Governance

Governance on Climate-related Risks and Opportunities

The Environmental Test Business (sales, service, and laboratory testing services), which is the core business of the ESPEC Group, has a large amount of CO2 emissions due to energy consumption during use of products, and the HFCs used as refrigerants in refrigeration equipment have an impact on climate change. The Group recognizes that its business has a significant impact on climate change. Also, the environmental conservation businesses conducted by the group company ESPEC MIC are affected by climate change in various ways, both directly and indirectly.
The Group believes that climate change issues will have a significant impact on our medium- to long-term business risks and opportunities.

The Group aims for “environmental management that contributes to the achievement of a sustainable society through business activities,” and identifies materiality (important issues) on environmental conservation based on this idea. First, environmental impact assessments are conducted to evaluate, identify, and extract issues by considering the degree of environmental impacts resulting from its business activities and the stage at which they occur. The Group also analyzes external and internal issues, and organize the needs and expectations of stakeholders including the regions (governments) and local communities where its primary business sites are located, customers, suppliers, employees, and investors. The Group then work to ensure consistency between the resulting identified issues and its medium-term management plan, and incorporate the issues that are most important for environmental conservation into our Medium-term Plan on the Environment.
In the 8th Medium-term Plan on the Environment, the Group has identified global warming countermeasures and biodiversity as important management issues. The Group will strive to further advance our environmental management through various means, including providing products and services to the low-carbon technology development field, developing and marketing environmentally-conscious products, and reducing CO2 emissions from our business activities.

Since FY 1996, ESPEC's Company-wide Environmental Management Committee, chaired by the Representative Director and President, has been preparing quarterly action plans for the Group's environmental issues and monitoring their progress. The Representative Director and President is the chairman of the Board of Executive Officers and the chairman of the Company-wide Environmental Management Committee, which is an advisory committee, and is ultimately responsible for management decisions on environmental issues. The Company-wide Environmental Management Committee manages the company’s common environmental goals, holds discussions on various relevant matters, and performs other activities. The decisions made by this Committee are then implemented in each company, business office, and division where the environmental management activities are carried out.
The Board of Directors receives quarterly reports on the discussions and resolutions made by the Company-wide Environmental Management Committee, and discusses and supervises the Group's policies and action plans for addressing its environmental issues.

Strategy

Impact of Climate-related Risks and Opportunities on Business, Strategy, and Finance

The demand for environmental test chambers is expected to grow in the future due to further development of environmentally-conscious technologies to achieve a carbon neutral society. Also, due to the Kigali Amendment and other regulations, the increasing demand for air-conditioning and refrigeration equipment using refrigerants may lead governments to impose stricter regulations on refrigerants having high global warming powers (GWP). Excessive regulatory tightening can pose a risk to the Group. On the other hand, appropriate regulations will encourage the spread and expansion of products and services with superior environmental performance, which is one of its strengths, and may provide an opportunity to expand its business.
The Group believes that promoting our environmentally-conscious products and services mainly in Europe, which is the world leader in the development of environmentally-conscious technologies, and ASEAN countries, is an effective measure to reduce global greenhouse gas emissions and is incorporated into our business strategy to help lead to the growth of our business.

Since 1996, the Group has established a Mid-term Plan on the Environment and has been working to reduce CO2 emissions. In response to the recent growing demands from the society, it established the 8th Medium-term Plan on the Environment in April 2022 and set a target of 60% reduction (compared to FY 2019) in CO2 emissions (SCOPE 1+2) by 2030.

To realize this goal, the Group has identified climate-related risks (physical risks and transition risks) and opportunities to our business activities and verified the effectiveness and resilience of our response measures, taking into consideration the SSPs published by the UN Intergovernmental Panel on Climate Change (IPCC) in its 6th assessment report and the RCP scenarios published in its 5th assessment report, as described below.

In the 8th Mid-term Plan on the Environment, the Group supports the Japanese government's goal of becoming carbon neutral by 2050, will expand sales of energy-saving products and products using low-GWP refrigerants, conduct further energy-saving initiatives at our global offices, and provide laboratory testing services using 100% renewable energy.

<Scenario Analysis Details>

Usage scenario

• 4℃ scenario: IPCC AR6 SSP3: Shared Socio-economic Pathways and AR5 RCP8.5 Representative Concentration Pathways
• 1.5 or 2℃ scenario: IPCC AR6 SSP1 Shared Socio-economic Pathways and IPCC AR5 RCP2.6 Representative Concentration Pathways

Business Impact (Financial Impact and Business Risk) Assessment and Our Response to Climate-related Risks and Opportunities

Please scroll horizontally to look at table below.

Impact period：Short-term 10 years or less, Medium-term 10 to 30 years, Long-term over 30 years
Financial impact : ★100 million yen or less, ★★100 million yen to 1 billion yen, ★★★Over 1 billion yen

Risk Management

The ESPEC Group manages the climate-related risks described above through our Risk Management Committee, our Company-wide Environmental Management Committee, and Environmental Management System (ISO 14001).

In the risk management process, risks are identified and evaluated by the Risk Management Committee, the Company-wide Environmental Management Committee, and the Environmental Management System (ISO 14001), and prioritized based on their frequency of occurrence and impact. Then, measure such as avoidance, mitigation, transfer, and retention, are decided and the progress of these measures is managed. Identified significant risks are regularly reported to the Board of Directors and are incorporated and addressed in the Group's strategies under the supervision of the Board of Directors.

Indicators & Targets

Indicators and Targets for Assessing and Managing Climate-related Risks and Opportunities

(a) Indicators for managing climate-related risks and opportunities

The ESPEC Group has established two indicators for managing climate-related risks and opportunities: SCOPE 1 + 2 and SCOPE 3 greenhouse gas emissions.

(b) Greenhouse gas emissions (SCOPE 1, 2, 3)

Since FY 2019, the Group has been calculating the greenhouse gas emissions of the entire Group. The Group's FY 2021 SCOPE 1 + 2 greenhouse gas emissions were approximately 7,541 t-CO2 (down 46.3% from FY 2019). Also, FY 2021 SCOPE 3 greenhouse gas emissions were approximately 875,859 t-CO2 (up 9.5% from FY 2019).
The Group has obtained third-party assurance of its greenhouse gas emissions since FY 2019 and obtained third-party assurance of its greenhouse gas emissions for FY 2021.

 (c) Targets and results used to manage climate-related risks and opportunities

The Group will manage the progress of our environmental initiatives, including global warming countermeasures, by incorporating our environmental objectives and targets into a Medium-term Plan on the Environment that sets a target for reducing greenhouse gas emissions every four years until 2030.

SCOPE 1 + 2: Greenhouse gas emissions from Group-wide business activities
Reduced by 60% by 2030 (compared to FY 2019 levels)
→ 8th Medium-term Plan on the Environment: Reduced by 55% by 2025 (compared to FY 2019 levels)

SCOPE 3: Greenhouse gas emissions from use of sold products (Category 11) + end-of-life treatment of sold products (Category 12)
Reduced by 30% by 2030 (compared to FY 2019 levels)
→ 8th Medium-term Plan on the Environment: Emissions reduced by 10% by 2025 (compared to FY 2019 levels)