ONO expressed our support in October 2019 for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)(click here for details). The TCFD is a task force established by the Financial Stability Board (FSB) to help companies understand and disclose the financial impact of climate change on their businesses. In June 2017, the TCFD announced its recommendations on how companies should disclose information. Based on the TCFD recommendations, we will evaluate and manage climate change-related risks and opportunities and disclose information appropriately.
We appoint president, representative director, and CEO as the chief executive officer on environmental management, while an executive officer in charge of the environment is appointed directly beneath the president, representative director, and CEO, and together they work to resolve environmental issues including climate change. The executive officer in charge of the environment serves as the chairperson of the Environment Management Committee and also concurrently chairs the CSR Committee, which deliberates, makes decisions and reports to management on important issues and matters related to the company’s CSR activities. The executive officer in charge of the environment is also a member of the Management Meeting, which is chaired by the president, representative director, and CEO. The Environment Management Committee examines climate change issues at least once a quarter, and the results of its activities are reported and discussed at the CSR Committee and the Management Meeting at least once every six months. The results of reports and discussions at the CSR Committee and the Management Meeting are reported to the Board of Directors at least once a year, and are shared and supervised by all directors. Furthermore, the remuneration system for directors has been revised with the aim of further promoting the company’s efforts to increase corporate value over the medium- to long-term and raising awareness on performance targets and ESG evaluations, and includes external evaluations, etc., of ESG as indicators.
In FY2019, we established the TCFD Study Working Group, headed by the executive officer in charge of the environment, to identify risks and opportunities related to climate change, assess their financial impact, and consider how to respond. In addition to the executive officer in charge of the environment, we have also added the heads of related major departments (Finance and Corporate Planning) and the heads of the Risk Management Office as members of the TCFD Study Working Group, who all work on tackling climate-related issues as part of our management strategy. The financial impact of the identified risks and opportunities is reviewed annually by the group. Furthermore, mitigation and adaptation measures against the identified risks, and measures for promoting opportunities will be discussed by the Environment Management Committee. The content of discussions held at the Environment Management Committee is supervised by the president, representative director, and CEO through the above-mentioned environmental management system.
Analysis and evaluation of climate change-related risks and opportunities were performed using the 1.5°C and 4°C scenarios from a short-term (up to 3 years), medium-term (3-10 years) and long-term (10-30 years) perspective, under the leadership of the TCFD Study Working Group. Continuing from our efforts in FY2020, in FY2021, we reviewed the amount of financial impact of physical risks*1 based on changes in our product structure, suppliers, etc. , and confirmed the status of our response to recognized risks. We also confirmed that there is no high risk of climate change in overseas product inventories and investigational product inventories. Meanwhile, the amount of financial impact of transition risks*2 was not revised since there were no specific changes in assumptions at the time of calculation. The results of the analysis have been reported to the various committees (described in “Governance” above). It has also been confirmed that neither scenario poses a significant financial risk to the company, and the management status is being checked (see “Risks and opportunities related to climate change, as well as financial and business impacts” in the table below). We will continue to check trends in the international community and closely monitor the impact of risks and opportunities that may have a relatively significant financial impact.
The impact of the scenario we assumed to ONO is as follows:
| Factor | Value chain |
Risk and impact |
Affected period | Financial impact | Management approach |
||
|---|---|---|---|---|---|---|---|
| Society aiming for below 1.5°C |
Regulatory risk |
ONO | Increased carbon tax burden | If carbon prices rise due to regulations on climate change being tightened, and if high growth is achieved and energy consumption, etc., increases, then the burden of carbon tax on greenhouse gas emissions may increase. | Medium- to long-term | JPY 1.9 billion |
Mitigation
|
| Suppliers | Carbon tax passed on to procurement prices | If carbon prices rise due to regulations on climate change being tightened, the carbon tax burden on the greenhouse gas emissions of suppliers will increase, and if the tax increase is passed on to our procurement prices, costs may rise. | Medium- to long-term | JPY 0.6 billion |
Mitigation
|
||
| If the temperature rises by 4°C |
Physical risk |
ONO, manufacturing contractors, suppliers |
Flood risk (acute) | Acute damage (flood) risk from typhoons, etc., will increase, and there is a possibility that profits will decline due to interrupted operations from damage to manufacturing equipment, damage to storage facilities for raw materials and products, or flooding. | Short- to medium-term | JPY 2 billion |
Adaptation
|
| Water shortage risk (chronic) | Since sufficient inventory is maintained, it is not likely at present that water-use restrictions due to long-term depletion of water resources will cause an interruption of our operations, resulting in a decrease in revenue. | Medium- to long-term | JPY 0 billion |
Adaptation
|
|||
Mitigationmeasures to reduce emissions of greenhouse gases that cause climate change, Adaptationmeasures to prevent or mitigate damage caused by the effects of climate change that have already occurred (or are expected to occur in the future).
Short-term: Up to 3 years; Medium-term: 3-10 years; Long-term: 10-30 years
| Factor | Value chain |
Opportunity and impact | Affected period | Financial impact |
Management approach | ||
|---|---|---|---|---|---|---|---|
| Society aiming for below 1.5°C |
Opportunity from resource efficiency |
ONO | High-efficiency pharmaceutical manufacturing process | Introduction of high-efficiency pharmaceutical process technologies , such as process design and continuous manufacturing system, etc., that takes into account green sustainable chemistry *3 can provide opportunities to reduce energy and raw material costs.
|
Medium- to long-term | JPY 2.3 billion |
|
| If the temperature rises by 4°C |
Business opportunity | Customers | Preventive/treatment products | If disease trends change due to global warming, demand for existing drugs (for melanoma, etc.) may increase, or the development and sales of new drugs may have a favorable impact on revenue. | Medium- to long-term | JPY 0.5 billion |
|
| Society aiming for below 1.5°C |
Reputation opportunity | Investors, customers, recruitment market | Corporate value improvement | It is possible that our efforts to tackle climate change will help us earn customer trust, retain employees, improve our reputation in the recruitment market, and improve ESG investors’ evaluation of our performance, thus contributing to the creation of corporate value. | Short- to medium-term | (Contributing to the creation of corporate value) | Appropriately disclose the results of activities undertaken to the public. |
The TCFD Study Working Group selected, analyzed and evaluated the 1.5°C and the 4°C scenarios in which progress toward a decarbonized society and intensification of global warming are projected, respectively.
[Concept of climate change scenarios]
(Prepared by ONO based [Global average surface temperature change] of “Climate Change 2013: The Physical Science Basis – Summary for Policymakers” [IPCC, 2013, page 19])
| Scenario | Name of key scenario | Social changes | ONO’s situation |
|---|---|---|---|
| 4℃ (unclear decarbonization policy) |
RCP8.5 scenario, Stated Policies Scenario, etc. |
|
|
| 1.5℃ (strengthened decarbonization policy) | Sustainable development scenario, External data unique to Japan, etc. |
|
|
We comprehensively refer to scenarios and use them with different temperature zones as much as possible as a basis for our own scenarios in order to eliminate unexpected variables.
| Name & characteristics | World Energy Outlook (WEO) published by International Energy Agency (IEA) | Details | Main viewpoints used at ONO | |
|---|---|---|---|---|
 |
RCP 8.5 |
Current Policies Scenario (CPS) | Pessimistic scenario (SSP3 RCP8.5) (Aqueduct Water Risk Atlas tool) |
|
| RCP 6.0 |
Stated Policies Scenario (STEPS) | STEPS scenario (IEA) |
|
|
| RCP 4.5 |
- | - | - | |
| RCP 3.4 |
- | - | - | |
| RCP 2.6 |
Sustainable Development Scenario (SDS) | Carbon price in developed countries: $100/t-CO2 by 2030, IEA SDS scenario) |
|
|
| RCP 1.9 |
- | - | (ONO’s scenario is currently being verified) | |
| Other | External data unique to Japan | Ministry of Land, Infrastructure, Transport and Tourism’s hazard map and manual for economic evaluation of flood control investment | Used as a domestic scenario where our main offices are located. |
We analyze the timing and probability of occurrence, and the scope of impact for each risk and opportunity and evaluate the content of countermeasures, etc., before comprehensively determining the degree of priority. We prioritize and identify those matters that have a large impact on business, those matters with a high probability of occurrence, and those matters that are highly cost-effective to implement countermeasures against, and the Environment Management Committee manages the progress.
The Company-Wide Risk Management Committee considers measures for risk mitigation and adaptation when it comes to identified risks, and afterwards proposes them to the Management Meeting to obtain approval. Based on the measures approved by the Management Meeting, the managers of production sites, research institutes, etc., comprehensively manage risks (including flood risks associated with climate change) when carrying out the approved measures, and the progress of these risks is shared with the Environment Management Committee.
In addition, the amount of financial impact of the identified risks and opportunities is reviewed annually by the TCFD Working Group. Mitigation and adaptation measures for identified risks and measures to promote opportunities are also discussed by the Environment Management Committee. The content of discussions held at the Environment Management Committee is supervised by the president, representative director, and CEO through the environment management system (described in “Governance” above).
We have created a road map to achieve the greenhouse gas emission reduction targets based on our environmental vision, which aims to minimize risks and maximize opportunities associated with climate change, and are considering measures and costs (see here for details). Our medium- to long-term greenhouse gas reduction targets have been approved as science-based by the international initiative “Science Based Targets initiative (SBTi)*4.” For Scope 1+2, our targets are classified by SBTi as the strictest, “1.5°C target.” To achieve our medium- to long-term targets, we set a single-year target and evaluate the results (progress) against the target (FY2020 target: at least a 12.6% reduction compared to FY2017). We also calculate greenhouse gas emissions across the entire value chain (Scope 3). Since FY2014, we have calculated greenhouse gas emissions for our business sites in Japan by dividing Scope 3 emissions into 15 categories, in accordance with the guidelines of the Ministry of the Environment.
As for water risks, we conduct risk assessment once a year. Recognizing water risks as “disaster/climate change risks” among the company-wide risks, we implement measures based on our business continuity plan (BCP), including maintaining a proper stock. In the future, we will also work to establish a collaborative relationship with our business partners, to secure multiple suppliers, and to consider the impact of flood/shortage of water due to climate change in our business partner selection process.
In order to appropriately disclose information based on the TCFD recommendations, it is important to understand the concerns and issues of external stakeholders regarding TCFD disclosure. As part of this effort, we participate in the TCFD Consortium, a forum for companies, financial institutions and other organizations who support the TCFD recommendations to discuss effective information disclosure and appropriate initiatives. In March of FY2021, we held an ESG briefing for institutional investors, which we have been conducting continuously since FY2019, and received various opinions and questions. These efforts by us to respond to the TCFD recommendations were published as advanced cases in the Ministry of the Environment’s “Climate Change Adaptation Guide for Private Sector -Preparing for Climate Risk and Surviving- (revised edition, March 2022).” We believe that deepening our understanding of TCFD disclosure through such dialogues with stakeholders and collaborations with the government will allow us to help promote responses to climate change in society as a whole.
“Climate Change Adaptation Guide for Private Sector -Preparing for Climate Risk and Surviving- (revised edition, March 2022),” Ministry of the Environment