TCFD and ADEKA’s policy
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.
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.”
|●||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.|
|●||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 five times in 2022.|
|●||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.|
|●||The CSR Committee is chaired by the President and Chief Executive Officer and its members consist of full-time directors and Managing Operating Officer and Senior Operating Officer and General Managers 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.|
|●||Therefore, the President and Chief Executive Officer, who chairs the CSR Committee, is responsible for determining policies related to climate change, promoting initiatives for risks and opportunities, and achieving targets.|
■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 GHG 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
TCFD recommends using multiple climate scenarios including those of under 2 degrees, to perform analysis in disclosing a strategy. We therefore set the beyond 1.5 degree / 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.
The ADEKA Group determined that all its businesses were subject to scenario analysis. (Functional Chemicals, Food Products, Polymer Additives, IT Chemicals, Life Science)
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 NZE (1.5 degree scenario) of the International Energy Agency (hereinafter “IEA”), SDS (beyond 2 degree scenario) and RCP8.5 (4 degree scenario) and RCP2.6 (beyond 2 degree scenario) of the Intergovernmental Panel on Climate Change (hereinafter “IPCC”).
(1.5℃/2℃ or lower scenario)
|Vision for society||For the purpose of limiting the global average temperature increase to 1.5℃ or lower than 2°C by the end of this century and realizing a sustainable society, bold policies will be implemented and technological innovation will be in progress. Changes associated with the transition to a decarbonized society will have an impact on the ADEKA Group’s business.
- Prospect of the volume of electric power generated and the power configuration
- Shift to electric vehicles, etc.
|Countries are implementing policies such as Intended Nationally Determined Contributions (INDC) based on the Paris Agreement, but the average temperature by the end of this century will inevitably rise by up to 4℃. Climate change will have an impact on the ADEKA Group’s business.
- Increase in damage caused by wind or flood
- Rise in average sea level
|Risks and opportunities||Manifestation of transition risks and opportunities||Manifestation of physical risks and opportunities|
Strategy (Financial impacts)
|●||Based on the scenarios defined, we organized the climate change-related opportunities and risks in the company and also evaluated their size and timelines.|
|●||Our assumptions (GHG emissions, impact of carbon tax) as of 2030 are as follows.|
|ADEKA Group GHG Emissions Outlook for 2030
(Achieving emissions reduction targets and considering business growth)
|Additional cost based on forecast carbon price|
|123,000 tons (Scope 1+2)||¥2.0 billion|
*Carbon prices as of 2030 stated in the external scenario, WEO2022 NZE Scenario (World Energy Outlook 2022: Net Zero Emissions Scenario), are 140$/t-CO2 for developed countries and 90$/t-CO2 for emerging countries. Converted into Japanese yen on the assumption that 1$ equals 130 yen.
Strategy (Major risks and opportunities, impacts, measures)
- [ Target business ] All→ “All”, Polymer Additives→ “PAs”, Functional Chemicals→ “FCs”, IT Chemicals→ “ITCs”, Food Products→ “FPs”, Life Science→ “LS”
|Category||Scenario||Major Risks and Opportunities||Target business||Overview||Time Axis||Impact||Responses
|Tightening regulations||All||Introduction of carbon tax, increase in carbon price||Medium to long term||Large||Review of Business Portfolio
Encouragement to suppliers to make efforts to grasp and reduce CO2 emissions
Use of internal carbon pricing, etc.
|Rising raw material prices||All||Price increases due to climate change
Cost increase by using sustainably certified raw materials
|Medium to long term||Large||Diversification of procurement areas, research and development of alternative raw materials, etc.|
|Decarbonization of raw materials and fuels||All||Additional costs associated with renewable energy procurement||Short to medium term||Middle||Examination of renewable energy procurement, investment in energy conservation, etc.|
|Reputation Risk||All||Reputational damage due to delay in responding to climate change||Short to medium term||Small||Disclosure of information about the content of measures, etc.|
|Changing customer needs||Pas
|Decline in demand for internal combustion engine vehicles due to the shift to EVs||Medium to long term||Small||Promotion to provide components for next-generation mobility
Review of product portfolio, etc.
|4℃||Impact of abnormal weather (supply chain disruption and stagnation)||All||Intensification of storm and flood damage leads to stagnation of production activities and logistics||Short to Long term||Middle||mprovement of prior actions (Review of inventory levels, consideration of multiple purchases, etc.)
Research and development of alternative raw materials, etc.
|Impact of abnormal weather (water shortage)||Pas
|Lack of industrial water||Short to Long term||Middle||Measures to secure emergency industrial water, consideration of water recycling measures, etc.|
|Changing customer needs||All||In addition to the above, higher demand for products that respond to the transition in society (Example: Eco-friendly products)||Short to Long term||Large||Development of new products and facilitation of research and development
Review of product portfolio, etc.
|Pas||Increased demand for Environment-friendly polymer additives||Medium to long term||Middle||Increase of production capacity and enhancement of competitiveness to meet demand
Development, etc. of combinations of raw materials that contribute to the ease of product recycling
|Increased demand for Products for Next-gen. mobility||Medium to long term||Middle||Promote the provision of materials for next-generation mobility
Review of product portfolio, etc.
|FPs||Increased demand for Plant-based foods||Medium to long term||Large||Development of new products and facilitation of research and development
Increase of production capacity to meet demand, enhancement of competitiveness, etc.
|FPs||Higher demand for products that use certified, sustainable raw materials||Short to Long term||Small||Enhanced procurement of products that use certified, sustainable raw materials and that are friendly to the environment and human rights, etc.|
|LS||Higher demand for agricultural materials that increase crop yield||Long term||Middle||Plant protection materials field, development of smart farming-related products, etc.|
|Improvement of external evaluation||All||Enhanced reputation attributable to an innovative response to climate change||Short to medium term||Small||Disclosure of information about the content of measures, etc.|
Degree of impact of risks and opportunities “Large”
┈ The scale of impact on profits is “2.0 billion yen or more”
Degree of impact of risks and opportunities “Middle”
┈ The scale of impact on profits is “no less than 0.5 billion yen and less than 2.0 billion yen”
Degree of impact of risks and opportunities “Small”
┈ The scale of the impact on profits is “less than 0.5 billion yen”
Strategies (Business Opportunities)
The following five product groups were seen as representing business opportunities for the ADEKA Group over the medium to long term from the perspective of responding to climate change. By working to achieve stronger growth in these fields, the ADEKA Group strives to simultaneously pursue social and economic value.
Metrics and targets（Reduction of GHG Emissions）
■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. “conserving the global environment,” a CSR Priority Issue
■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
■ADEKA Group Carbon Neutrality Roadmap
*The ADEKA Group updated its GHG emissions figures in May 2023.
Metrics and targets（Eco-friendly products）
■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)
Moreover, the ADEKA Group has positioned “sales” as a Key Performance Indicator (KPI) for 2030 and has been monitoring the progress.
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.”
Sales of eco-friendly products are expected to increase by a factor of 1.4 in the three-year period of ADX2023.
■1. Establishment of a specialized organization, Carbon Neutral Strategy Department (April 1, 2022).
The ADEKA Group established a specialized organization under the Corporate Planning & Strategy Division for flexibly advancing initiatives throughout the Group as ADEKA strives to realize carbon neutrality by 2050.■2. Establishment and implementation of “carbon neutrality promotion strategy”
It is now an indispensable demand of society to discuss strategies to achieve corporate growth, while contributing to the sustainable growth of society, through initiatives on climate change, decarbonization and carbon neutrality.
The new department acts as the center in formulating carbon neutrality strategies and as the driving force behind group-wide activities.
The ADEKA Group has established and has been implementing a “carbon neutrality promotion strategy” as a roadmap for achieving carbon neutrality by 2050 with an eye on value creation from a long-term perspective through the reduction of greenhouse gas.■3. Improvement and continuance of the TCFD scenario analysis
The Group has decided, through the establishment and operation of an internal working group that implements detailed studies and promotes the strategies, to introduce renewable energy (electricity for the head office, research and development laboratories, Osaka branch office, etc.; the said renewable energy was introduced during the fiscal year 2022) and started test trials of internal carbon pricing, among other initiatives.
The Group will seek to incorporate the results of the recent analysis and evaluation into its business strategies and continue to refine the contents of the scenario analysis.
Through a series of initiatives that contribute to the sustained enhancement of corporate value, the ADEKA Group will strive to periodically confirm and update the risks and opportunities identified in the climate change scenario analysis, in view of changes in the external environment and market situations. It will measure their impacts, specify and enhance indices and targets, and reflect them in its business strategies, etc. It will appropriately disclose such information and fulfill its accountability to stakeholders.