As per the disclosure request in the Prime market, Nifco is studying and responding to the clarification of governance related to climate change, the analysis of risks and opportunities, and the development of risk management and other measures.

Governance

The Board of Directors deliberates and sets sustainability policies, strategies, plans, and measures, including those for addressing climate change, as well as targets and indicators, and it shares the progress and results to determine and promote improvements and new initiatives.
In addition, the Sustainability Committee has been established as an advisory body to the Board of Directors. The Committee advises and makes recommendations to the Board of Directors on matters related to sustainability.
Sustainability-related proposals approved by the Board of Directors are communicated directly or through the Management Committee to each of our business units and Group companies and are reflected in their respective management plans and business operations. Depending on the content of such proposals, we also request cooperation from our business partners.

Strategy

We have conducted an analytical assessment of the business risks and opportunities arising from climate change against projecting changes in the environment from 2021 to 2040 using a scenario analysis approach based on internationally recommended guidelines. Based on those results, we then developed policies to address each risk and opportunity.

Scenario Analysis Overview

Scope of coverage

Group consolidated companies (excluding the bedding and furniture business)

Time line

Present–2040

Scenario development

  1. The scenario in which the increase in global average temperature is kept within 1.5°C of pre-industrial levels (the 1.5°C scenario)
    Reference information

    • IEA*1 WEO2021 NZE and SDS scenarios

    • IPCC*2 Sixth Assessment Report, Working Group I Report SSP1-1.9, 2.6

    • Other

  2. The scenario in which the average global temperature rises by about 4°C above pre-industrial levels (the 4°C scenario)
    Reference information

    • IEA WEO2021 STEPS scenario

    • From IPCC Sixth Assessment Report, Working Group I Report SSP2-4.5, SSP3-7.9, SSP5-8.5

    • PLAT S8 Climate RCP8.5

    • Other

  • ※1

    IEA
    The International Energy Agency was established in November 1974 after the first oil crisis. It operates within the framework of the Organization for Economic Cooperation and Development (OECD) for the purpose of achieving energy security centered on oil. Currently, it is working on climate change analysis, energy efficiency and conservation policies, and clean energy promotion policies with the aim of achieving a sustainable energy supply.

  • ※2

    IPCC
    The Intergovernmental Panel on Climate Change is an intergovernmental organization that was established by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP) in August 1988 to provide a scientific basis for governments’ climate change policies. It publishes reports summarizing the latest scientific findings on climate change.

Assumed Changes in the Business Environment Related to Climate Change

【1】Assumed Changes in the Business Environment in the 1.5°C Scenario (Mitigation Against Climate Change)

The 1.5°C scenario assumes that the average temperature in the environment may rise about 1°C above the current level by around 2040, that typhoons and cyclones may intensify, and that flooding may become twice as frequent. It is assumed that government investment will increase in response to the intensifying wind and flood damage and companies will be forced to meet more stringent standards for reducing CO2 emissions.
There is a possibility that the use of internal combustion engines may decline and there is a shift to electric vehicles, as well as the entry of new companies into the automotive industry, as the global response to climate change progresses.
In that case, customers are likely to place fewer orders for products for internal combustion engines that use fossil resources and more orders for parts required for vehicles that use electricity as well as for products designed and manufactured on the premise of reducing environmental impacts.
In addition, there is a possibility that the growing environmental awareness of automobile end-users may lead to a shift from car ownership to car sharing, which will contribute to lower global automobile production. There is a possibility that in procurement and manufacturing, the introduction of a carbon tax may increase the procurement price of raw materials, and manufacturers may increasingly switch to raw materials such as recycled plastic and biomass plastic in response to customer demand. The possibility of damage to supply chains and manufacturing facilities due to severe wind and flood damage may increase, resulting in irregular responses and shutdowns.

【2】Changes in the Business Environment Expected under the 4°C Scenario (Adaptation to Climate Change)

The 4°C scenario assumes that around 2040 average temperatures may rise about 2°C above the current level, typhoons and cyclones may intensify, and floods may occur about four times more frequently.
It is believed there is a possibility that government measures may be strengthened in response to increasingly severe wind and flood damage and that the number of people suffering from heat stroke may double due to rising temperatures, in addition to increasing numbers of mosquito-borne and other infectious diseases.
There is a possibility that fossil prices and energy rates will rise and that the frequency of damage to supply chains and manufacturing facilities due to severe wind and flood damage may increase, resulting in irregular responses and shutdowns.

Key Risks and Opportunities Related to Climate Change Response

We have identified business risks and opportunities that may arise from changes in the environment under the 1.5°C and 4°C scenarios and examined their estimated degree of financial impact. As a result, the following table shows the estimated risks and opportunities that may have significant impacts on our operations.
The scenario analysis shows that while our business will be partially affected by social and market changes related to climate change, there will also be significant business opportunities, such as the expanding market for renewable energy-related products. We assess that for sustainability and the development of our business, we need to take prompt actions while keeping an eye on the future business environment. As shown in the table below, there are various possible impacts, but we will take appropriate measures to maximize our corporate value.
The terms “short term,” “medium term,” and “long term” are defined as the last one to three years for the short term, four to 10 years for the medium term, and 11 to approximately 20 years for the long term. In addition, risk classifications are made in accordance with internationally recommended guidelines.

Risks with significant financial impacts

Timing of emergency

Main policies

Market risks

There is a possibility that as electric vehicles become more widespread, functional parts that are unique to gasoline-powered vehicles, such as parts for conventional engines and oil supply ports, may gradually decrease.

Medium to long term

  • Appropriately allocate resources in response to market contractions

  • Planning and development of products compatible with electrification technologies

  • Create new businesses

  • Promote product strategies that focus on electrification among universal elements, such as the environment, safety, and comfort

There is a possibility that as more and more companies from other industries enter the automotive industry, mega-suppliers that used to supply other industries may become new competitors.

Medium to long term

  • Possess and utilize proprietary technologies to enhance competitiveness

  • Complement our strengths through alliances with other companies, CVC, M&A, etc. as needed.

  • Create new businesses

  • Promote product strategies focusing on universal elements, such as the environment, safety, and comfort, and improve the competitiveness of existing product lines

There is a possibility that sales may decrease and procurement costs increase due to the inability to respond to customer requests to use recycled raw materials (e.g., biomass plastics) in a timely and appropriate manner.

Short to long term

  • Research and develop new materials

  • Promote the use of non-fossil resource materials, recycled plastic materials, and materials using natural resources

  • Improve our immediate response to customer requests, paying attention to changes in materials, manufacturing methods, and laws and regulations

  • Develop product shapes and production methods that meet the specifications of products using recycled materials and biomass plastics

Market risks /
Technology risks

There is a possibility that Nifco’s business with existing and emerging car makers decreases due to the emergence of alternative products with lower CO2 emissions.

Short to long term

  • Improve our immediate response to customer requests, paying attention to changes in materials, construction methods, and laws and regulations

  • Create new businesses

  • Create proactive proposals based on analyses of environmental changes

  • Promote product strategies focusing on universal elements, such as the environment, safety, and comfort, and improve the competitiveness of existing product lines

Acute risks

There is a possibility that the likelihood of supply chain disruptions due to severe weather events, such as storms, snow, and freezing temperatures, has increased. This could increase the cost of purchases of expensive materials and transportation to avoid supply risks to customers caused by shortages of materials.

Short to long term

  • Secure multiple procurement channels and equivalent products

  • Procure raw materials considering climate forecasts

Opportunities with significant financial impacts

Timing of emergency

Main policies

Markets /
Products /
Services

There is a possibility that CO2 emission reductions may lead to a rapid expansion of lighter vehicles, non-ICE vehicles, and opportunities for renewable energy use, which could increase demand for specific functional components, such as motors, batteries (including all-solid-state batteries), and braking systems.

Short to long term

  • Early understanding of customer needs

  • Accumulation of information and experience in materials, manufacturing methods, regulations, etc. to respond immediately to customer needs

  • Rapid development of functional parts and resources as necessary to take the initiative

  • Promotion of a product strategy focused on universal elements, such as the environment, safety, and comfort

Resilience to Mitigation and Adaptation to Climate Change

The analysis of our operations against the two scenarios, a 1.5°C scenario with mitigated climate change and a 4°C scenario with more intense climate change, identified relatively high-impact issues in markets, technology, and acute risks.
However, we believe that we can avoid both market and technological risks if we keep abreast of future market changes and make prompt decisions, as well as avoid acute risks if we take proactive measures. Therefore, we believe that we have a certain degree of resilience to climate change.

Reduction of CO2 Emissions through Business Activities

  1. Reduction of CO2 Emissions from the Company
    We will undertake the following three initiatives:
    ・To reduce energy consumption by identifying and eliminating energy losses and waste throughout our operations.
    ・To consider gradually switching from fossil-based electricity to electricity from renewable energy sources at both our domestic and overseas sites.
    ・At Nifco’s Nagoya Plant, Sagamihara Plant and NTEC*, Nifco Kumamoto, and Nifco Kitakanto, we have already installed solar power generators to generate and use renewable energy and will consider further expansion of solar power generators in the future.
    *Nifco Technology Development Centre 

  2. CO2 Emissions Reduction in the Supply Chain
    We are currently considering how to reduce CO2 emissions by our suppliers.

     

Risk management

General sustainability matters, including those related to climate change, are directed and reported through the Board of Directors to the Risk Management Committee, which is responsible for managing the Group’s risk of losses. The Risk Management Committee considers and manages the implementation of proactive preventive measures in response to the risks indicated and reported to it.
Depending on the risk, the Board of Directors may issue instructions directly or through the Management Committee to the relevant executive officers.

Indicators and targets

  1. Indicators and Targets Required to Manage Risks and Opportunities
    Indicators and targets required for the management of risks and business opportunities will be set after determining the measures to address each risk and opportunity.

     

  2. Indicators and Targets for CO2 Emission Reductions
    As a participating company in the SBT （Science Based Targets） target-setting support program, we have set a medium-term target of a 2°C scenario, but we are currently considering a new CO2 emission reduction target based on the recognition that it is important to move to the 1.5°C scenario, which is the latest trend. CO2 emissions for the last three years on a stand-alone basis in Japan are as follows.