Climate Change

Goals and Achievements of Major Initiatives

Reduce CO₂ emissions at sites (Scope 1 and 2).

Reference:
CO₂ emissions per unit of production in fiscal year 2021:
DIC Group (global): 246.8 kg/tonne

• Down 9.2% from fiscal year 2020 (271.7 kg/tonne)
• Down 24.5% from fiscal year 2013 (327.0 kg/tonne)

DIC Group in Japan: 176.0 kg/tonne

• Down 7.2% from fiscal year 2020 (189.6 kg/tonne)
• Down 24.0% from fiscal year 2013 (231.7 kg/tonne)

Framework for Promotion

In fiscal year 2021, DIC established the Climate Change Subcommittee, which is responsible for discussing and debating responses to climate change–related issues, within the Sustainability Committee’s Sustainability Strategy Working Group. With a membership that spans multiple areas, from production and purchasing to corporate planning, the Climate Change Subcommittee considers a variety of themes, including climate change targets and initiatives, and makes proposals to be deliberated and determined by the Sustainability Committee, which answers directly to the president and CEO.
DIC and DIC Group companies in Japan have established an Energy-Saving Promotion Committee at each site. Committee activities include confirming the progress of initiatives, engaging in discussions and conducting patrols. An Energy-Saving Working Group has also been set up at each site that comprises members chosen by the site itself, to foster the exchange of information and research pertaining to new items, as well as to promote the horizontal deployment of effective measures across the Group. This combination of site- and Group-level initiatives forms the framework under which the DIC Group endeavors to reduce its CO₂ emissions. Overseas, DIC Group companies promote a wide range of independent energy-saving initiatives that align with related Group poliies. The Production Management Unit provides support on multiple fronts, including the deployment of management systems and the training of employees.

Disclosures in Line with TCFD Recommendations

With the aim of helping institutional investors grasp climate-related risks and opportunities and make investment decisions, the TCFD has structured its recommendations around four thematic areas that represent core elements of how organizations operate—governance, strategy, risk management, and metrics and targets.
Having acknowledged the disclosure of information on efforts to address climate change as an imperative for companies today, the DIC Group has resolved to do so in line with TCFD recommendations. Accordingly, the Group is enhancing its efforts to respond appropriately to risks and capitalize on opportunities associated with climate change with the objective of earning the trust of stakeholders through improved resilience and the proactive dissemination of information.

TCFD Recommendations for Financial Disclosures

01Governance

The DIC Group recognizes climate change as a key management challenge. Important matters, including the setting of medium- and long-term targets for the reduction of CO₂ emissions, are deliberated and determined by the Sustainability Committee, which meets four times annually and answers directly to the president and CEO, and the details are reported to the Board of Directors, in line with the rules governing the Board of Directors. (In principle, the Sustainability Committee reports to the Board of Directors on all of its deliberations.) A system is thus in place that ensures appropriate supervision of the Sustainability Committee is provided by the Board of Directors.
To appropriately assess and manage climate change–related risks and opportunities, thereby ensuring the effective management of its operations, the Sustainability Committee consists of the president and CEO, the general managers of the Production Management Unit and Technical Management Unit, and the heads of the Corporate Strategy Unit, General Affairs and Legal Unit, Finance and Accounting Unit and ESG Unit, as well as the presidents of the business groups and the general managers of the product divisions.

02Strategy

With pressure on the global community to achieve carbon neutrality by 2050 intensifying rapidly, changes to rules governing competitiveness are expected to transform the socioeconomic system going forward. DIC is promoting sustainable business strategies, recognizing the importance of risks and opportunities associated with climate change. Because the impacts of climate change are likely to surface over the medium to long term, the Company is working to enhance its understanding of the principal climate-related risks and opportunities (transition as well as physical) that are likely to have a financial impact over the medium to long term.
Based on scenario analysis conducted in fiscal year 2020, the Company will work to raise its awareness of foreseeable opportunities and risks from a medium- to long-term perspective and at the same time to formulate and execute effective strategies on an appropriate time line. In fiscal year 2020, DIC also established the Climate Change Working Group, which is tasked with helping facilitate the achievement of net zero CO₂ emissions by fiscal year 2050. The activities of the working group are reported to and debated by the Sustainability Committee.

Key Risk Management Perspectives

① Should carbon pricing or carbon border taxes be introduced in the future, there is a risk that raw materials, fuel and electric power prices will rise and/or that taxes will be imposed on exported products, making CO₂ emissions a factor that directly affects costs.
② Should the Group be unable to respond to any sudden changes in demand resulting from the shift to a circular economy to advance decarbonization, there is a risk of a significant decline in profits generated by its businesses (climate change–related transition risk).
③ Should climate-related disasters arising from the increasing seriousness or frequency of extreme weather events occur, resulting in product supplies becoming impossible or being delayed due to the suspension of operations at production facilities and the instability of raw materials supplies, there is a risk that it will cause a significant decline in profits generated by Group businesses or threaten business continuity (extreme physical risk).

Principal Climate-Related Risks

Principal Climate-Related Opportunities

Strategies for Reducing CO₂ Emissions

As a company with a CO₂ emissions reduction target, the DIC Group will promote a variety of related initiatives as outlined below.

CO₂ Emissions by the Global DIC Group (Scope 1 and 2)

Initiatives Aimed at Reducing CO₂ Emissions

Internal emissions reduction initiatives (Scope 1 and 2)

• Advance environmental investments, process improvements and energy-saving initiatives
• Advance the electrification of production equipment
• Actively employ green power generation
• Introduce an internal carbon pricing system

Emissions reduction initiatives across the supply chain (Scope 3)

• Promote supplier engagement
• Encourage the use of recycled and bioderived raw materials
• Increase the recycling rates of and reduce the disposal of used products by customers
• Leverage proprietary technologies to improve the efficiency of materials recycling
• Contribute to reduction through business activities

The Group currently plans to make environmental investments of approximately ¥15 billion in Japan between fiscal year 2022 and fiscal year 2030.

Scenario Analysis

Results of Scenario Analysis

	Implications for society and the business environment	Risk and opportunity assessment		DIC Group countermeasures
2ºC scenario: Strengthening of policies and regulations	Introduction of carbon pricing (direct implications for manufacturing and the procurement of raw materials)	Possible direct impact on manufacturing costs: ¥5.03 billion* (Annual CO₂ emissions in fiscal year 2018: 617,964 tonnes) Reference: Possible impact on procurement costs: ¥11.8 billion (Annual CO₂ emissions (Scope 3, Category 1) in fiscal year 2018: 1,480,561 tonnes)		Take steps to maintain cost competitiveness, assuming global introduction. Promote enhanced functionality to minimize the impact of carbon pricing in key businesses, including products for automotive, electronics and display applications and for healthcare, as well as pigments for cosmetics.
				Use the DIC Sustainability Index to promote products that help reduce CO₂ emissions (i.e., are sustainable). Capitalize on rising demand for PPS compounds underpinned by expanded automobile production and the shift to EVs.
2ºC scenario: Changes in demand attributable to circular economy	Global movement to minimize use of oneway plastics and efforts by brand owners seeking to reduce packaging	Demand for some plastics (one-way plastics) will decrease, but increased demand for plastic alternatives will mean only a negligible impact on materials suitable for applications other than plastics.		Promote core products as appropriate for use with both plastics and plastic-alternative materials; differentiate with barrier and other functions. Foster businesses that respond to demand for materials that are biodegradable and/or use bioderived raw materials.
	Increase in production and sales of recycled plastics	While it is unclear what will happen vis-à-vis demand changes, a failure to launch commercial distribution will mean the loss of future market opportunities.		Seek tie-ups with customers and step up exploration of chemicals and materials recycling.
				Focus on adding value, including by advancing innovations in materials and formulations that enhance recyclability.
2ºC scenario: Reduction of CO₂ emissions attributable to manufacturing	Introduction of energy-saving and renewable energy equipment	Annual investment in energy-saving and renewable energy equipment is estimated at ¥2.0 billion (direct impact on manufacturing costs). Ongoing efforts to reduce CO₂ emissions attributable to production will also be necessary.		Continue investing in energy-saving and renewable energy equipment with the aim of achieving the target for reducing Scope 1 and 2 emissions by 30% from the fiscal year 2013 level by fiscal year 2030. The reduction of CO₂ emissions is expected to reduce costs by an average of ¥2.31 billion annually between fiscal years 2013 and 2030 (estimated annual emissions reduction: 289,000 tonnes).
	Shift of focus to the achievement of net zero CO₂ emissions by fiscal year 2050	Annual investment in energy-saving and renewable energy equipment is estimated at ¥2.0 billion (direct impact on manufacturing costs). Ongoing efforts to reduce CO₂ emissions attributable to production will also be necessary.		Consider the setting of a new science-based target conducive to keeping the increase in global average temperature to 1.5ºC. Apply internal carbon pricing system to increase investment in energy savings and improve CO₂ emissions reduction performance.
4ºC scenario: Risk that supply chains will be interrupted due to an increase in climate-related disasters	Suspension of production at suppliers’ facilities due to frequent climate-related disasters Suspension of supplies of plant-derived raw materials	Stable procurement risks affect certain businesses, i.e., those dependent on raw materials procured overseas or monopolized by certain suppliers. For most products, coordination among departments will facilitate the use of alternative raw materials.		For key raw materials, promote two-company shared procurement in multiple regions and enhance BCP responses. For key products, ensure ample inventories of raw materials and products.
4ºC scenario: Risk that operations at production facilities will be interrupted due to an increase in climate-related disasters	Suspension of production at own facilities due to frequent climate-related disasters Depletion of groundwater resources	Production sites are scattered across the globe, so impact on overall operations is limited. Certain products for which production is concentrated at certain facilities may be affected. Countermeasures are required in areas where there are concerns that water-related risks will increase.		Locate printing inks and other production facilities around the world to ensure complementary capabilities and cooperate with other companies to minimize the impact in the event port facilities are damaged due to storm surges or flooding. Strengthen measures for sites located in coastal areas. Reinforce the effectiveness of BCPs by providing related training. Implement measures to address water-related risks.
	Increases in non-life insurance fees	Insurance premiums may increase.		Bolster profitability by reinforcing and expanding portfolio of sustainable products.
4ºC scenario: Response to changes in lifestyles attributable to rising temperatures	Changes in lifestyles and consumption patterns attributable to rising temperatures and resulting changes in demand	Demand for certain products may be affected by changing consumption patterns attributable to rising temperatures, but because demand sources are diverse the risk to overall business is low. The potential for increases in new demand as a consequence of changes in lifestyles attributable to rising temperatures is high.		Rising temperatures present an opportunity in the form of increased demand for thermal barrier–related products. Given that dietary preferences are also expected to change, capitalize on expanding demand from beverage manufacturers and for materials used in frozen foods. Take advantage of higher demand in the health foods and life sciences fields attributable to increasing health consciousness.

• These figures are based on results in fiscal year 2018, the year the scenario analysis was conducted. As CO₂ emissions in fiscal year 2021 amounted to 546,304 tonnes, the impact of carbon pricing under the same conditions would be as much as ¥4.37 billion.

Initiatives for Fiscal Years 2020–2022

COMMENT

Scenario Analysis: A Message from the Head of the ESG Unit

Having acknowledged responding to climate change as a key challenge, the DIC Group positioned this as a priority materiality issue in its fiscal year 2019 analysis of materiality. For the first time, the Group also conducted a scenario analysis, in line with the recommendations of the TCFD, recognizing the importance of a cautious yet appropriate approach to sustainable growth. In addition to enhancing our understanding of carbon pricing and physical risks, this process underscored our awareness of the importance of ensuring that many of the Group’s core packaging materials products are compatible with multiple different media, rather than only with plastic or with paper, is key to the resilience of this business. We will continue to strengthen our business to respond to changes in lifestyles and take appropriate measures to address risks. We will also work to deepen stakeholders’ understanding by ensuring effective disclosure.

Executive Officer, Head of ESG Unit, DIC Corporation Taihei Mukose

03Risk Management

Processes Used to Identify and Assess Climate Change-Related Risks

DIC recognizes risks related to its response to climate change—a key component of its framework of sustainability themes, the foundation of its sustainability activities— and it works to evaluate, address and manage them effectively. While up to fiscal year 2021, the Company positioned climate change–related risk as a component of ESH, beginning in fiscal year 2022 it will treat climate change as an independent theme. The Sustainability Working Group, a subsection of the Sustainability Committee, is charged with identifying and debating priority risks. Risks designated as priorities are submitted for consideration to the Sustainability Committee.

04Metrics and Targets

In light of accelerated global efforts to decarbonize, the DIC Group has set new targets for the reduction of its CO₂ emissions and pledged to step up related efforts. DIC now aims to achieve carbon neutrality—net zero CO₂ emissions—by fiscal year 2050 and will seek to reduce CO₂ emissions by 50% from the fiscal year 2013 level by fiscal year 2030.* The Group will continue to disclose the results of its various initiatives and obtain third-party verification of its CO₂ emissions data.

• Targets are for Scope 1 and 2 emissions.

Principal Initiatives in Fiscal Year 2021

01Energy Consumption and CO₂ Emissions (Scope 1 and 2) by the Global DIC Group

Energy consumption by the global DIC Group in fiscal year 2021 edged up 0.9% from fiscal year 2020 and 16.1% from the fiscal year 2013 base year. CO₂ emissions by the global DIC Group amounted to 546,304 tonnes, down 1.1% from fiscal year 2020 and 24.4% from fiscal year 2013, while CO₂ emissions per unit of production (Scope 1 and 2), at 246.8 kg/tonne, were down 9.2% from fiscal year 2020 and 24.5% from the base year.
The DIC Group’s diverse product portfolio includes printing inks, polymers, pigments, LCs, engineering plastics and compounds. Recent years have seen an uptrend in the output of energy-intensive fine chemicals and a downtrend in the output of general-purpose items, the production of which is comparatively energy efficient. Against this backdrop, the reason the Group fell short of its goal for reducing the volume of CO₂ it emits worldwide but succeeded in lowering CO₂ emissions per unit of production was efforts by Group companies worldwide to break down the target set forth in the three-year medium-term management plan that concluded in fiscal year 2021—a 50% decrease from the fiscal year 2013 level by fiscal year 2030—into an annual average decrease of 3.5% from the fiscal year 2018 level—and the promotion of ambitious energy-saving and decarbonization initiatives, including the incorporation of an internal carbon pricing system into capital investment projects. Some of these initiatives are outlined below.
Going forward, the Group will continue to implement a variety of energy-saving measures, including introducing highly efficient facilities, promoting process improvements and boosting capacity utilization rates, while at the same time further advancing its use of renewable energy by shifting to biomass and other clean fuels and installing solar power facilities.

02Grasping CO₂ Emissions Across the Supply Chain (Scope 3)

The DIC Group recognizes the importance of reducing emissions of greenhouse gases across its supply chain and works to ensure a grasp of emissions in all categories of Scope 3. The Group has also revised its calculation for emissions in category 1 (Purchased goods and services) with the aim of refining data reported in this category.

03Principal Initiatives in Fiscal Year 2021

Renewable Energy as a Percentage of Total Energy Used in Japan: 14.4%

The bulk of renewable energy used by DIC Group companies in Japan is natural energy generated by a biomass boiler and wind and solar power facilities at the Kashima Plant. In fiscal year 2021, DIC Group companies in Japan used 703,000 GJ renewable energy (equivalent to 18,143 kl of crude oil), up 2.4% from fiscal year 2020 and representing 14.4% of total energy (steam and electric power) consumed by these companies. The increase in renewable energy use was attributable to a variety of factors, including the fact that new biomass boilers (producing electric power, heat and steam) gradually came on line at the Kashima Plant, where priority was given to steam generation to improve efficiency.
The use of renewable energy by DIC Group companies in Japan in fiscal year 2021 accounted for a reduction in CO₂ emissions of 44,881 tonnes, or 18.2%, from the previous fiscal year. Going forward, DIC will continue to take decisive steps to advance its use of renewable energy with the aim of achieving its DIC NET ZERO 2050 target.

Adoption of Renewable Energy by the DIC Group Overseas

Against a global trend toward decarbonization, including by popularizing the use of renewable energy, DIC Group companies in the Asia–Pacific region, Greater China, and the Americas and Europe are making use of government subsidies and support to, for example, install biomass boilers and solar power facilities.
In fiscal year 2021, the global DIC Group used a total of 796,291 GJ of renewable energy, an increase of 1.9% from 781,542 GJ in fiscal year 2020. The use of renewable energy accounted for a reduction in the Group’s global CO₂ emissions of 50,579 tonnes.

Initiatives in Areas Other than Production (Offices and Research Facilities)

In fiscal year 2021, energy consumed by the DIC Group’s 21 offices and research sites in Japan (excluding the Central Research Laboratories) rose 1.0%. Principal energy-saving initiatives implemented include replacing aged light fixtures and air conditioning equipment with newer, high-efficiency models that satisfy standards set by the Energy Conservation Center, Japan (ECCJ) for its Top Runner program, turning off lights when not needed and implementing mandatory 22°C winter and 28ºC summer air conditioning settings, working with facility management companies to implement diligent energy-saving measures and instituting a year-round no-jacket/no-tie dress code under the WSR 2020 project.
In a brand-new initiative for fiscal year 2021, Group company DIC Kyushu Polymer Co., Ltd., resolved to build a new office building that incorporates ZEB^*1 construction, which aims to achieve virtually zero energy consumption.
The new office building was designed with a variety of energy-saving equipment and fixtures, including solar power generation facilities, heat insulation materials and LED lighting fixtures, to achieve a reduction in primary energy consumption (energy saving + energy creation) of 104%, earning it certification as a top-rank ZEB^*2 building.
In addition, DIC Kyushu Polymer applied to participate in the 2021 ZEB demonstration project conducted the Ministry of Economy, Trade and Industry’s Agency for Natural Resources and Energy, earning certification as a ZEB Leading Owner.^*3
DIC Kyushu Polymer is the first DIC Group company to pursue such an initiative. The DIC Group will continue working actively on building ZEBcompliant offices.

• A ZEB is a building with considerably reduced annual energy consumption by saving as much energy as possible via better heat insulation, solar shading, natural energy and high-efficiency equipment as well as creating energy (e.g., with photovoltaic power generation), while maintaining comfortable environments.
• The ZEB series consists of four ranks based on net reduction in primary energy consumption achieved: ZEB (net energy saving of 100% or more), Nearly ZEB (net energy saving of 75% or more), ZEB Ready (net energy saving of 50% or more) and ZEB-oriented (buildings with a floor space in excess of 10,000 m2 that achieve net energy saving of 40% or more).
• A ZEB Leading Owner is an owner of a ZEB building that publicly discloses its targets for promoting awareness of ZEB, introduction plans and implementation results, as well as the results of related efforts.

Procurement Initiatives

Based on the DIC Group Sustainable Procurement Guidelines, DIC formulated the DIC Group Sustainable Procurement Guidebook, version 3 of which was published in February 2020, which it uses to survey suppliers with the aim of reducing suppliers’ emissions of greenhouse gases. With the objective of better understanding and lowering the carbon footprint of DIC products, the Group is also making provisional calculations of the carbon footprint of the raw materials it uses, as well as seeking to expand its use of bioderived and recycled raw materials. The Group is further working to reduce greenhouse gas emissions using common tools such as EcoVadis.

Logistics Initiatives

In Japan, DIC is using fewer, larger trucks and taking decisive steps to improve loading efficiency, as well as promoting the use of modal shift and the efficient combination of truck, rail and marine transport. Overseas, DIC Group companies are advancing initiatives tailored to circumstances in individual countries and territories. Over the long term, the Group expects that the expanded use of next-generation vehicles and LNG carriers will further help reduce greenhouse gas emissions attributable to logistics.

Internal Carbon Pricing System

In fiscal year 2021, DIC introduced an internal carbon pricing system. Instituting its own internal price places a monetary value on greenhouse gas emissions (Scope 1 and 2) that the Company can then factor in cost–benefit assessments. This will allow more accurate capital investment decisions by making it possible to quantify the impact of emissions reductions while also raising awareness of the relationship between capital investments and CO₂ emissions. With the goal of expanding applications for its internal carbon pricing system, DIC will also look at using internal carbon pricing to factor the cost of emissions into calculations for energy procurement and rationalization efforts.

DIC Sustainability Index

The DIC Sustainability Index was established as a yardstick for measuring the social value of DIC Group products. The index’s vertical axis quantifies each product’ contribution to the reduction of environmental impact, which the DIC Group is working continuously to reduce. As it works to achieve its emissions reduction goals for fiscal years 2030 and 2050, the Group’s efforts to lower environmental impact focus on greenhouse gas emissions (Scope 1 and 2).

Calculating Products’ Carbon Footprint

To lower greenhouse gas emissions across its supply chain, the DIC Group calculates and works to minimize emissions associated with its products from the sourcing of raw materials through to provision to the customer. The Group is currently developing a scheme to calculate each product’s carbon footprint, which it believes will assist its efforts to promote dialogue with suppliers and to respond to customer expectations and social imperatives.

Avoided Emissions

The term “avoided emissions” refers to greenhouse gas emissions that can be avoided through the use of a product. Examples include products that contribute to improving fuel efficiency by reducing vehicle body weight and products that help reduce energy used for heating and cooling energy by improving insulation. The DIC Group is working to appropriately calculate avoided emissions and quantify the contribution thereof to the reduction of emissions across the supply chain, recognizing this as a key component of the value its products deliver.

Innovation

As part of its drive to achieve carbon neutrality, the DIC Group is promoting development efforts aimed at recovering CO₂, as well as recycling and converting recovered CO₂ into new raw material. The Group recognizes that active efforts to recover and reuse CO₂ will reduce its dependence on fossil fuels, contributing to decarbonization and the achievement of the target it has set for fiscal year 2050 under DIC NET ZERO.

The 2021 Excellent Energy Management Business Awards’ Ishikawa Prefectural Governor ’s Award

In February 2022, DIC’s Hokuriku Plant received the Ishikawa Prefectural Governor’s Award in the fiscal year 2021 Excellent Energy Management Business Operator Awards, sponsored by the Japan Electric Association’s Hokuriku Region Rationalization of Electric Power Use Committee, in recognition of its outstanding achievements in the rationalizing energy use.
The Hokuriku Region Rationalization of Electric Power Use Committee works with a number of relevant organizations and other bodies, as well as with the Toyama, Ishikawa and Fukui Prefectural Rationalization of Electric Power Use Committees, to nominate and commend business operators in the region for excellence in the effective use of energy. This program is part of a larger effort to promote effective energy use and regional industrial development.
DIC sees the Hokuriku Plant’s award as the result of the facility’s steady, ongoing efforts. Looking ahead, the DIC Group will continue to apply the related know-how it has cultivated to date at its sites in Japan and overseas as it steps up its efforts to promote effective energy use and achieve its DIC NET ZERO target for fiscal year 2050.

Protecting the Ozone Layer

Hydrofluorocarbons (HFCs) are used widely as refrigerants in equipment and facilities. While not an ozone-depleting substance (ODS), HFCs have a warming potential 100–10,000 times that of CO₂ and their use is expected to account for a 0.5°C increase in the global average temperature by the end of the 21st century. At the 28th Meeting of the Parties in Kigali, Rwanda, held in October 2016, the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer reached an agreement to phase out the production and use of HFCs (the Kigali Amendment). Japan subsequently amended its Act on the Protection of the Ozone Layer Through the Control of Specified Substances and Other Measures in line with the amendment, which as of November 10, 2021, had been ratified by 129 Parties. (Having surpassed the condition of ratification by at least 20 Parties, the Kigali Amendment entered into force on January 1, 2019.)
In April 2015, Japan also revised its Fluorocarbons Recovery and Destruction Law. The same month, the Act on Rational Use and Proper Management of Fluorocarbons entered into force, compelling stakeholders to ascertain and report leaks of fluorocarbons from commercial equipment and facilities.

In fiscal year 2021, leaked fluorocarbons from DIC Group sites were equivalent to 418 tonnes of CO₂. (Leaks in excess of 1,000 tonnes per site or per company must be reported to the Japanese authorities.) The Company has worked to effectively manage fluorocarbons since the enforcement of the Act on Rational Use and Proper Management of Fluorocarbons entered into force and has managed to keep leaks below the level requiring reporting. In fiscal year 2021, the Group’s efforts to comply with laws governing leaked fluorocarbons were recognized in the Japan Refrigerant and Environmental Organization’s first JRECO Fluorocarbon Rating, which selected it as one of 16 A-rank performers from among 1,350 companies surveyed. Going forward, the DIC Group will continue working to ensure compliance with pertinent laws and regulation, and to reduce leaked fluorocarbons from its sites.