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CSR

Disclosure based on the TCFD recommendations

TCFD and ADEKA’s policy

The ADEKA Group declared its support for the TCFD* recommendations in February 2022.

Amid the worldwide acceleration of the pursuit of a decarbonized society, the ADEKA Group will actively promote “conserving the global environment (e.g. reducing GHG emissions)” and “supplying eco-friendly products,” the Group’s CSR priority issues, particularly in terms of the environment. In this way, the Group will contribute to reducing the impact on the environment throughout its supply chain.

In line with the TCFD recommendations, we will analyze and evaluate the impact of climate change on our business activities and prepare measures based on multiple scenarios in an effort to make our operations more resilient. At the same time, the ADEKA Group will share these efforts with stakeholders in an easy-to-understand manner.


*TCFD
Task Force on Climate-related Financial Disclosures was established by the Financial Stability Board in 2015.
In June 2017, the TCFD published its final report recommending that companies and other entities analyze and review the impact of climate change and disclose it in terms of four items including “governance,” “risk management,” “strategies” and “metrics and targets.”

Explanation about governance

Matrix for selecting CSR Priority Issues
1. Climate-related risks and opportunities and the supervision of the Board of Directors
In determining its CSR Priority Issues, the ADEKA Group considers “taking action against climate change” to be one of the issues facing society that should be given priority. (Organized on the basis of “the importance to the ADEKA Group’s stakeholders” and “the importance to the Group’s business” through discussion in the CSR Committee, CSR Promotion Subcommittee and different divisions of the ADEKA Group; See the table on the right)
Important discussion on issues such as the GHG emissions reduction KPI (2030 and 2050) takes place at meetings of the CSR Committee chaired by President and Chief Executive Officer. The Committee met seven times in 2021.
Important matters for resolution that include climate change issues are reported to the Board of Directors so that the Board’s supervision is properly ensured.
2. Roles of management in evaluating and managing climate-related risks and opportunities
The CSR Committee is chaired by the President and Chief Executive Officer and its members consist of full-time directors (excluding Audit and Supervisory Committee Members) and General Managers of the Corporate Planning & Strategy Division and of the Environmental and Safety Division with the aim of properly evaluating and managing risks and opportunities relating to climate change in our business activities.
A draft of the agenda to be presented to the CSR Committee is created on the basis of discussion at the CSR Promotion Subcommittee, a subordinate body. The CSR Committee decides policies for issues relating to climate change and reviews and monitors related measures.
A draft of the agenda to be presented to the CSR Committee is created on the basis of discussion at the CSR Promotion Subcommittee, a subordinate body. The CSR Committee decides policies for issues relating to climate change and reviews and monitors related measures.

Explanation about risk management

  • 1. Process for integration of the process for identifying, evaluating and managing climate-related risks into comprehensive risk management throughout the organization

    To manage risks on a Group-wide level, the ADEKA Group makes continued efforts with global risk management, crisis management, business continuity management, information security and a PDCA cycle based on the safety quartet (labor safety, environment safety, product quality safety and equipment safety), which is our unique concept. Meanwhile, identifying and evaluating ESG aspects involves the following system for CSR management.

  • 2. Process to identify and evaluate climate-related risks
    The ADEKA Group has the CSR Promotion Subcommittee under the direct control of the CSR Committee. The Subcommittee identifies and evaluates important climate-related risks and opportunities that encompass the entire ADEKA Group in terms of, for example, the amount of CO₂ emissions and the impact on the company’s financial affairs.
    Evaluating important risks and opportunities is decided after discussion at the CSR Committee and is reported to the Board of Directors.
    In the ADEKA Group, climate change issues are regarded as important and are included in two of the CSR Priority Issues, “conserving the global environment” and “supplying eco-friendly products.”
  • 3. Process for managing climate-related risks
    The ADEKA Group takes it for granted that climate change is included in the CSR Priority Issues. The CSR Promotion Subcommittee regularly discusses the progress of the Group’s efforts on climate change and reports it to the CSR Committee for deliberations and approval.
    Items for evaluating the progress
    (1) KPIs defined in the CSR Priority Issues
     i. “Conserving the global environment”: Amount of GHG emissions
     ii. “Supply of eco-friendly products”: Sales of eco-friendly products
    (2) Progress of activities in terms of TCFD requirements
    (3) Keeping updated on Scope 3 emissions and the progress of reductions

Explanation about metrics and targets

  • 1. ADEKA Group Carbon Neutrality Roadmap (published on March 2, 2022)

    In March 2022, the ADEKA Group announced a roadmap for achieving carbon neutrality by 2050 based on two pillars, including:
    i. “2030: 46% reduction in GHG emissions (Scopes 1 and 2)” and
    ii. Create technologies and products to contribute to GHG emissions reduction

    The reduction target applies to emissions from the ADEKA Group, namely Scopes 1 and 2. But we are also committed to creating products and technologies to help society achieve carbon neutrality with the aim of contributing to reductions in GHG emissions in the market and society.

    (At this point, we are examining in detail the amount of emissions throughout the supply chain, including Scope 3. We are focusing on efforts such as selecting categories to be covered by the calculation, conducting a detailed examination of the volume of emissions and drafting reduction policies. As soon as we are ready, we will begin efforts to reduce emissions encompassing Scope 3 and the entire supply chain.)

  • 2. Upward revision of “conserving the global environment,” a CSR Priority Issue, in terms of KPI (published on March 2, 2022)

    Our KPI has been upwardly revised as follows, taking into consideration changes in social conditions. In April 2021, the Japanese government declared its target for reducing GHG emissions, “46% reduction by FY2030.” We will set a target commensurate with the national target and continue our pursuit of reduced GHG emissions.

  • 3. Changes in GHG emissions (Scopes 1, 2 and 3) and GHG emission intensity

    The ADEKA Group discloses changes in its GHG emissions (Scopes 1, 2 and 3) and GHG emission intensity. To reduce emissions, we maintain a stable supply of products and proceed with improvements such as streamlining production. To check the progress, our plants undergo audits by the president and by the Environmental and Safety Division.

  • 4. Spurring the development and provision of eco-friendly products

    The ADEKA Group defines the KPI of “supplying eco-friendly products,” one of our CSR Priority Issues, for 2030 as tripling sales of eco-friendly products versus the FY2019 figure. This is also an indicator of the ADEKA Group’s pursuit of more business opportunities in relation to climate change. Eco-friendly products are products and technologies that are certified by our CSR Committee as contributing to society in any of three areas, including “action against climate change,” “reduction in environmental impact” and “efficient use of resources.

    (At present, they are divided into 14 product groups, with sales as of 2019 at approx. 31.3 billion yen)
    Mid-term Management Plan: ADX2023 includes a key strategy titled “transforming the earnings structure,” which declares our determination to spur the development and provision of eco-friendly products and “simultaneously pursue social value and economic value.”

Explanation about our strategy

  • TCFD recommends using multiple climate scenarios including those of under 2 degrees, to perform analysis in disclosing a strategy. We therefore set the beyond 2 degree scenario and the 4 degree scenario, which would entail the manifestation of impacts in terms of transitional aspects and physical aspects, respectively.

    We select businesses and identify risks and opportunities associated with climate change, giving consideration to the overall value chain from the procurement of raw materials to product demand on the basis of the following steps. In this way, we discuss the impact on our business and measures against it.

  • For the scenario analysis, we chose “the functional chemical segment” first from our core businesses, taking into comprehensive consideration the amount of CO₂ emissions, sales, profits and other factors.

    Based on “efforts for carbon neutrality” stated in the Mid-term Management Plan, we are performing scenario analyses for 2030 and 2050. The former is a mid-term milestone and defines a target for reducing GHG emissions whereas the latter is a long-term milestone characterized by the pursuit of carbon neutrality.

    More specifically, we refer to scenarios such as SDS (beyond 2 degree scenario) and NZE (1.5 degree scenario) of the International Energy Agency (hereinafter “IEA”) and RCP2.6 (beyond 2 degree scenario) and RCP8.5 (4 degree scenario) of the Intergovernmental Panel on Climate Change (hereinafter “IPCC”).

Scenario Beyond 2
degree scenario
4°C
scenario
Vision for society Ambitious policies and technological innovations are implemented to limit the average temperature increase to 1.5 ℃ by the end of the century and achieve sustainable development. Build a society where social changes accompanying the transition to a decarbonized society are highly likely to influence business operations.
<Example>
- Prospect of the volume of electric power generated and the power configuration
- Introduction of carbon tax and increase in prices
- Shift to automotive electrification
Countries are implementing policies such as INDC (Intended Nationally Determined Contributions) based on the Paris Agreement, but the average temperature up to the end of this century will rise by 4℃ or so. A society where a rise in temperature and other changes in climate are highly likely to influence business operations.
<Example>
- Increase in flood damage due to heavy rain
- Rise in average sea level
Reference scenarios
  • SDS (IEA WEO2020/ETP2020, below 2 degree scenario)

  • NZE (IEA Net Zero by 2050 A Roadmap for the Global Energy Sector, 1.5 degree scenario)

  • RCP2.6 (IPCC AR5, below 2 degree scenario)
  • RCP8.5 (IPCC AR5, 4 degree scenario)

  • STEPS (IEA WEO2020/ETP2020, 4 degree scenario)
Risks and opportunities Risks and opportunities can readily become manifest in terms of transitional aspects. Risks and opportunities can readily become manifest in terms of physical aspects.

Identification of risks and opportunities and assessment of impact on our financial affairs under the below 2 degree scenario and the 4 degree scenario

  • Based on the scenarios defined, we organized the climate change-related opportunities and risks in the functional chemical segment and also evaluated their size and timelines.
    Also with consideration given to the growth of our business, achieving our emissions reduction target for 2030 will reduce emissions in the functional chemical segment to 26,600 tons (Scopes 1 and 2). Assuming this volume of emissions, we would shoulder an additional cost of 381 million yen as of 2030 based on forecast carbon prices*.
    *Carbon prices as of 2030 stated in the external scenario, “The World’s Roadmap to Net Zero by 2050” (developed countries: 130$/t-CO₂).Converted into Japanese yen on the assumption that 1$ equals 110 yen.
  • Results of evaluation of risks and opportunities in the functional chemical segment (Opportunity, Risk)
    Changes in
    society and
    its impact
    Risks and
    opportunities
    Proposed
    solution
    (1)Transition to a decarbonized society as part of the chemical industry
    Corresponding to “Energy” in the next chapter
    Introduction of carbon pricing Introduction of carbon pricing Medium
    to long term
    • Shift to renewable energy
    • Develop technologies for recovering, separating and utilizing GHG and implement them in society
    • Utilize technologies for manufacturing hydrogen at Fuji Plant
    Rising raw material prices (e.g. carbon price passalong)
    Rise in demand from society for decarbonization efforts from us as a GHG-intensive Industry Customers’ evaluation of emissions reduction efforts and how we approach them, and their impact on share prices Short to
    medium term
    Response to the global trend toward the use of renewable energy (reputation among stakeholders)
    Increase in costs due to actions against decarbonization in the process of manufacturing Rise in prices of renewable energy (increase of surcharge, hike in power charges) Short to
    medium term
    • Study the rationalization of a manufacturing process
    • Develop and commercialize the industrial process for decarbonization
    • Encourage the installation of GHG removal equipment
    • Encourage the installation of GHG removal equipment
    • Encourage the use of CO₂-free hydrogen and ammonia
    Rise in fuel prices (natural gas, coal)
    Increase in costs due to introduction of CCUS Long term
    (2)Fluctuations in demand for products and services associated with the transition to a decarbonized society
    Corresponding to “business transformation” and “contribution to reduction” in the next chapter
    Growing demand for low-carbon products and their manufacturing processes Growing demand among customers for low-carbon products and manufacturing processes Short to
    long term
    • Promote the development and sales expansion of eco-friendly, low-carbon products
    • Increase production capacity and boost competitiveness to meet demand
    • Develop new products and promote research and development
    • Reinforce integration and cooperation with affiliates. Promote M&A
    Contraction of the product market due to climate change Short to
    long term
    • Review the business portfolio
    Selection on the basis of an assessment of CO₂ emissions during manufacturing and a shift to low-carbon alternative products (*Same as “(1) Transition to a decarbonized society as part of the chemical industry” written above)
    Responding to the shift to electric vehicles in relation to changes in the automotive industry Rise in demand for products for EVs (e.g. lightweight materials, battery materials, EV-related technologies) Medium
    to long term
    • Provide the next-generation mobility society with components and systems
    • Provide the next-generation mobility society with components and systems
    • Increase production capacity to meet demand
    • Expand into the downstream industries
    Rise in demand for materials to improve the performance of secondary batteries
    The shift to EVs leads to a decrease in the number of internal-combustion engines and in demand Medium term
    • Review the business portfolio
    Long term
    (3) Intensification of wind and water damage due to rising temperatures Intensification of wind and water damage due to rising temperatures Dispersion of business locations to secure our competitive advantage Long term
    • Disperse business locations
    Impact of supply chain disruption on our operations and resultant increase in procurement costs Long term
    • Improve BCP drills and measures for offices located in coastal areas
    • Improve prior actions (e.g. review of inventory standards, consideration of multiple purchases and multiple business sites)
    • Measures against water risks
    Damage to equipment and operational shutdowns due to extreme weather

About future TCFD action and more sophisticated scenario analysis

  • 1. Action on the basis of the recent analysis and evaluation results

    “ADEKA Group Carbon Neutrality Roadmap” (published on March 2, 2022)

    The roadmap is considered to be our major Group-wide principle and will be broken down into medium- and long-term management strategies and strategies for SBUs and individual business headquarters. As a result of the recent scenario analysis, we understand that the major risk and opportunity items in the functional chemical segment are in line with “energy” and “business reform,” the pillars of the roadmap, and that the selection of CSR Priority Issues is appropriate. The functional chemical segment will continuously incorporate the measures based on the results of the recent analysis and evaluation into our business strategies and discuss specific action plans and KPIs, among other aspects.

  • 2. Extending the scope of analysis

    Results of analysis and evaluation of the functional chemical segment, which was included in the scope of analysis, will be integrated into our business strategies. Meanwhile, we will also consider CO₂ emissions, the size of their financial impact and other factors and gradually analyze other business segments.

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