Disclosure Based on the TCFD Recommendations │ The Environment │ Sustainability │ NIPPON SHINYAKU CO., LTD.

Governance
Scenario Analysis
Strategy
Risk Management
Indicators and Targets

In December 2021, Nippon Shinyaku declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).^*1 In addition to working to address already identified risks from the perspective of risk management, the Company will enhance its information disclosure by collecting and analyzing data for scenario analysis of climate-related risks and opportunities in the framework of the TCFD recommendations and devising specific measures to address identified risks and opportunities.

*1 The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 by the Financial Stability Board (FSB) to develop recommendations for more effective climate-related disclosures to be made by companies to investors, lenders and insurance underwriters.

Governance

In our efforts to be more proactive in promoting sustainability, the Nippon Shinyaku Group’s Sustainability Committee, which meets twice a year and is chaired by our President, is discussing, reviewing, and making decisions regarding the key issues concerning sustainability for the entire Group. The Committee assesses and supervises climate change countermeasures, which have been identified as a material issues. The Sustainability Committee also meets twice a year to review the details and progress of our sustainability-promotion activities. The Environment Committee, which meets quarterly and is chaired by the Director who serves as the Head of Business Management and Sustainability, is responsible for dealing with climate-related issues. This Committee, which is charged with executing the Group’s Basic Environment Policy as determined by the Board of Directors, formulates environmental preservation policies, promotes environmental preservation and other initiatives, and checks on the progress of environmental preservation activities, including our annual reduction in CO₂ emissions. Also, the results of the Environment Committee and Sustainability Committee’s investigations are reported at least once a year to the Board of Directors, which reviews them and provides oversight.

Name	Sustainability Committee	Environment Committee
Duties	・Determine the Nippon Shinyaku Group’s basic policy on sustainability ・Discuss, deliberate and make decisions on important matters concerning sustainability for the entire Nippon Shinyaku Group ・Identify, evaluate and manage material issues (including issues related to climate change)	・Formulate the Nippon Shinyaku Group Basic Environmental Policy, and establish and oversee the Group's targets and management system for global environmental preservation ・Set voluntary environmental targets and check on the progress ・Promote initiatives to address environmental issues
Organizational structure	Chairperson: President Members: Inside Directors Secretariat: Corporate Sustainability Department	Chairperson: Director, Business Management & Sustainability Members: Selected from Head Office Area, Discovery Research Laboratories in Tsukuba and Odawara Central Factory * Chairperson appoints one or more committee members from each site Secretariat: Corporate Sustainability Dept.
Frequency of Meetings	Twice a year	Four times a year

Strategy

Scenario Analysis

In recognition of the enormous impact that climate-related risks and opportunities will exert on the Company’s business strategies, the Nippon Shinyaku Group has identified the risks and opportunities associated with climate change and evaluated their importance. The analysis and evaluation of climate change-related risks and opportunities was conducted utilizing a 1.5°C warming scenario and a 4°C warming scenario. First, we comprehensively extracted the risks and opportunities associated with climate change, then we sorted the extracted risks and opportunities by their correlation with two of our businesses, pharmaceuticals and functional foods. Finally, we assessed their importance based on the two criteria of degree of impact on the Company and probability of occurrence.

1.5°C warming scenario

In addition to the expectation that costs will increase due to tightening of regulations, including the introduction of carbon taxes; the risk of the price of raw materials and other items increasing is also anticipated. Nippon Shinyaku is propelling initiatives to reduce carbon and has set a CO₂ emissions target of 6,088 t-CO₂ by FY2030 (a 42% reduction from benchmark FY2020).

4°C warming scenario

The analysis results showed that the Odawara Central Factory would not be financially impacted by a weather-related disaster and subsequent shutdown of operations, because the Factory holds approximately 4.6 months’ worth of inventory. In order to stably secure raw materials, Nippon Shinyaku is working to diversify its procurement sources and strengthen its stockpiling functions, thereby minimizing risks throughout the supply chain. In addition, the Company is promoting BCP measures, including preparation for weather-related disasters, and investment related to disaster prevention.

Selection of climate scenarios

For the 1.5°C warming scenario, SSP1-1.9 was used; for the 4°C warming scenario, SSP5-8.5 was used.

Scenario	Reference scenario	Description
1.5°C scenario	SSP1-1.9 IEA NZE2050	Holds warming to approximately 1.5°C above 1850-1900 in 2100 after slight overshoot and implied net-zero CO₂ emissions around the middle of this century.
4°C scenario	SSP5-8.5	A high-level reference scenario with no additional climate policy. Emissions as high as SSP5-8.5 are only achieved within the fossil fueled SSP5 socioeconomic development pathway.

	Short-term,2021-2040		Mid-term,2041-2060		Long-term,2081-2100
Scenario	Best estimate(℃)	Very high possibility range(℃)	Best estimate(℃)	Very high possibility range(℃)	Best estimate(℃)	Very high possibility range(℃)
SSP1-1.9	1.5	1.2～1.7	1.6	1.2～2.0	1.4	1.0～1.8
SSP1-2.6	1.5	1.2～1.8	1.7	1.3～2.2	1.8	1.3～2.4
SSP2-4.5	1.5	1.2～1.8	2.0	1.6～2.5	2.7	2.1～3.5
SSP3-7.0	1.5	1.2～1.8	2.1	1.2～2.8	3.6	2.8～4.6
SSP5-8.5	1.6	1.2～1.9	2.4	1.3～1.9	4.4	3.3～5.7

Identified Risk/Opportunities and Measures

Category			Impact on Nippon Shinyaku	Details of measures of potential risks and opportunities	Indicator	Financial impact	Period
							Short-term	Mid-term	Long-term
							-2025	2026-2030	2031-
Risks	Transition risks	Policies and laws	Risk of energy costs and procured goods prices increasing due to carbon taxes and strengthened energy conservation laws	・Introduction of an internal carbon pricing system in order to promote investment in reducing greenhouse gas emissions ・Proactive deployment of energy conservation and renewable energy measures ・Inter-Group education and momentum-fostering initiatives ・Implementation of monitoring of environmental regulation trends by the Environment Committee ・222 million yen by FY2030, 450 million yen by 2050 Estimated from the Company’s 2022 Scopes 1 + 2 targets assuming $140/t-CO₂ of carbon taxes in 2030. Estimated from the Company’s 2022 Scopes 1 + 2 targets assuming $250/t-CO₂ of carbon taxes in 2050.	Increase in expenses	Small		●
		Policies and laws	Delay in response to global environmental regulations	・Implementation of preliminary investigations of and early response to regulation trends by the Environment Committee				●
		Markets	Increases in market prices of procured goods due to increases in demand for raw materials (pharmaceuticals) Risk of decreases in demand due to increases in product prices in accordance with increased market prices of procured goods (functional foods)	・Proactive support for suppliers’ carbon neutral activities to deal with risk of increased procurement costs	Decrease in expenses	Small		●
		Markets	Stoppage of plant operation and business activities due to depletion of raw materials and other resources	・Maintenance of diverse suppliers ・Enhancement of stockpile capabilities					●
		Evaluation	Negative impact on stock prices and fundraising due to delay in tackling climate change	・Promotion of initiatives and information disclosure in line with the TCFD recommendations ・Improvement of corporate value through ESG evaluation				●
	Physical risks	Acute risks	Increased risk of disruptions to supply chain, including raw material procurement and product shipping logistics, due to increases in regional torrential rains and largescale typhoons	・Process automation ・Maintenance of diverse suppliers ・Strengthening cooperation with suppliers ・Enhancing plant production and quality control systems and in turn reducing product risks through means such as inspections of manufacturing contractors’ plants, organization of all information concerning materials and products, and revising product standards and testing procedures	Decrease in expenses	Medium		●
		Acute risks	・Increased frequency of damage to facilities and increased repair costs due to abnormal weather and weather-related disasters ・Suspension of business activities due to damage to associated facilities, including those of the company as well as collaboration research companies	・Formulation of concrete guidelines for action in the event of a disaster	Decrease in expenses	Small	●
		Chronic risks	Risk of need to move plants and other sites due to impact of rising sea levels	・Promotion of investment concerning disaster prevention and response				●
			Depletion of water resources and water intake limits due to changes in rainfall patterns (reduction in profits due to reduced production capacity)	・Evaluation of risks regarding existing site water supply security and water shortages as well as abnormal weather					●
			Insufficient raw material procurement due to climate change	・Maintenance of diverse suppliers				●
Opportunities		Markets	If climate change progresses, food preservation and quality maintenance will increase in importance, and we would expect that demand for our quality and stability preservatives would increase	・Development of quality and stability preservatives that enhance the preservability of foods while keeping their flavor will contribute to the improvement of food quality maintenance and lead to a reduction in food waste.	Increase in sales	Small			●
		Resource efficiency/ energy	Reduction in production costs through a variety of improvements to resource efficiency, including energy conservation, reduced water utilization, and waste disposal	・Energy-saving production and process development through IoT utilization and the promotion of energy optimization in plants	Decrease in expenses	Small	●
			Optimization of production and logistics processes	・Investigation into the use of raw materials which pose a low logistics load			●
			Maintenance of cost competitiveness through introduction of renewable energies to reduce carbon tax burden	・Promotion of further development of energy-saving technologies			●
		Resilience	Minimizing the damage of physical risks through implementation of systematic measures	・Implementation of measures such as seismic reinforcement ・Preparing for long-term infrastructure disruptions such as enhancing stockpile capabilities				●
		Resilience	Contribution to increasing corporate value through the company’s climate initiatives, including gaining customer trust, retaining employees, improving evaluation in recruitment, and improving evaluation from ESG investors	・Promotion of initiatives and information disclosure in line with the TCFD recommendations ・Acquiring SBTi validation, promotion of CDP reporting				●

Large	Impact on the relevant segments’ operating profit is 30% or more
Medium	Impact on the relevant segments’ operating profit is at least 15% but less than 30%
Small	Impact on the relevant segments’ operating profit is less than 15%

Nippon Shinyaku is continually working to improve its environmental conservation activities (conserving energy and reducing CO₂ emissions) based on its Basic Environmental Policy in order to achieve carbon neutrality by 2050.
The Company is promoting decarbonization efforts such as switching to renewable energy-derived electricity by installing solar power generation systems and switching sales vehicles to hybrid models. In addition, when renewing factory and research equipment, contribution to greenhouse gas emissions reduction is employed as one of the evaluation criteria.
We recognize that addressing Scope 3 emissions, which encompass the entire supply chain, is a critical task, and we will continue to work in close collaboration with our suppliers to promote decarbonization efforts.
Seeing the transition to a low-carbon economy as an opportunity, the Nippon Shinyaku Group will strive to further strengthen its competitiveness by reducing fossil fuel-derived energy costs and promoting innovation in the functional food field.

Risk Management

The Nippon Shinyaku Group has in place Basic Risk Management Rules, with the Director who is the Head of Personnel, General Affairs, Risk Management, Compliance & Digital Transformation acting as the Risk Management Officer, and a department dedicated to overseeing risk management. We have identified various possible risks, including climate change-related ones. Each department has devised measures to prevent the actualization of those risks and to respond to any realized risk. Further, every year, action plans are formulated to address the risks selected as highly serious for the entire Group or each department and enhance measures to prevent their actualization. The results of these activities are reported to the Risk & Compliance Committee and then to the Board of Directors at the end of each fiscal year so that activities in subsequent years will be improved.

FY2023 activity themes	Risk management goals
Natural disasters (earthquakes, eruptions, tsunamis, typhoons, wind disasters, lightning strikes, etc.), fires, and explosions	・Call employees’ attention to forecastable emergency-warning-level natural disasters based on announcements issued by national and local governments and educate employees about countermeasures against such disasters. ・Provide employee education and conduct drills in using fire extinguishers and evacuation drills so that employees can make an initial response to emergencies, such as fires and explosions.
Enhancement of various disaster drills at the Odawara Central Factory	Conduct drills in the simulation of various disasters.
Risk of losing product supply ability	Strengthen the system for a stable product supply through factory and supplier risk management and reduce the risk of our losing product supply ability.
Stable procurement of raw materials, products, etc.	Monitor the supply-demand balance of all products we handle in cooperation with the Sales and Marketing Division and the Planning Department and appropriately manage inventories while especially taking into account inventory risks to products introduced from abroad to be provided exclusively for particular retailers.
Appropriate management of chemical substances	Promote appropriate management of chemical substances by reducing the amount of chemical substances possessed, properly operating the chemical substance management system, and responding promptly and appropriately to revisions to applicable laws.

Indicators and Targets

Nippon Shinyaku has established a greenhouse gas reduction target of reducing its greenhouse gas (Scope 1 and 2) in FY2030 42% from benchmark FY2020. As a climate-related opportunity the company has also established the ratio of hybrid company-owned vehilcle activities as a key performance indicator. Further, we will be striving to assess our capital outlays and allocation by using as indicators investments in environmentallyconscious facilities and facilities which contribute to reduced greenhouse gas emissions.

Greenhouse gas emissions	42% reduction in greenhouse gas emissions in FY2030 (over FY2020)
Climate-related opportunity	Increase ratio of hybrid company-owned vehilcle activities