Policy and Basic Approach to Climate Change

Today, climate change is one of the most pressing issues facing society, as is evident in the rising level of acute risk we face in terms of typhoons and torrential rains, and the accompanying floods that have become increasingly frequent and severe in recent years, as well as chronic risk in the form of rising average temperatures. In the IWATSU Group, as part of our promotion of ESG management, we have identified three forms of materiality related to the environment – “promotion of procurement activities that take sustainability into consideration,” “provision of environmentally-friendly products and services,” and “reduction of the environmental impact of the activities of business sites” – and we have positioned measures to tackle climate change through our businesses as one of our most important issues.

The IWATSU Group will work to fulfill the mission set forth in our Basic Policy on Sustainability, to “support the growth and development of companies and the people working at companies through the provision of communication technology that connects people and things, and aim to achieve a sustainable society and enhance corporate value.” At the same time, we will also support the recommendations of the TCFD and disclose information in accordance with these recommendations, as we aim to achieve the international targets set forth in the Paris Agreement.


Governance

The IWATSU Group considers climate change and other problems related to the natural environment as important issues in our promotion of ESG management, and we identify risks and opportunities related to climate change, and determine countermeasures and initiatives, through deliberation by our ESG Committee, which is chaired by the President & Chief Executive Officer. The Board of Directors also receives reports concerning the details of the meetings of this committee, and makes decisions concerning risk and opportunities related to management, as well as our response to these risks and opportunities.

Governance

Strategy

Process for Identifying Risks and Opportunities

 The businesses of the IWATSU Group consist of three main businesses: “business communication systems,” “test and measurement equipment,” and “printing systems.” The climate change risks and opportunities that stakeholders are expected to face differ in each business, so we select and identify these risks and opportunities separately for each business.

 We established the following perspectives for analysis related to the financial impact in 2030 when selecting risks and opportunities for each business and type of stakeholder.

 
  
Transition Risk (1.5°C Scenario)
  

– Policy and legal: Stronger regulations related to GHG emissions
– Market: Changes in energy supply and demand / changes in demand for decarbonization products
– Technology: Development and spread of next-generation technology
– Reputation: Changes in reputation among stakeholders

 
 
  
Physical Risk (4.0°C Scenario)
  

– Chronic: Environmental change as a result of global warming
– Acute: Increasing severity of natural disasters

 

Business Risks and Opportunities Identified

 The IWATSU Group performs scenario analysis on trends in problems related to climate change, and in Table 1, we show the risks and opportunities from climate change for the Company, identified based on the results of the selection of risks and opportunities in each business. For transition risks, the main risks and opportunities are expected to be based on “stronger regulations related to GHG emissions,” “changes in energy supply and demand,” and “changes in demand for decarbonization products,” based on the fact that in each of our main businesses, large amounts of electric power are used in processes from the manufacture of components and materials by suppliers, etc., to the use of products by users. For physical risks, we considered the main risks and opportunities to be the impact of climate change-related disasters on our plants and business sites.

Table 1 Risks and Opportunities Identified in our Businesses, and Countermeasures

Classification of climate change-related risks and opportunitiesScenario Expected impact from climate change Countermeasures
Transition risk Policy and legal
  • Stronger regulations related to GHG emissions
1.5℃
  • Increase in development costs associated with demand for lower CO2 emissions among customers and the introduction of carbon pricing
  • Suspension of trading and loss of business opportunities if we are unable to respond appropriately to customers’ demands for lower CO2 emissions, etc.
  • Rising cost of energy usage in line with the introduction of carbon taxes
  • Capturing of business opportunities from promotion and achievement of energy conservation for our products
  • Reduction in energy usage from updates to aging facilities and the introduction of the latest equipment
Technology
  • Changes in energy supply and demand
  • Increase in fuel/electricity expenses owing to rapid increases in fuel prices and an increased proportion of renewable energy
  • Promotion of energy conservation and introduction of facilities to generate power from renewable energy
Market
  • Development and spread of next-generation technology
    • Increases in the procurement prices of components and materials owing to decarbonization measures
    • Long-term measures to reduce costs through revisions to procurement methods and designs
    Physical risk Chronic
    • Environmental change as a result of global warming
    4.0℃
    • Increase in people suffering from heatstroke, illnesses related to climate change, and in poor physical condition
    • Redevelopment of the labor environment, mainly revisions to air-conditioning
    Acute
    • Increasing severity of natural disasters
    • Decline in revenue owing to the suspension of operations or lower utilization rates at plants and business sites as a result of natural disasters
      • Implementation of disaster simulations and development of disaster response manuals
      Opportunities Policy and legal
      • Stronger regulations related to GHG emissions
      1.5℃
      • Enhance competitiveness by responding quickly to customers’ supply chain guidelines and carbon pricing
      • Promotion of the development of environmentally-friendly products through the establishment of sustainability procurement guidelines and the strengthening of product assessments
      Market
      • Changes in demand for decarbonization products
      • Increase in demand for power electronics test and measurement equipment as a result of the spread of devices and equipment that use power semiconductors, such as electric vehicles (EVs)
      • Diverse range of needs as a result of the expansion of the market for power electronics test and measurement equipment
      • Performance enhancements and expansion in line-up for the Company’s power electronics test and measurement equipment
      • Development and spread of next-generation technology
        • Establishment and spread of advanced energy-conservation technologies
        • Improvement in people’s views of the Company as a result of the acquisition of SBT certification, for which there is high demand among customers
        • Stronger products as a result of the incorporation of new energy-conservation technologies in the Company’s products
        • Acquisition of SBT certification and implementation of measures to achieve CO2 reduction targets

        Expected Financial Impact from Climate Change Risks and Opportunities

         The IWATSU Group expects the financial impact of climate change risks and opportunities projected in each scenario to be as follows.

         Under the 4.0°C scenario, we particularly expect physical risk in relation to “acute risk: increasing severity of natural disasters,” whereas in the 1.5°C scenario, we particularly expect transition risk in relation to increases in development expenses to reduce product CO2 emissions as a result of “policy and legal: stronger regulations related to GHG emissions,” as well as changes in profitability owing to taxation from carbon taxes and rapid increases in energy prices caused by “technology: changes in energy supply and demand.”


        Risk Management

        Assessment of Climate Change Risks and Opportunities

         The IWATSU Group has assessed transition risks and “chronic” and “acute” physical risks related to “policy and legal,” “technology,” “market,” and “assessment of stakeholders” concerning climate change identified in scenario analysis, from the two perspectives of “impact” and “probability,” as shown in Table 2.

        Table 2 Assessment of Impact and Probability

        Impact
        Probability

         The IWATSU Group has selected material climate change risks and opportunities from among those we assessed, and determined countermeasures after assessing them from the perspectives of “feasibility” and “degree of effect,” and prioritizing realistic and effective initiatives (see Table 1).

        Management of Climate Change Risks and Opportunities

         The IWATSU Group monitors the latest information related to climate change through our environmental management system, and the ESG Committee appropriately revises risks, opportunities, the level of impact, and other factors, taking into consideration changes in business activities.

        Integration of Climate Change Risks and Opportunities in Company-wide Risk Management

         Within the IWATSU Group, the ESG Committee analyzes and assesses company-wide risks and opportunities related to climate change, and reports the results to the Board of Directors. Together with other risks, the Company implements countermeasures against climate change risks and opportunities that we have decided upon, with the aim of mitigating risks and capturing opportunities under the direction of senior management.


        Indicators and Targets

        Target: Promote initiatives to achieve carbon neutrality

         The IWATSU Group will observe an SBT for 1.5°C level (WB for 2.0°C for Scope 3 emissions), and our targets for reducing greenhouse gas (GHG) emissions by 2030 will be as follows.
        ・ 42% reduction in Scope 1 and 2 emissions compared with FY2020 (average reduction per year of 4.2%)
        ・ 25% reduction in Scope 3 emissions compared with FY2020 (average reduction per year of 2.5%)

        Scope 1 and 2 emissions reduction target

        Scope 1 and 2 emissions reduction target
        • Efforts by electric power companies to reduce emissions are based on the reduction when the target electric power CO2 emissions factor for 2030 of 0.37/kgCO2 set forth by the Federation of Electric Power Companies of Japan is applied, resulting in a 24% reduction from the electric power CO2 emissions factor in 2020.
        • For the reduction from energy conservation, we used a forecast of 15% in Scope 1 and 2 emissions compared with current levels.
        • The switch to renewable energy is based on the difference between the total “target reductions by 2030” and reductions from the above two methods.


        Scope 3 emissions reduction target

        Scope 3 emissions reduction target

        Record of emissions in the supply chain (Scope 1, 2, and 3)

        Scope and category Emissions (tCO2)
        2020 2021
        GHG emissions (Scope 1 + 2 + 3) 120,243 109,555
        Scope 1 (direct emissions) 1,311 1,251
        Scope 2 (indirect emissions from energy use) 4,254 4,022
        Scope 3 (indirect emissions from the value chain) 114,678 104,283
        Category 1 Purchased products and services 65,336 58,004
        Category 2 Capital goods 3,218 1,175
        Category 3 Fuel and energy-related activities not included in Scope 1 or 2 839 814
        Category 4 Transportation and delivery (upstream) 5,429 5,311
        Category 5 Waste generated in operations 376 458
        Category 6 Business travel 189 242
        Category 7 Employee commuting 1,076 1,313
        Category 8 Leased assets (upstream) - -
        Category 9 Transportation and delivery (downstream) 121 154
        Category 10 Processing of sold products - -
        Category 11 Use of sold products 37,819 36,475
        Category 12 End-of-life treatment of sold products 14 15
        Category 13 Leased assets (downstream) 262 321
        Category 14 Franchises - -
        Category 15 Investments - -
        • Items marked with “–” are not included because they are not applicable.

        Scope 1 and 2 emissions

        Scope 1 and 2 emissions

        Scope 3 emissions

        Scope 3 emissions