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〔The Environment〕For the Global EnvironmentInitiatives to Address Climate Change

Lower the Overall Environmental Impact of Business Operations

Our beauteous global environment is the source of healthy lives for all of us. In addition, because many of the ingredients in cosmetics are obtained from nature, we benefit from the natural environment every day we do business. The KOSÉ Group is grateful for this benefit and therefore believes that it has a responsibility to reduce its environmental impact as much as possible to preserve nature—in other words, the global environment. We are now accelerating our initiatives to respond to the particularly pressing issue of climate change.

The KOSÉ Group conducted a material analysis of sustainability-related issues. As a result, in the KOSÉ Sustainability Plan, we positioned addressing the environment and climate change as an essential management issue in our efforts to drive business growth while helping achieve a sustainable society. In October 2020, we announced our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and joined the TCFD Consortium, an organization of Japanese companies and other institutions that support the TCFD recommendations.

Based on the TCFD recommendations, we will disclose information to stakeholders on the business risks and opportunities caused by climate change from the four perspectives of governance, strategy, risk management and indexes/goals. We will also continue to make Group-wide efforts to reduce CO2 emissions.

■ Governance and Risk Management

The KOSÉ Group views sustainability-related issues as management issues, and has established a system for promoting solutions to such issues. Specifically, we established the Sustainability Committee chaired by the President & CEO. This committee proposes sustainability strategies to and receives approval from the Management Committee, and then reports the results to the Board of Directors. As chairperson, the President & CEO is also responsible for evaluation and monitoring related to climate change. In addition, in fiscal 2020 we established subcommittees and projects for CO2 emission reduction and other individual themes to promote more effective cross-departmental activities.

For organizational risks related to climate change, the Risk Management and Compliance Committee is in charge of enterprise risk management and leads the identification and assessment of risks at the corporate level. Among them we have made climate change an essential factor in our consideration of energy usage, CO2 emissions, water consumption, and waste water. We take into account climate change-related physical risks in many areas of planning, including in our business continuity plan. The Sustainability Committee and the Risk Management and Compliance Committee are monitoring climate change-related issues based on these frameworks.

Corporate Governance Details of the Corporate Governance Sustainability Promotion System

■ Strategy (Scenario analysis)

The KOSÉ Group is conducting scenario analysis in accordance with the TCFD recommendations to examine the transition risks and physical risks associated with climate change. In this analysis, companies evaluate the financial impact of climate change under the TCFD’s scenarios of a 2°C and a 4°C rise in average global temperatures, and disclose information on their initiatives. We are also using the TCFD scenarios as a reference in examining business strategies to realize the KOSÉ Group’s envisioned future for society and the planet.

In the scenario analysis, we identify risks and opportunities in procurement and demand for our products and services not just in the short term, but also with a medium-to-long-term view toward 2030 and beyond, based on the KOSÉ Sustainability Plan, which outlines the Group’s sustainability initiatives and targets to achieve by 2030. We then prioritize and evaluate important factors. Furthermore, of these factors, we identify those with the greatest physical and transition impact as a measure for evaluating the potential impact of climate change on the KOSÉ Group. We also analyze the degree of financial impact of risks and opportunities.

In a world at +2°C, the introduction of low-carbon policies and regulations is expected to lead to strengthening various regulations for a decarbonized society and developing environmentally-friendly lifestyles. The society will expect companies to contribute more to a decarbonized society and demand more environmentally-friendly products.
In a +4°C world, the impact of physical risks due to rising temperatures and associated natural phenomena is expected to be significant across the value chain, resulting in an increased need for BCP and disaster resilience responses and the need for longer-term action.

+2°C scenario +4°C scenario
Social change

Strengthening regulations for a decarbonized society

  • Government: Introduction of low-carbon policies and regulations with effective implementation by enterprises
  • Investors: Accelerating ESG investment and lending, urging companies to decarbonize
  • Consumers: An increasingly environmentally-conscious lifestyle
  • Suppliers: Progress in reducing carbon emissions at the request of society
  • Distribution: Promoting the procurement of products that are sustainable as a social responsibility
  • Technology: Advances in low-carbon solutions
  • Natural environment: Although the severity of disasters advances, they are suppressed to a certain extent

Physical risks across the value chain make a greater impact

  • Government: Limited introduction of low-carbon policies and regulations
  • Investors: Concerned about disaster risk, urging companies to respond to BCP
  • Consumers: Growing demand for products and services that adapt to climate change
  • Distribution: Increased need for BCP response due to increased physical risk
  • Technology: Advances in solutions for climate change adaptation
  • Natural environment: Increased economic losses due to intensified natural disasters
Impact on business

Accelerating expectations from the society towards a decarbonized society for companies

  • Government: Impact of introduction of regulations on business activities
  • Investors: Corporate value depends on developments in decarbonization
  • Consumers: Increasing demand for environmentally friendly products
  • Suppliers: Decarbonization in cooperation with suppliers is essential for business
  • Distribution: Sustainable procurement and manufacturing may be a condition for securing distribution networks
  • Technology: Creation of time-based benefits associated with the introduction of low-carbon technologies
  • Natural Environment: The possibility of certain disasters occurring at in-house sites

Increased need of a response to BCP and disaster resilience

  • Government: Policy and regulatory impact on business may be limited
  • Investors: Management’s response to BCP may affect corporate value
  • Consumers: Providing value in response to changing living conditions is important for business
  • Suppliers: BCP response also affects company management
  • Distribution: improving disaster resilience in distribution networks is important
  • Technology: Improving disaster resilience through the use of adaptive technology is important
  • Natural environment: Increased likelihood of in-house disaster impact and decline in consumer QOL

■ The KOSÉ Group’s Risks and Opportunities

Analysis Risks/Opportunities Effect Size of Impact* on KOSÉ Summary
2°C 4°C
Transition
Risks
Shift in consumer demand to
environmentally friendly products;
decline in reputation due to passive response
Decrease in sales ++ In the 2°C scenario, a passive environmental response would lead to lower sales of our products as environmental awareness among consumers increases.
Stronger restrictions on greenhouse gas emissions; introduction of carbon pricing (affecting KOSÉ and suppliers) Increase
in costs
++ In the 2°C scenario, the imposition of a carbon tax, including on suppliers, would lead to increases in our operating and procurement costs.
Substitution of plastic materials due to introduction of restrictions on plastics Increase
in costs
++ In the 2°C scenario, stronger plastic regulations would make it necessary to procure biomass plastics and recycled plastics, leading to an increase in costs.
Production restrictions due to the introduction of restrictions on intake and drainage Decrease in sales + ++ Water stress increases and the introduction of related water intake restrictions in the regions where we operate as a result of climate change, could lead to lost sales opportunities due to suspension of production operations. This impact would likely occur in the 2°C scenario, but we assume it would be even more significant in the 4°C scenario.
Physical
Risks
Increase in raw material procurement risk due to climate change Increase
in costs
+ ++ If the global yields of palm oil and other raw materials used in our products and containers change as a result of rising temperatures, our procurement costs could also change.
Suspension of factory operations due to damage from floods or other disasters Decrease
in sales
+ ++ If increasingly severe natural disasters affect any of our factories, sales of our products could decrease due to temporary shutdowns of factories.
Damage to production facilities and supply chain disruptions caused by abnormal weather Decrease
in sales
Increase
in costs
+ ++ If increasingly severe natural disasters affect any of our factories, costs such as repair and rebuilding expenses could arise. If the production bases and inventory storage locations of suppliers are similarly affected by natural disasters, there is a risk that the supply of our products could be interrupted.
Opportunities Increased demand for sunscreen and UV protection products due to increasing UV exposure Increase
in sales
+ ++ If UV exposure in daily life increases, the number of people who need UV protection products and the frequency of use could increase, resulting in increased sales of those products.
Increased demand for cooling products and makeup smudging prevention products due to rising temperatures Increase
in sales
+ ++ In cosmetics-related products such as skin lotion and foundation, if needs for products that provide a cooling sensation and prevent makeup from smudging increase along with rising temperatures, sales of those products could increase.
Improvement of brand value due to reduction of the environmental footprint of our products Increase
in sales
++ As environmental awareness increases throughout society, our ability to achieve and publicize a reduction in our environmental footprint could have a positive effect in marketing.
Development and expansion of products and services with reduced environmental impact Increase
in sales
++ An increase in the perceived added value of providing low-carbon and non-plastic products and services could have a positive effect on revenue.
Improved cost competitiveness from renewable energy and energy-saving equipment Decrease
in costs
++ + The purchase of renewable energy and introduction of energysaving equipment would lead to a decrease in our energy costs. In particular, in the 2°C scenario, while electricity prices will be higher than their current level, renewable energy purchase prices will fall, so purchasing renewable energy will provide cost advantages.

※ -:minimal impact +:some impact ++:substantial impact

■Specific Activities

At the Gunma Factory, one of our main production facilities, we switched all of the electricity we purchase to electricity from renewable energy sources from January 2021. Over a full year, this will be equivalent to approximately 23% of the amount of greenhouse gas emissions from energy and purchased electricity at all KOSÉ Group locations, using fiscal 2018 as the base year.
At KOSÉ SALES CO., LTD., we are promoting car sharing to reduce the number of sales vehicles used. We also conducted a fundamental review of sales operations, and are taking steps to achieve further reductions.
We are also making efforts to reduce the environmental impact of our products and advertisements.
Initiatives in ProductionInitiatives in Advertising, Sales and Offices
Initiatives in Products

KOSE Gunma Factory

■Indicators and Targets

Based on the results of the scenario analysis, the KOSÉ Group realized it was critical to set some bold targets for CO2 emission reduction in its operations to contribute to keeping the rise in average atmospheric temperatures within 2°C.
Accordingly, we set targets for the reduction of CO2 greenhouse gas emissions as one of the activity themes in the KOSÉ Sustainability Plan, because CO2 is a greenhouse gas that the KOSÉ Group is likely to emit. In March 2021, we revised the reduction target for CO2 emissions from the energy we use and from generation of the electricity we purchase (Scope 1 and 2) to 35% from 28%, and set a new target of a 30% reduction for emissions across the value chain (Scope 3) (both targets vs. fiscal 2018). Each has been approved as a Science Based Target by the international Science Based Targets initiative.

Object Base year 2030
SBT SCOPE1・2 2018 ▲35%
SCOPE3 2018 ▲30%

The KOSÉ Group is now carrying out ambitious initiatives to curb CO2 emissions with a broad perspective, from our own business activities to the entire value chain. We remain dedicated to taking effective action on climate change and a range of other social issues, and thereby help realize a healthy future for the Earth in which everyone can live with peace of mind.

Details of CO2 emissions:Sustainability Data

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