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

The Director who is the Head of Business Management & Sustainability serves as Officer in charge of response to climate issues. This Director chairs the Environment Committee, which meets quarterly to ensure the implementation of Nippon Shinyaku’s Basic Environmental Policy, which was formulated by the Board of Directors. The committee formulates other environmental policies, promotes environmental preservation and other initiatives, and checks the results of environmental preservation activities, including the annual CO₂ emissions reduction.
The same Director is also a member of the President-chaired Sustainability Committee, which meets twice a year, so that Group-wide sustainability activities will be further enhanced. The Nippon Shinyaku Group has identified tackling climate change as one of its material environmental issues. The details and progress of the relevant activities are reviewed by the Sustainability Committee every six months. 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.

Scenario Analysis

Recognizing the enormous impact climate-related risks and opportunities will yield on the company’s business strategies, Nippon Shinyaku has identified the risks and opportunities of climate change and evaluated their importance according to the following process.
This analysis and evaluation into climate change-related risks and opportunities was conducted utilizing a 1.5°C warming scenario and a 4°C warming scenario.
First, climate-related risks and opportunities were comprehensively sampled. Next, the sampled climate risks and opportunities were sorted according to their relationship to the company’s pharmaceuticals and functional food businesses. Finally, their importance was evaluated based on two criteria: degree of impact on the company, and probability of occurrence.

Selection of climate scenarios

Analysis and evaluation were conducted using a carbon neutral society-focused 1.5°C warming scenario, and a 4°C warming scenario. For the 1.5°C warming scenario, SSP1-1.9^*1 was used; for the 4°C warming scenario, SSP5-8.5^*2 was used.

*1 SSP1-1.9: 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 the century.
*2 SSP5-8.5: A high 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	Measures	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		●
		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		●
		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		●
		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	●
		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		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	●
			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		●

Strategy

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’s long-term goal is to realize net-zero CO₂ emissions by FY2050. In addition, Nippon Shinyaku is also monitoring climate-related risks across its entire supply chain.
Nippon Shinyaku views the transition to a low-carbon economy as an opportunity, and recognizes the reduction of costs through energy conservation and recycling, and the development of relevant products as means to increase its competitiveness.

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

In order to secure stable supplies of raw materials, Nippon Shinyaku is maintaining a diverse array of suppliers and is enhancing its stockpiling capabilities. In addition, we are also promoting the development of business continuity plans (BCPs), including those for weather-related disasters; and are accelerating investment in disaster prevention and response measures.

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