Support for the TCFD

In August 2022, Shindengen expressed support for the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)*1 and joined the Japan TCFD Consortium,*2 which was established as a place to hold discussions among supporting corporations, financial institutions, and other organizations. Going forward, we will move forward with disclosures of climate-related information, as appropriate, while striving to further enhance corporate value and help realize a sustainable society by maintaining eco-friendly business activities.

*1 The TCFD was established by the Financial Stability Board (FSB) and released their final report (the TCFD recommendations) in June 2017.
*2 Established on May 27, 2019, the consortium serves as a venue for discussions on initiatives connecting companies’ effective disclosures and disclosed information to the appropriate investment decisions of financial institutions and other organizations. Japan’s Ministry of Economy, Trade and Industry, Financial Services Agency, and Ministry of the Environment participate as observers.

Climate Change-related Initiatives

The TCFD recommends that companies assess the risks and opportunities brought on by climate change that would affect their business activities and disclose their findings according to the following categories.
The Shindengen Group discloses climate-related initiatives in line with the four disclosure categories of the TCFD recommendations.

TCFD Recommended Disclosure Categories

Governance	Strategy	Risk Management	Metrics and Targets
Disclose the organization’s governance around climate-related risks and opportunities.	Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.	Disclose how the organization identifies, assesses, and manages climate-related risks.	Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

Governance

Shindengen’s Board of Directors deliberate and decide on matters material to management, including climate-related risks and opportunities in the Shindengen Group. In addition, the Board receives reports on the business execution status of directors and has in place a system that enables appropriate management and oversight.
The BCM Committee, which is chaired by the president, confirms the effectiveness of business continuity, including climate change problems. The Environment Committee, which is chaired by the environmental safety officer, is in charge of deliberating environment-related policies, goals, and targets; discussing measures related to protecting the global environment, including climate change problems; and confirming the progress status of measures. In addition, we have established specialized subcommittees under the Environment Committee to investigate and study topics from a specialized position and offer specific proposals.
The activities of these committees are reported, as appropriate, to the Board of Directors, which continually strives to enhance corporate governance and strengthen sustainability activities.

Strategy

In its Long-Term Vision 2030, the Shindengen Group outlined its goal as being “A power electronics company which creates environmentally friendly cutting-edge solutions via innovative technologies, contributes to a sustainable society, and continues to be needed by all stakeholders.” We recognize that climate change is a socially important issue and consider it to present both risks and opportunities for business and so will continually strengthen such initiatives over the long term as activities to reduce CO2 emissions and the expansion of eco-friendly businesses.
To reflect climate change measures in our management strategy, we conducted a scenario analysis in line with the TCFD recommendations. For this, we referenced the under 2°C scenario and 4°C scenario presented by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC).
As a result of the analysis, in the under 2°C scenario, it is thought that technology will be innovated and regulations tightened to realize decarbonization, the rise in temperature will be restrained to a sustainable level, and responses to transitory risks and opportunities will be promoted, such as policy shifts for decarbonization, technological innovation, and changes in reputations. In the 4°C scenario, it is thought that effective measures to reduce CO2 will not be created, temperatures will continue to rise, abnormal weather events will grow more extreme, and responding to physical risks and opportunities will be the most important issue. In both cases, the Shindengen Group thinks that the reach of its businesses will expand because it is assumed that the demand for eco-friendly products will expand despite concerns about increased costs. Shindengen’s Board of Directors is deliberating and deciding on matters important to management, such as climate-related risks and opportunities for the Shindengen Group. In addition, the board receives reports about the business execution status of directors as appropriate and has in place a system for appropriate management and oversight.

Current assumptions regarding major risks, opportunities, countermeasures, and financial impacts are detailed in the following table. The degree of financial impact on business activities is scored as either small, medium, or large.

Transitory Risks and Opportunities

Assumptions		Risks (●) / Opportunities (◎)	Countermeasures	Financial impact
Policy	Each country promotes progressive energy policies, such as promoting xEVs and expanding subsidies	●The burden of business costs, including for procured energy, increases due to encouragement to use carbon-free and low-carbon energy. ●After the enactment of policies banning the use of internal combustion engine vehicles, related products currently in use become obsolete.  ◎With the advance of xEVs, demand increases for various power semiconductors, control units, converters, EV chargers, and more. ◎Demand increases for diodes used in air conditioning and servers and more.	Strengthen development resources for eco-friendly products. Enhance efficiency of energy used at factories, optimize logistics, and introduce highly efficient equipment that will help further conserve energy.	Large
	A carbon tax is introduced.	●With the introduction of a carbon tax or a rise in the carbon tax rate, costs increase (including renewable energy procurement costs and transport costs due to higher surcharges.)  ◎If a carbon tax is introduced, demand for electric vehicles and renewable energy increase. In turn, demand increases for various power semiconductors and highly efficient and energy-saving products for two- and four-wheeled vehicles.	Make resources more efficient, such as making products smaller and lighter and using more recycled materials. Work to enhance energy efficiency at factories.	Medium
Technology	Market demand for decarbonization changes and affects product development.	●Competition to develop energy-related technologies intensifies, and capital investment and R&D costs increase. ●We miss the opportunity to sell current related products due to the acceleration away from engines.  ◎There is an increasing shift toward EVs, the introduction of renewable energy, expansion of digital technologies, and more sophisticated controls, such as AI, IoT, and smart cities, leading to an expansion in demand for related products. ◎As society decarbonizes, demand for eco-friendly products increases and leads to business expansion.	Procure carbon-neutral parts and materials. Enhance ratio of renewable energy used at factories and worksites. Strengthen planning and development of products aimed even lower carbon levels.	Large
Reputation	Shift in customer and investor evaluations.	●Insufficient action on climate change leads to deterioration in profitability and difficulty in procuring funding.  ◎Needs for products conscious of environmental burden increases and profit expands. Customer and investor evaluations of Shindengen improve and its corporate value rises.	Proactively disclose press releases for products that reduce environmental burden and initiatives related to environmental issues, including climate change. Switch the energy used at factories and worksites to renewable energy.	Small

Physical Risks and Opportunities Note: These issues will be the most important in the 4°C scenario.

Assumptions		Risks (●) / Opportunities (◎)	Countermeasures	Financial impact
Acute	Abnormal weather events grow more extreme, including more frequent storm and flood damage.	●Profit deteriorates due in part to suspended operations because of storm and flood damage, a decrease in production, the new incurrence of such costs as for restoring equipment and higher insurance rates, and delivery delays caused by supply chain disruptions.  ◎Demand expands for products related to generating and storing energy in preparation for storm and flood damage. ◎Demand expands for telecommunications power sources and products related to generating and storing energy in line with needs related to disaster recovery and more active investment in BCP measures.	Strengthen business continuity plan (BCP) systems across the entire supply chain from parts procurement to production and sales. Take countermeasures and hold drills related to strong winds, heavy rain, and floods. Work to diversify suppliers and transport methods. Work to develop products related to generating and storing energy and products that have excellent water and heat resistance.	Large
Chronic	Precipitation patterns change, average temperatures increase, and ocean levels rise.	●Production capacity falls due to floods or droughts. ●Profit deteriorates due to power outages caused by higher consumption and increased costs, such as for air conditioning, in response to heatwaves.  ◎Demand increases in the markets for power generation and storage, xEVs, and air conditioning due to emerging chronic effects of climate change, such as changes in precipitation patterns.	Strengthen business continuity plan (BCP) systems across the entire supply chain from parts procurement to production and sales. Introduce highly efficient production equipment and in-house power generation facilities. Work to develop products related to generating and storing energy and products that have excellent water and heat resistance.	Medium

Risk Management

The Board of Directors and the Environmental Committee collects a wide range of information on climate change-related regulations and risk factors that affect the Shindengen Group’s business operations. They also assess the impact of events in areas where it is assumed risks will emerge due to climate change and take measures aimed at minimizing those risks. In these and other ways, they are conducting appropriate management.
In addition, the BCM Committee, which is chaired by the president, assesses all operation risks, including those related to climate change, and reports them to the Board of Directors as appropriate. Based on our business continuity plans (BCPs), we are working hard to further enhance our ability to ensure business continuity and emergency preparedness as a company, such as holding practical BCP drills in case it becomes difficult to execute business under normal circumstances due to a natural disaster or other situation.

Metrics and Targets

We positioned initiatives to protect the global environment as an issue important to management and formulated Environmental Vision 2050 with the goal of getting the entire Group working together to promote activities aimed at realizing a sustainable global environment and society from a long-term perspective. The Shindengen Group defines the sustainable society it is aiming for as decarbonization, a circular economy, and a society in harmony with nature. Our goal is to minimize the environmental burden for not just the Group’s business activities but the entire value chain by 2050. In addition, as a signpost toward the realization of Environmental Vision 2050,* we simultaneously set FY2030 environmental targets and accelerated environmental contributions by addressing material SDG issues identified by the Group.
* Regarding the Environmental Vision 2050, please refer to the Environmental Vision.