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Climate-related Disclosure (TCFD Recommendations)

Climate-related Disclosure (TCFD Recommendations)

The global environment is the foundation of humanity, all living organisms and ecosystems that inhabit the planet, and corporate activities cannot continue without a healthy global environment.
The EBARA Group recognizes that climate change is a serious issue facing the world, and in 2019 signed the TCFD in support of the initiative. Through dialogue with stakeholders, we are continually improving our climate change initiatives and disclosure. Since the TCFD's monitoring function for corporate climate-related disclosure was taken over by IFRS® Sustainability Disclosure Standard S2 Climate-Related Disclosures (hereinafter referred to as IFRS® S2) in 2024, we have updated some of the information as of June 2024 with reference to the disclosure standards of IFRS® S2.

Climate-related Disclosure Summary 2024

We have followed the TCFD framework and made some updates with reference to IFRS®S2.

Summary of disclosure based on TCFD recommendations 2023

We have added climate-related scenario analyses for our businesses in the building and industrial equipment market, the water infrastructure market, and the solid waste treatment market.

Summary of disclosure based on TCFD recommendations 2022

We took a deeper look at climate-related scenarios for our businesses in the oil and gas market and the semiconductor manufacturing market.

Climate-related governance

Board Oversight of Climate-Related Issues

The Board of Directors recognizes that an important management issue for the Group is to practice advanced sustainability management based on ESG and to increase social and environmental value by continuously contributing to the resolution of social issues, including the SDGs, through its business, while also increasing economic value by practicing ROIC management and portfolio management. The Board of Directors will formulate basic management policies that take into account the long-term business environment and oversee their ongoing implementation so that the Group can put these policies into practice to generate sustainable growth resources and lead to further value creation. We have set out and disclosed this approach in our "Basic Policy on Corporate Governance," and have established a Sustainability Committee to ensure that this approach is put into practice. Based on this, the Board of Directors incorporates sustainability-related deliberations, including those related to climate, nature, human rights, and human capital, into its annual agenda, and regularly sets aside the necessary time to hold discussions from various perspectives. The Board of Directors holds discussions to flesh out and promote execution responses, and provides feedback on the results of those discussions to the Sustainability Committee. By attending Sustainability Committee meetings, Directors are able to grasp the status of sustainability-related initiatives being implemented and, as necessary, provide accurate advice and support from an objective standpoint. In addition, as a mechanism to support the achievement of non-financial targets, the Company has adopted climate change as an evaluation item for ESG evaluation indexes and has introduced a system to link it to executive compensation.
For more information on sustainability governance, please see here .

Promoting climate-related initiatives through the Sustainability Committee

We have established the Sustainability Committee as an executive body to deliberate on policies, strategies, goals and KPIs for activities that contribute to society, the environment and the sustainability of our Group, and to confirm and review the results. The Sustainability Committee is chaired by the President and CEO, with all executive officers serving as committee members, and external experts on sustainability serving as advisors. Climate-related activity policies, strategies, risk management, indicators and targets are discussed at the Sustainability Committee. All management personnel share the view that addressing climate change is an important management issue and one of the material issues in our Group's long-term vision, E-Vision2030. Climate-related scenario analysis for each market, including the identification of risks and opportunities related to climate-related strategies, is conducted under the responsibility of the Company President and is reflected in the strategy of each Company. The results of our climate-related efforts are reflected in the compensation of our executive officers.
We strive to incorporate advice from directors who sit on the Sustainability Committee into our activities.

Risk Management Panel (RMP) addressing climate-related risks

We have established a Risk Management Panel (hereinafter referred to as the "RMP") to oversee our group's risk management activities and to deliberate, provide guidance and support for improvements. The RMP is chaired by the Representative Executive Officer and President and is composed of all Executive Officers. We conduct regular risk assessments and have determined that climate-related risks have a high likelihood of occurring and have a high impact, identifying them as significant risks to the Group. Responses to acute physical risks such as meteorological disasters are discussed in the RMP.

Management Meeting/Management Issue Action Plan Monitoring Meeting

When climate-related risks and opportunities relate to asset disposals, investments and loans, etc., we have a system in place to submit the matter to the Management Meeting.
The Monitoring Meeting, which manages the progress of the management issue action plan toward the achievement of the medium-term management plan, monitors financial and non-financial issues, including climate change.
The Non-Financial Management Issue Action Plan Monitoring Meeting is chaired by the Representative Executive Officer, President and CEO. The meeting is held four times a year, at which the president of each division company reports on the progress of measures aimed at achieving the non-financial targets of their respective businesses. At the Sustainability Committee meetings in March and September, progress on non-financial activities for all businesses is reported and activities are reviewed. The results of the Sustainability Committee's reports and reviews are reported to the Board of Directors.

Governance Information (2024)opens in a new tab

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Climate-related Governance Structure

strategy

We consider the impact of climate change on our business for each of our face-to-face markets through the following process. Climate-related strategies for our businesses in the building and industrial equipment market, oil and gas market, water infrastructure market, solid waste treatment market, and semiconductor manufacturing market are formulated under the responsibility of the company presidents and reflected in our medium-term management plans.
The following series of processes are carried out under the responsibility of each company president for each market. The analysis results and countermeasures from each company are compiled under the executive officer in charge of business strategy, reported to the Sustainability Committee, and the information is disclosed after confirmation by the Board of Directors.

We review our climate-related strategies at the same cycle as we formulate our medium-term management plans, and reflect them in the business strategies of each division company.
(Results of analysis conducted from the second half of 2021 to the end of March 2023)

Identifying and assessing climate-related risks and opportunities

We have assessed the climate-related risks and opportunities for our businesses in the building and industrial equipment market, oil and gas market, water infrastructure market, solid waste treatment market, and semiconductor manufacturing market as follows.

For the risk assessment, we extracted events that could occur in each facing market as subcategories within the medium categories of transition risks and physical risks shown in the "Risk Assessment" table below, and relatively assessed the financial impact of those events as "large," "medium," or "small." In the opportunity assessment, in addition to the subcategories extracted in the risk assessment, we also took into account the "Opportunity Aspects" in the table below to extract events that could occur in each face-to-face market, and relatively assessed the financial impact of those events as "large," "medium," or "small."

Identifying risks and opportunities

In line with the transition risks, physical risks, and opportunities outlined in the TCFD recommendations, we have identified climate-related risks and opportunities up to 2050 for each of our major face-to-face markets.
By referring to reliable documents such as SASB, IEA, and the Long-Term Vision for Responding to Climate Change in the Electrical and Electronics Industry, we have extracted risk items that could affect our business and comprehensively and qualitatively evaluated the importance of the risks and opportunities in terms of likelihood of occurrence, scale, and financial impact. Factors that may affect our business activities due to the progression of climate change will be assessed as chronic physical risks for each region. As an example, water risk was assessed using AQUEDUCT's overall assessment as an indicator. We also conducted an assessment of our major business locations using AQUEDUCT, and as the assessment results were medium to small, we have determined that the importance of the chronic physical risk is low.
AQUEDUCT Please refer to the water risk website for the assessment.

Identifying risks and opportunitiesopens in a new tab

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Scenario analysis

We referred to objective scenarios such as the IEA* WEO** to compare the differences between the 1.5℃ scenario and the 4℃ scenario for the risks and opportunities identified in the importance assessment.
Based on the collected parameters and scenarios, how will the business environment change under the 4℃ scenario and the 1.5℃ scenario? How will our company, customers, policies/regulations and suppliers change in a changing business environment? In addition, we sketched out scenarios regarding the possible emergence of new entrants and substitutes. There will be no changes after the 2023 disclosure.
*IEA: International Energy Agency: International Energy Agency
**WEO: World Energy Outlook

4℃ scenario and 1.5℃ scenario for each face-to-face marketopens in a new tab

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Key parameters used in climate-related risk analysis by face-to-face marketopens in a new tab

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Impact of climate-related risks and opportunities on financial planning

Using the Group's financial and non-financial information, public information from the IEA and each country, and databases from international organizations, we estimated the financial impact of climate-related transition risks and physical risks for each of the Group's major face-to-face markets.

Financial impact assessment resultsopens in a new tab

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Strategies based on climate-related risks and opportunities

Based on the results of the financial impact assessment, we considered measures to address climate-related risks and opportunities up to 2050.

Key parameters used in climate-related risk analysis by face-to-face marketopens in a new tab

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Financial impacts of the 4°C and 1.5-2°C scenarios and main calculation formulas

The figure shows the gap between the "course of events" and "after countermeasures" when climate-related risks and opportunities based on scenario analysis are taken into account, compared to the assumed operating profit for 2050 for each business (=100) that does not take into account climate-related opportunities and risks based on scenario analysis.
Course of events: Financial impact when considering the impact of climate-related risks and opportunities on current products, services, and production systems
After countermeasures: Financial impact when climate-related countermeasures are taken compared to course of events

Risk Management

In formulating our long-term vision, E-Vision 2030, we analyzed medium- to long-term changes in social conditions and market environments through scenario planning. We identify fluctuation risks as long-term trends, short-term volatile risks, and risks in the face-to-face market and for each of our businesses. The identified opportunities and risks are managed under the corporate governance system.

To strengthen the EBARA Group's risk management system, we are thoroughly implementing the Group Management Regulations, establishing a risk management system, and establishing a contact system in the event of an emergency. We conduct regular risk assessments in response to changes in the risk environment surrounding the Group. In this risk assessment, we first organize possible risk items and then analyze the likelihood of occurrence, the degree of impact, and the remaining risks after countermeasures have been implemented for our Group. We then reevaluate our risk response system through questionnaires and interviews with business and division managers, clarifying the responsible department and reflecting this in our operations. In addition, in the event of an emergency or high level of importance that requires a company-wide response, a task force will be set up, headed by the Representative Executive Officer, to enable the entire company to quickly report, communicate, and make decisions.

Integrating climate-related risks into overall risk management

Managing climate-related risks and opportunities

Climate-related risk and opportunity management process

The significant climate-related risks and opportunities identified for each face-to-face market are managed in the "Action Plan for Non-Financial Management Issues" and "Action Plan for Management Issues," which are action plans in the medium-term management plan. In E-Plan 2025, our three-year medium-term management plan starting in 2023, we manage climate-related risks and opportunities in the "Action Plan for Non-Financial Management Issues."
The "Action Plan for Non-Financial Management Issues" is an action plan primarily for managing social and environmental indicators (non-financial), while the "Action Plan for Management Issues" is an action plan primarily for managing economic indicators (financial). The Representative Executive Officer, President and CEO chairs a monitoring meeting to review the progress of both plans, and receives reports from the company presidents of each business segment. Furthermore, the Sustainability Committee checks the progress of the Group's overall indicators and targets related to E (environment), S (society), and G (governance), and determines the Group's sustainability management action policy.
The "Action Plan for Non-Financial Management Issues" includes climate-related indicators. In E-Plan2025, we monitor important non-financial indicators, including climate-related risks and opportunities, such as the amount of CO2 emissions reductions (avoided emissions) achieved by customers using our products and development targets for new products toward a decarbonized society. The "Management Issue Action Plan" monitors the progress of financial indicators.

Indicators and goals

The social and environmental value aspects of our Group's business activities are defined as "non-financial." We define social and environmental value and indicators that will have an impact on our finances in the future as non-financial indicators, and CO2 emissions and contributions to reductions are non-financial indicators.
In our medium-term management plan E-Plan 2025, which runs from 2023 to the end of 2025, we have set non-financial indicators and targets and are monitoring the progress of social and environmental value creation. The Action Plan for Non-Financial Management Issues through 2025, formulated in 2023, sets goals for each fiscal year through 2025 by backcasting from the 2030 performance targets. The indicators and targets for climate-related risks and opportunities for each face-to-face market identified through climate-related scenario analysis are managed in the Non-Financial Management Issues Action Plan. In addition, we are aiming to commercialize new businesses such as hydrogen-related, land-based aquaculture systems, and cultured meat production systems in order to solve various social issues, including climate-related risks and opportunities.
As a climate-related indicator and goal, we have set a goal of reducing GHG emissions by the equivalent of 100 million tons of CO2 by 2030. Other outcomes also relate to climate-related transition and physical risks. We are promoting measures to achieve our performance targets.

The activity policy for CN and the progress of activities were submitted to the Sustainability Committee held four times in 2023, and the setting of Scope 1 and 2 targets for each company, Scope 3 targets, SBT setting, and the introduction of ICP were submitted to the Sustainability Committee to deliberate the activity policy. The contents of the discussion were reported to the board of directors.

Materiality 1: Review of the definition and calculation logic of "Reduction of 100 million tons of CO2 emissions through delivered products" (as of June 2024)
This target was set as one of the achievement targets in the long-term vision E-Vision 2030 announced by our Group in 2020. At this point, we defined and monitored the amount of CO2 that our customers could reduce by using our Group's products as our Group's contribution to avoided emissions.
With the publication of the Guidance on Avoided Emissions by the WBCSD in March 2023 as guidance on avoided emissions, we decided to review our definition in line with the guidance.
We are currently considering setting our own targets for Scope 3, avoided emissions, by 2024.

Non-financial indicators and targets related to climate change

Materiality: Materiality in our long-term vision, E-Vision 2030. We have set five materialities. There are three material issues that are directly related to climate-related risks and opportunities.
We have set indicators and performance targets up to 2030, including risks and opportunities identified through comprehensive risk assessment and climate-related scenario analysis.
*Updated information for 2024

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