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Disclosures based on TCFD recommendations

The Company considers the issue of climate change as a management issue that affects its business and is committed to climate change measures. Since June 2022, the Company has been disclosing climate change-related information in line with the recommendations of TCFD*.

*TCFD: The Task Force on Climate-related Financial Disclosures, chaired by Michael Bloomberg, was established by the Financial Stability Board (FSB) at the request of the G20 to consider how to disclose climate-related information and how to respond to financial institutions

Governance

  • The Company has established the ESG Committee as a voluntary advisory committee independent from the Board of Directors, as the implementation of ESG management is a key policy of the Company.
  • The ESG Committee is chaired by the Senior Managing Member of the Board of Directors, the Representative Director, and consists of directors of subsidiaries, the Chairperson of the ESG Promotion Meeting, Corporate Planning Department Director, and other persons appointed by the Chairperson of the ESG Committee.
  • The ESG Committee sets out ESG strategies, including risks and opportunities related to climate change, and conducts risk management by responding/reporting regularly (at least twice a year) to the Board of Directors.
  • The details of the ESG promotion system are as follows.
    ESG promotion system

    • It consists of three meeting bodies: the ESG Committee, ESG Promotion Meeting, and Committee of Managers for ESG Promotion.
    • The ESG Committee deliberates on matters proposed by the ESG Promotion Meeting and promptly responds/reports to the Board of Directors as soon as a decision is made.
    • The flow of promotion of ESG activities by the three meeting bodies is as follows:

      1.The Committee of Managers for ESG Promotion, consisting of representatives of each division and department, identifies issues and proposes them to the ESG Promotion Committee.

      2.The ESG Promotion Committee aggregates issues from each division and department from a company-wide perspective and proposes a materiality proposal to the ESG Committee.

      3.The ESG Committee identifies company-wide material issues (materiality) and determines ESG strategies.

      4.Under the ESG Promotion Meeting, the Committee of Managers for ESG Promotion formulates divisional goals and plans and promotes ESG activities.

      5.The ESG Promotion Meeting summarizes the ESG activities promoted by each division on a quarterly basis and reports them to the ESG Committee.

      6.The ESG Committee evaluates the content of activities.

ESG promotion system

Strategies

The Company's business risks and opportunities in climate change are as follows:

Risks

Transition Risks Policies Risk of unexpected pandemics due to climate change, as well as drug price reductions that exceed expectations due to the financial pressures on healthcare caused by an aging society with a declining birthrate
Market Risk that climate change will cause a rise in raw material prices, which will lead to a rise in the cost of living for patients, thereby discouraging them from seeing a doctor.
Reputation Increase of stakeholder concerns due to delays in climate change action
Physical Risks Chronic Risk of increase in operating expenses, such as increase in manufacturing costs due to climate change
Acute Risk of supply chain disruptions due to disasters caused by extreme weather events

Opportunities

Opportunities
  • Strengthening competitiveness against climate change-related increases in disease and changes in consumer preferences leads to greater demand for products
  • Proactive initiatives to address climate change risks enhance operational sustainability and stakeholder evaluation, leading to opportunities for share price appreciation
  • The company carefully considers countermeasures in close collaboration with the industry, although any significant climate-related risks at this time that would require large-scale investments over the long term have not been identified
  • We always look for new opportunities for our pipeline to contribute to the human health impacts of any climate change. However, any items in our pipeline at this time that would have a significant impact on business opportunities have not been identified, although there may be business opportunities such as in the form of epidemics of certain diseases due to rising temperatures.
  • We will formulate countermeasures to improve our business resilience to climate change by conducting a scenario analysis based on the TCFD recommendations and by identifying risks and opportunities.

Risk Management

  • The process of identification, evaluation, and management of risks is as follows:
  1. The Committee of Managers for ESG Promotion reports quarterly to the ESG Promotion Meeting on the timing, probability, and scope of impact of risks and opportunities for management.
  2. The ESG Promotion Meeting aggregates the reported information into company-wide risks and opportunities and reports them to the ESG Committee.
  3. The ESG Committee evaluates the impact of company-wide risks and opportunities and reviews them on a case-by-case basis, and the ESG Promotion Meeting responds/reports them to the Board of Directors.
  4. The responded/reported information is reflected in the next quarterly KPI, and the relevant departments respond to and manage risks based on the KPI.
  • The Board of Directors integrates climate change-related risks into the Company's comprehensive risk management process by considering the impact of climate change on the Company and society when making corporate decisions based on the responses/reports from the ESG Promotion Meeting

Scenario Analysis

We evaluated the potential impact on our business and the period of time until the impact occurs, using IEA (NZE) and IPCC (AR6 SSP1-1.9) as 1.5°C warming scenarios and IPCC (AR6 SSP5-8.5) as 4°C warming scenarios, as follows.

Category Risks and Opportunities Potential impact Impact on
the Company
Affected Period Measures
1.5℃ warming scenario 4℃
warming scenario
1.5℃ warming scenario 4℃
warming scenario
Transition risks Policies Risk of unexpected pandemics due to climate change, as well as drug price reductions that exceed expectations due to the financial pressures on healthcare caused by an aging society with a declining birthrate Business growth may stagnate as sales decline due to drug price reductions, which will force the company to reduce R&D and capital expenditures. Small Small Long-term Long-term ASKA Pharmaceutical is shifting its business to the continuous creation of new drugs in specialty fields, and even if NHI drug prices are reduced more than expected, the impact is expected to be immaterial because of the company's efforts to build a foundation that can respond to such circumstances.
Markets Risk that climate change will cause a rise in raw material prices, which will lead to a rise in the cost of living for patients, thereby discouraging them from seeing a doctor Decreased sales due to a decrease in prescriptions of our pharmaceuticals as a result of reduced medical examinations may force us to cut back on R&D and capital expenditures, which could stagnate business growth. Small Medium Long-term Mid-term Even if the core subsidiary ASKA Pharmaceutical  experienced suppression of medical examinations, we believe that the impact would be immaterial because the demand for its products would be supported by the promotion of women's advancement in the field of obstetrics and gynecology, which is one of its competitive fields, and other factors that outweigh this.
Evaluation Increase of stakeholder concerns due to delays in climate change action Although climate change measures are systematically implemented, they cannot keep up with the actual situation on each occasion, which may lead to a loss of revenue due to a loss of trust from stakeholders. Small Medium Long-term Mid-term As a member of society, we recognize that climate change countermeasures are an urgent issue, and we are actively promoting ESG management to solve social issues through our business, with a focus on environmental issues. However, as efforts to limit the temperature increase beyond 4°C will be expensive and time-consuming, we will consider taking actions to accelerate the target by 2030.
Physical risks Chronic risks Risk of increase in operating expenses, such as manufacturing costs due to climate change The risk of chronic wind and flood damage could increase, and operations could be disrupted due to inability to come to work or damage to manufacturing facilities. Furthermore, damage to storage facilities (raw materials, products, etc.) could cause a decline in revenues. Medium Medium Mid-term Mid-term We experienced the disaster at the Iwaki Factory at the time of the Great East Japan Earthquake, and have taken various measures based on our thorough risk management. We will continue our efforts to create an environment that can handle unprecedented situations.
Acute risks Risk of supply chain disruptions due to disasters caused by extreme weather events Unprecedented severe windstorms and flooding could cause difficulties in securing raw materials and other resources, which could result in a decline in revenues. Medium Medium Mid-term Mid-term Leveraging the experience of the Iwaki Factory being damaged in the Great East Japan Earthquake, the Company thereafter has thoroughly implemented risk management to have multiple routes in all situations. We will continue our efforts to create an environment that can handle unprecedented situations.
Opportunities Strengthening competitiveness against climate change-related increases in disease and changes in consumer preferences leads to greater demand for products Global warming may change disease trends and cause hormonal imbalance, which may increase demand for existing drugs (e.g., various hormone preparations) and promote the development and marketing of new drugs, thereby increasing revenues. Small Small Long-term Long-term We will continue to add indications to existing drugs and enhance our library of new compounds, with a focus on specialty fields.
Proactive initiatives to address climate change risks enhance operational sustainability and stakeholder evaluation, leading to opportunities for share price appreciation Our climate change initiatives will contribute to the creation of corporate value by earning the trust of customers, retaining employees, improving our reputation in recruiting, and enhancing our reputation with ESG investors. Small Small Long-term Long-term We will strive to create corporate value by disclosing information to stakeholders in a timely and appropriate manner.

Indicators and Targets

  • We monitor environmental performance indicators related to CO2 emissions, water pollution load, chemical substance management, and amount of waste emissions. The production division undergoes annual verification by a third-party organization on issues to be improved in relation to these indicators.
  • Scope 1, 2 emissions(t-CO2

      FY2020 FY2021 FY2022
    Scope 1 7,443 7,209 6,687
    Scope 2 5,771 5,042 4,093

    Scope 1 emissions are calculated directly by the Company and include CO2 emissions from the use of gasoline, kerosene, diesel oil, heavy oil, LPG, city gas, and cold/heated water.

    • For Scope 1 and 2 emissions, we use the target set by the Federation of Pharmaceutical Manufacturers' Associations of JAPAN (FPMAJ) to reduce CO2 emissions by 46% by FY2030 from the FY2013 level (research center, factory, offices, and sales vehicles) as our benchmark for our reduction targets.
    • With regard to energy conservation efforts, we aim to improve energy consumption per unit of production by 1% or more each year (The average rate of change in energy consumption per unit of production over the previous five years is 1% or more.) as an indicator of energy consumption. In FY2020, the average rate of change in energy consumption per unit of production over the previous five years was a 3.7% reduction.