize risks and maximize opportunities.

Metrics and Targets (Update：July 2023)

We have identified mitigation of climate change as one of our materiality factors, and believes that reducing emissions at the Company, which accounts for approximately 95% of Group-wide GHG (Scope1 and 2) emissions, is crucial for mitigating its climate change-related risks. For this reason, we set long-term target of "achieving carbon neutrality by 2050" and mid-term target of "reducing GHG emissions by at least 30% from FY2018 level by FY2027", as target of reducing Nissan Chemical Corporation’s GHG emissions (Scope1 + 2). These targets have positioned as non-financial targets in our long-term business plan Atelier2050, and mid-term business plan Vista2027, and the progress is managed. In addition, the degree of progress for these reduction targets is also reflected in the ESG-linked portion of executive officers’ performance-related remuneration.

Mid-term Targets and Long-term Target

Category	Metrics		Scope	FY2027 Targets	FY2050 Target
Reduction of GHG emissions	GHG Emissions (Scope1 + 2)	Absolute Emissions	non-consolidated	Reducing by at least 30% from FY2018 level	Carbon neutrality

We are steadily reducing GHG emissions by converting fuel and feedstock to natural gas at the Toyama Plant, reducing the amount of dinitrogen monoxide (N2O) emissions generated from the reactor through optimizing production capacity of nitric acid in FY2017, as well as energy saving by replacing aging facilities and improving the equipment capacities. In FY2021, GHG emissions increased from FY2020 due to increased production of ammonia-based products. Although, in FY2022, despite increased GHG emissions due to nitric acid plant trouble, etc., GHG emissions decreased from FY2021 as a result of melamine production shutdown, and boiler fuel conversion at the Onoda Plant.

The Company’s GHG emissions and energy consumption have been subject to third-party verification since FY2018. Going forward, we will continue to consider reducing GHG emissions and strive to reduce our environmental impact as well as disclose highly reliable information.

• 1　Amount of emissions (t-CO2e) / non-consolidated sales (million yen)
• 2　Data of each category : https://www.nissanchem.co.jp/eng/csr_info/index/esg_data.html
• 3　Energy consumption / non-consolidated sales
• 4　FY2013 as a base of 100
• 5　Nissan Chemical Corporation and consolidated subsidiaries with manufacturing facilities. (Nihon Hiryo Co., Ltd., Nissan Chemical America Corporation, NCK Corporation)
• 6　Due to rounding off figures, there are places where the sums of above scope1 and scope2 do not match the total.

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