Basic Approach

At the NLM Group, we fully recognize the impact that our business activities may have on the environment. We have established a basic environmental policy, under which we are taking initiatives to realize sustainable businesses and a sustainable society voluntarily and proactively, beyond complying with related laws and regulations. We have identified action on climate change as one of the NLM Group's material issues. We will strive to enhance the content of the information we disclose in accordance with the TCFD recommendations.

Governance

To build a structure for taking action on climate change, we have set up the Group Environmental Committee and the Group CSR Committee, which are chaired by the president. Guided by these committees, we formulate plans of action to promote sustainability, including action on climate change. In addition, to enable the NLM Group to further solidify its growth strategy by planning and executing an optimal decarbonization strategy amid the global trend toward decarbonization, we have established the Green Growth Strategy Office, which integrates authorities and responsibilities. With this, we are taking an integrated approach to pursuing the Group's initiatives to achieve carbon neutrality, through steps such as securing green aluminum, customer demand for which has been increasing, and the establishment of a circular supply chain in which used aluminum is reused as a material, in addition to engaging in existing energy-saving and recycling activities.

Changes in CO₂ Emissions (Scopes 1, 2 and 3), Indicators, and Targets

At the NLM Group, we have added Scope 3 emissions to Scopes 1 and 2 and are pushing forward with initiatives to ensure that greenhouse gas emissions (emissions per unit of sales) in 2030 will be 30% lower than the level in FY2013 (Scopes 1 + 2: 2.07 tons CO₂/million yen, Scope 3: 5.60 tons CO₂/million yen), with the goal of achieving carbon neutrality by 2050.

In FY2022, total emissions and CO₂ emissions per unit of sales decreased from the previous fiscal year for both Scopes 1 + 2 and Scope 3.

[Basis for Calculations]
* Boundary: 31 manufacturing subsidiaries of the consolidated subsidiaries in Japan / 12 manufacturing subsidiaries of the overseas consolidated subsidiaries
* Greenhouse gas emissions (Scopes 1 and 2) are calculated in accordance with the Act on the Rational Use of Energy and the Act on Promotion of Global Warming Countermeasures, and the following CO₂ emission factors are used. / Electricity in Japan: The CO₂ emission factor with T&D losses of each previous fiscal year announced by the Electric Power Council for a Low Carbon Society / Electricity overseas: Emission factors of the respective countries shown in CO₂ FCOMB 2017 from the IEA for FY2021 and before and those shown in CO₂ FCOMB 2020 from the IEA for FY2022/ Fuel: The CO₂ emission factor for each fuel is set by a ministerial ordinance from the Ministry of the Environment (The CO₂ emission factor for electricity in Japan was used for the hydroelectric power sgenerated at the Kambara Complex of Nippon Light Metal Co., Ltd.)
* Actual values only relate to energy-derived CO₂ emissions.

Risk Management

At the NLM Group, we regard climate change risks as one of the most important sets of managerial risks. To manage these risks, we conduct scenario analyses regarding the risks and opportunities for the period until 2030. For the risk items that are determined to be highly important, we will conduct quantitative analyses before enhancing disclosures and will push forward with initiatives to achieve our targets. While only Nippon Light Metal Co., Ltd. was the subject of analysis last fiscal year, this fiscal year we are gradually expanding the scope to analyze the degree of impact climate change will have on major segments of the Group as well. Going forward, we plan to conduct scenario sanalyses from a longer perspective for the period until 2050.

We will report details of the analyses to the Group Environmental Committee and the Group CSR Committee and formulate risk management plans by working together with the Green Growth Strategy Office. At the same time, we will regularly report to the Board of Directors, thus strengthening the measures for addressing climate change risks.

Strategy

To disclose information in accordance with the TCFD recommendations, the NLM Group conducts analyses based on two scenarios to clarify the difference in the impact between the scenarios. One is the 4.0°C scenario which assumes that climate change will not be addressed. The other is the 1.5°C scenario, which assumes that the strongest regulations will be imposed. We have set FY2030 as the target year to ensure that the analysis results will be sufficiently persuasive. We also plan to conduct analyses with the target year being FY2050, when the impact of climate change is expected to be more remarkable.

Further, we are calculating the degree of impact of the risks and opportunities by expanding the scope of the calculation to major Group companies including Nikkei MC Aluminium Co., Ltd., Nikkeikin Aluminium Core Technology Co., Ltd., Nippon Fruehauf Co., Ltd., and Nikkei Panel System Co., Ltd., in addition to the Chemicals Div. and Sheet Products Div. of Nippon Light Metal Co., Ltd. that were included in the scope of calculation last fiscal year. However, all segments have yet to be included in the calculation because we work in a wide range of business fields.

At present, we have projected what the world will be like in FY2030 based on reference materials from external sources and listed risks and opportunities that may occur there. We evaluated the level of impact of each item in each predicted scenario from two perspectives, the probability of occurrence and the level of impact if the event occurs, and mapped them. The major items are as follows.

Category			Description of the risk/opportunity in the scenario	Degree of impact 4.0°C scenario	Degree of impact 1.5°C scenario
Risks	Transition	Policy and regulatory risks	There is a risk that the introduction of a carbon tax or an increase in carbon prices will increase the cost of procuring raw materials and components, and manufacturing costs related to the company's products, pressuring profit.	Low	High
	Transition	Policy and regulatory risks	There is a possibility that the costs of procuring raw materials and components will increase due to changes in the regional balance of the supply chain, which may result from differences in the reduction targets of countries, in addition to the possibility of the occurrence of direct costs related to CO2 emissions trading.	Low	Medium - High
	Transition	Technological risks	There is a possibility that our competitive advantage in the market will be reduced due to delays in the development of new technologies, in addition to the possibility that investment costs will increase to achieve decarbonization and develop new technologies to facilitate recycling.	Medium	Medium - High
	Transition	Market risks	If action on climate change is delayed, businesses could be negatively affected by a failure to meet the standards required by customers. It could also lead to an increase in financing costs reflecting the decarbonization policies of financial institutions.	Low	Medium - High
	Physical	Acute	The frequent occurrence of giant typhoons and torrential rains will result in the risk of damage to equipment and other property, incurring costs to repair them, and an increase in non-life insurance premiums, in addition to the risk of production suspensions and supply chain sdisruptions in the Group, which could result from floods.	Medium	Medium
Opportunities	Transition	Products and services	It is expected that more aluminum-related products will be used in eco-friendly vehicles and other law-carbon products, which will result in an increase in sales through the promotion of sales and the contribution to a low-carbon society that is possible throughout the product's lifecycle.	High	High
	Transition	Resource efficiency	With an increase in the recycling rate and the promotion of horizontal recycling, it will be reaffirmed that aluminum is a material with high resource efficiency, resulting in an increase in the demand for and visibility of aluminum-related products.	Low- Medium	Medium - High

It is expected that, toward 2030, the ratio of eco-friendly vehicles in automotive sales and manufacturing will increase in not only the 1.5°C scenario but also in the 4.0°C scenario, which assumes that climate change will not be addressed.
We expect an increase in the demand for aluminum products resulting from an increase in eco-friendly vehicles, including demand for materials for batteries to be installed in these vehicles and materials for heat dissipation for cooling, in addition to the need to decrease vehicle weight to increase travel distance. At the NLM Group, we have set the growth rate of sales of products for eco-friendly vehicles as one of our material issues. Our target is to increase the rate by 300% compared to the FY2021 level by FY2030. We aim to achieve the target through initiatives such as improving the comprehensive capability of the Group as a whole to make suggestions to the automotive market.