2. TCFD Framework and Comparison Table

The table below compares recommended disclosures and the entries in MISUMI's disclosures.

3. Governance

MISUMI's Board of Directors regularly deliberates on action to address climate change.
The Sustainability Committee was established in October 2021 with the Representative Director and Chairman as the committee's chair and the Representative Director and President as its vice-chair. The committee formulates MISUMI's Basic Policy of Sustainability, reviews management plans and policies, implements action to address social issues, and provides the Board of Directors with reports and recommendations.

To promote ESG management across departments throughout the Group, the Sustainability Committee, under the supervision of the Board of Directors, assigns a Sustainability Officer, coordinates with the divisions, companies, and platforms that are the Group's executive organizations to monitor and assess ESG target setting and progress, and continuously roll out pro-sustainability initiatives.

The Sustainability Platform is a company-wide pro-sustainability organization. It clarifies critical ESG issues, including climate change problems. The platform also coordinates with business locations in Japan as well as each officer covering China, the rest of Asia, Europe, and the Americas. Through this organization, MISUMI creates individual policies addressing issues in each region and issues progress reports to the Group’s Executive Committee and Sustainability Committee.

At least twice a year, the Sustainability Committee will deliberate reassessments on climate change risks and report to the Board of Directors.

（Sustainability Management Structure）

4. Approach to Producing the Report

The Board of Directors approved the Basic Policy of Sustainability in December 2021. By eliminating waste of all types among our customers and suppliers, MISUMI’s business contributes to eliminating inefficiencies in the industrial automation industry. The industrial automation industry promotes labor-saving in a variety of business activities, thus making an essential contribution to society’s sustainable development. Meanwhile, MISUMI considers climate change measures to be one of the highest priority issues towards achieving society’s sustainable development and has taken action on this issue.

After endorsing the TCFD recommendations in September 2021, MISUMI exchanged ideas with outside experts while identifying business risks and opportunities and analyzing scenarios. MISUMI drafted a report based on numerous discussions with those tasked with carrying out operations both from a business perspective and from a business foundation perspective in terms of IT, production, and logistics. This report was then submitted to and deliberated by the Board of Directors.

• Details for the MISUMI Group Inc. Basic Sustainability Policy

4-(1) Identifying Risks and Opportunities

MISUMI applied multiple scientific models of climate change to assumptions about future business, then analyzed the impact that both risks and opportunities will exert on strategy under each scenario.

We considered two scenarios. Under one, temperature increases will be contained to 1.5 to 2 degrees Celsius as society in general enacts change toward decarbonization. The other scenario assumes priorities placed on economic development will continue to have a negative impact and global temperatures will rise by 4 degrees Celsius. We then applied the results across the entire value chain and supply chain associated with our business activities.

We listed the risks of climate change responses extracted from each business segment. We consider risks with particularly large financial effects, as well as risks that have little temporary financial impact but continue for a long time, as most critical, and we discussed individual responses to each.

An overview follows.

4-(2) Transition Risks

MISUMI views major risks as including increased sales prices and transportation expenses due to power consumption constraints and rate hikes; a reputational damage from insufficient disclosure of information on GHG emission reductions.

4-(3) Physical Risks

Although enormous damage to business locations is projected, we are hedging risks by dispersing production between multiple locations. On the other hand, some suppliers of externally procured products have not taken measures against anticipated harm, so we believe there are still risks from disaster damage.

4-(4) Opportunities

MISUMI views changes to products and production processes for customers’ decarbonization as a future opportunity to expand sales. Furthermore, the business model MISUMI has built can contribute to strengthening social resilience against natural disasters.

5. Scenario

5-(1) Scenario: Temperatures 1.5-2 Degrees

An analysis of a scenario in which temperatures rise 1.5 to 2 degrees Celsius shows that our industry would also be affected by national decarbonization policies in response to the rising temperatures.
First of all, a zero-carbon society would likely impose a greater burden. Although our main products would incur some degree of carbon taxation, we believe this would be limited due to the nature of the products.
On the other hand, with regard to stronger energy conservation regulation we have seen from governments in China and elsewhere, if a company with locations in the area were to be subject to an order to stop supplying power or suspend a project, our global network of 102 sales, logistics, and production facilities may have to reduce or halt operations. In our primary markets like the automotive industry, there is progress in disclosing information and requesting reductions concerning greenhouse gas emissions. A slow response to this development could mean we fail to meet customers' purchasing criteria, or there could be a risk of damage to our trustworthiness and reputation among shareholders and other stakeholders. Elsewhere, we expect the decarbonization trend to boost demand for electronic appliances and lightweight products and to significantly push up costs for the raw materials in our products. In addition, quickly rising fuel costs and the introduction of technology like EV trucks could impact our delivery cost structure.

If temperatures rise 1.5 to 2 degrees Celsius, customers may change their purchasing decisions while society and industry in general maintain climate change measures.
We expect higher demand from customers for efficiency such as labor productivity reforms and energy cost reductions.
The MISUMI Group's business model encourages a faster transition to a recycling-based society by eliminating excess production and idle time at customers' worksites.
Improving the business model with the MISUMI Group's advantage of reliable quick delivery will support the sustainable development of the entire industrial automation industry.

5-(2) Scenario: Temperatures 4 Degrees

An analysis of a scenario in which temperatures rise 4 degrees Celsius shows decarbonization policies would not strengthen, average temperatures would continue to rise, and natural disasters would become more destructive, thus raising physical risks.
MISUMI does business not only in Japan, but also China, elsewhere in Asia, Europe, and the Americas. The company has built a global network of 102 business locations. If a location were to be struck by a natural disaster such as a typhoon or flood, it may suspend operations and harm assets such as our product and semi-finished product inventory, mechanical devices, and logistics equipment. The globally optimal production and reliable quick delivery MISUMI has developed could also connect to a response to these risks. In addition, we believe that demand from customers and industry will increase for products and services that stand up well to temperature increase measures and disasters.

Globally optimal production is a system we built to disperse production sites around the world for optimization that determines what site will produce a customer's order when it is received. Therefore, the production system is very resilient during disasters. Reliable quick delivery is a system we built to significantly reduce customer time and effort involved in placing orders and to reliably meet deadlines. Therefore, we believe it can contribute to prompt reconstruction and recovery for industry in general during disasters.

• Details for MISUMI’ｓ Manufacturing Businesses

6. Business Impact Assessment

We assessed the impact each scenario would have on the organization's strategic and financial positions. We analyzed the risks and opportunities projected to have a relatively large financial impact.

7. Review of Measures

Based on the results of the scenario analysis, we considered what direction to take with climate change measures. During that discussion, we assigned priority to two categories: necessary measures that can be taken quickly, and measures for which plans are implemented gradually.

8. Risk Management Process

Risk priorities were assigned by taking into account the likelihood of financial impact, the size, and when the risk would arise. We will build a risk management system that takes into account the fact that CO₂ emissions from energy use are relatively higher among our customers than at MISUMI.

The divisions, companies, and platforms that carry out MISUMI's executive operations assess and identify risks once a year and report to the Board of Directors about important matters and managerial affairs. We consider climate change a high-priority risk.

In areas expected to incur damage from storms and flooding, we are strengthening facilities' resilience and conducting training with a focus on employee and facility safety. Meanwhile, in areas that have experienced little such risk or where risk is difficult to predict, we are focusing on daily monitoring while endeavoring to minimize disaster damage and enact prompt recoveries.

The Sustainability Committee takes an integrated approach to managing climate change risks by setting targets, monitoring progress, and conducting assessments. As needed, the committee draws on the opinions of outside experts and reports to the Board of Directors.

The MISUMI Group has built a system for business continuity planning that includes pandemics such as infectious diseases, in addition to the impact of escalating disasters.
In FY22, in addition to the existing Japanese subsidiary, we also established a system of documents, processes, and communication for disaster countermeasures, etc., at overseas subsidiaries.
In preparation for physical risks such as severe storm and flood damage, we will enhance these systems and conduct necessary training.

The MISUMI Group will disclose the Sustainable Procurement Guidelines created by MISUMI to its major suppliers in Japan to encourage their agreement, and will also conduct a questionnaire survey to confirm environmental activity initiatives, including GHG emissions, and the status of management system construction. and conducted a fact-finding survey.

We will continue to focus on the entire supply chain, quantitatively identify risks and opportunities, and plan and implement practical countermeasures.

9. Metrics and Targets

Through its business, the MISUMI Group provides customers with added value that reduces the quantity of invested resources and consumption related to industrial automation. We believe that fundamentally eliminating waste in our customers' operations will help accelerate the transition from the conventional economy of mass production, mass consumption, and mass disposal to a circular economy.
Additionally, we take climate change response through our business activities that mitigate global warming, while managing and carrying out environmental measures in the total supply chain, including suppliers, in addition to promoting environmental management that also addresses product quality and safety.

9-(1) Carbon-Neutral Plan and Implementation Measures

The MISUMI Group has set emission targets for 2030 so as to reach zero carbon emissions by 2050. The MISUMI Group's Scope 1 and Scope 2 emissions will drop by 42% compared to fiscal 2020.

Transition in GHG emissions and reduction target of MISUMI Group

To achieve this target, the MISUMI Group will further promote energy conservation.
To reduce losses from defects in production processes at our production sites, we have installed new equipment and improved processes so as to minimize energy waste.

We are endeavoring to reduce our environmental impact by properly sorting waste, sustaining a recycling ratio of at least 80%, as well as implementing paperless operations by introducing digital shipment collection and production order forms and providing tablets.

In the future, we will gradually switch to renewable energy not just at production sites, but also at logistics sites and sales locations.

• Details for the Suruga Production Platform Environmental Management KPIs

Greenhouse Gas(GHG)Emissions

Target to reduce our GHG emissions

We have set a target to reduce our GHG emissions as below. This target is aligned with the reduction ratio/level defined by SBTi (*1) in its 1.5℃ scenario (*2).

【Target】
We plan to reduce our GHG emissions regarding our groupwide/global activities (Scope1,2) as follows;
- In FY2030: 42% reduction compared to FY2020
- In FY2050: To be Carbon Neutral

• *1 SBTi (Science Based Targets initiative) is an initiative to promote business entity to set GHG reduction targets, that is in alignment with the level that Paris Agreement (of COP21 in 2015) aims for.
• *2 1.5℃ scenario is a target, that is defined in Paris Agreement, to limit an average of the rise in global temperature to 1.5 degree Celsius from pre-industrial baseline.

Reduction results

In FY2022, we reduced our Scope1,2 emissions of greenhouse gas (GHG）for the entire Group by 70%(49,000t-CO2) compared with emissions in FY2020.

The measures we implemented to reduce our Scope1,2 emissions are:
-Introducing solar photovoltaic power system Onsite PPAs (*1) at our production site in Vietnam
-Promoting energy conservation related to air conditioning at our domestic production site (Shizuoka)
-Introducing CO2-free electricity (*2) at domestic production sites and our Head Office building
-Purchasing renewable energy certificates (I-REC, TIGR, etc.*3) for our production sites in Vietnam, China, Thailand, and India.

Also, we have partially adopted calculations based on “primary-data based emissions” (*4) for Scope 3 Category 1 and have requested our major suppliers to disclose their GHG emissions.

*1 Onsite PPA (Power purchase agreement) is a contractual arrangement in which a company has another company construct, own, operate, and maintain power generation facilities on its land. The company purchases the power generated by the facilities.
*2 Carbon-free electricity is generated from renewable energy sources that do not emit CO2 during generation.
*3 I-REC (International Renewable Energy Certificate) is a renewable electricity certificate certified and issued based on the rules and system provided by the I-REC Standards Foundation (the Netherlands). TIGR (Tradable Instrument for Global Renewables) is a renewable energy certificate certified and issued under the rules and system provided by APX (USA). The I-REC and TIGR certificates purchased by MCC are limited to renewable electricity generated within each country's market.
*4 Primary-data based emissions: Emissions that are based on the data obtained directly from business partners and are not calculated with the spend-based method (secondary emission factors provided by the Ministry of the Environment are not used)

• Reduction in greenhouse gas (GHG) Emissions by Approximately 6,000 Tons a Year -
  Introduction of CO2-free Electricity at Production Bases in Japan