Disclosure of climate-related information based on TCFD’s recommendations

In December 2021, Taikisha expressed its support for the recommendations of the “Task Force on Climate-related Financial Disclosures (TCFD)” and joined the “TCFD Consortium.” The mitigation of and adaptation to climate change is one of our top management priorities (materialities), and we are endeavoring to reduce environmental impacts through our core business of providing air conditioning and sanitation equipment, and painting plants with high energy-saving performance.
In addition, in order to identify and evaluate climate-related risks and opportunities and to understand the medium to long-term impacts of climate-related issues on our businesses, we conducted scenario analyses of two businesses, the green technology system and paint finishing system. Based on the results of these analyses, we disclose climate-related information in line with TCFD’s recommendations.

Regarding that addressing global-scale social issues, such as climate change, is our raison purpose, the Management Meeting is aware of and perceives risks and opportunities as business opportunities and incorporates them into management strategies. The Management Meeting formulates a company-wide action plan for environmental conservation activities, which will be referred to the Board of Directors for final approval.
In addition, the Corporate Policy Review Meeting keeps track of and evaluates the status of environmental conservation activities based on the plan, reviews goals, and reports the results to the Board of Directors at least twice a year.
Upon the receipt of these reports, the Board of Directors supervises climate-related risks and opportunities and monitors goals and progress.
Responsibilities for evaluating and controlling climate-related risks and opportunities are assigned to the President, who chairs the Risk Management Committee. With regard to the linkage with incentives, non-financial indicators are introduced, from the perspective of complying with the CG Code, at a specific rate to the compensation structure of the executive directors, and we review them with a view to encouraging the strengthening of promotional activities.

In order to identify and evaluate climate-related risks and opportunities and to understand their impacts on our businesses, we conducted scenario analyses of the Green Technology System Division and Paint Finishing System Division through the process described below.
Specifically, we firstly identified factors of risks and opportunities having a great impact on us. Next we conducted an analysis concerning shifts in policies and market trends, and physical changes attributable to disasters, using each of a less-than-2°C scenario, which assumes that the average temperature rise of the world in FY 2035 will be kept below 2°C, and a 4°C scenario, which assumes that the average temperature will rise by approximately 4°C. We perceived “carbon taxes,” “changes in customer behavior,” and “prevalence of energy-saving and renewable energy technologies” as shift factors, and “average temperature rise” as a physical factor, and identified them as important risks and opportunities.
The degrees of the financial impacts on the businesses verified in each scenario are indicated in units of one billion yen using arrows, and a countermeasure against each of the impacts is also described.

With reference to the climate change scenarios published by the International Energy Agency (IEA) and other organizations, we selected the less-than-2°C scenario and the 4°C scenario. With awareness that the impacts of climate change have the nature of becoming apparent over the medium to long period, we analyzed the impacts of climate change in 2035 as the reference timeline.

Created by Taikisha based on IPCC AR5 Climate Change 2014 Synthesis Report Summary for Policymakers
(Ministry of Education, Culture, Sports, Science and Technology, Ministry of Economy, Trade and Industry,
Japan Meteorological Agency, Ministry of the Environment)

A logic tree was used to organize the flow in which the impact of climate change becomes apparent.
Although it is difficult to predict climate change that will occur in the timeline of a medium to long period, we consider it is important to discuss its impacts on our businesses and countermeasures to the maximum extent and flexibly deal with them.

The low carbon policies by the government are limited, and the extent of the transition to a low carbon society will be limited while an average temperature rise will magnify heat stress and the risk of natural disasters. They are expected to have the following impacts on our businesses:
Since it is assumed that carbon taxes will not be introduced in Japan, the impact of increases in material costs due to the introduction of carbon taxes will be limited. When it comes to each divisions demand for net zero energy buildings (ZEBs) will increase in the Green Technology System Division, and demand for energy-saving design plants will grow in the Paint Finishing System Division. However, it is assumed that the impact of requests from customers for actions to achieve low carbon on sales will be limited. On the other hand, as average temperature rises, it will be necessary to capture demand for plant factories and air conditioning systems, and to strengthen countermeasures against heatstroke and infectious diseases at construction sites.

The impacts of physical risks will remain limited, but it will be necessary to deal with transition risks, including various regulations and customer requests. They are expected to have the following impacts on our businesses: It is anticipated that the strengthening of the low carbon policy by the government will incur the impacts burdening us with carbon taxes and increases in material costs, and operating costs will increase. Taking a closer look at these impacts in each business, in the Green Technology System Division, the sales of installation works of existing air conditioning systems will decrease due to stronger requests from customers for actions to achieve low carbon, energy-saving regulations, and the setting of an obligation to build new ZEBs, and for other reasons, but sales are expected to increase as a result of developing products and technologies capable of fulfilling these requests, etc. In the Paint Finishing System Division, demand for painting processes producing less carbon will escalate, and the sales of existing products not supporting low carbon and energy saving will decline, but sales are expected to increase as a result of developing products and technologies designed to support them.

As a result of the scenario analyses, the material climate-related risks that will affect our businesses, opportunities, and the financial impacts as of FY 2035 are as follows:

Items of material risks and opportunities			Risk	Opportunity	Financial impact in each scenario		Assumed countermeasure
					4°C	less-than-2°C
Transition risk, opportuni-ties	Policy/ Regulation	Carbon tax	Introduction of carbon taxes (Due to the rises in carbon prices and material costs, the cost will increase by about 300 million yen in the 4°C scenario and by about 9 billion yen in the less-than-2°C scenario.)	Growth of demand for low-carbon buildings Increase in sales Growth of demand for low-carbon painting plants (increase in sales)			Setting of GHG emmision reduction targets Keeping track of the total amount of GHG emissions, improvement in analysis efficiency Improvement in energy efficiency and introduction of renewable energy by the company Examples of commitments Introduction of a new system for utilizing natural energy (photovoltaic generation, etc.) at our research and development facility and conduct data verification Development of low-carbon installation work technologies and systems Participation in the renewable energy industry Development of air conditioning equipment and technologies compatible with environmental countermeasures, policies, and measures taken by each country
	Industry/ Technology/ Market	Changes in customer behavior, prevalence of energy-saving and renewable energy technologies	Response to requests from customers (rise of costs and inadequate responses decrease in sales), deterioration of competitiveness in the development of energy-saving and renewable energy technologies (decrease in sales)	Increase of about 1.1 billion yen in sales in the 4°C scenario and of about 2.2 billion yen in the less-than-2°C scenario as a result of integrating customers’ needs for low-carbon buildings and fluctuations in demand for construction works of growing ZEBs, development of advanced energy-saving and renewable energy technologies (increase in sales)			Expansion of installation works of energy-saving equipment, such as the transformation of plants into ZEBs Construction of energy circulation systems Provision of energy-saving solutions, such as energy management Examples of commitments to the Green Technology System Division Contribution to transformation into smart factories and smart cities with the aid of energy management technologies (production tracking control, predictive maintenance) utilizing ICT Development of low-carbon construction work technologies and systems Miniaturization and energy saving of equipment Examples of commitments to the Green Technology System Division Realization of energy saving by transforming air conditioning equipment into a mini-environment (small-scale environmental control) Examples of commitments to the Paint Finishing System Division Development of dry decoration technology with reduced CO2 emissions, not conventional wet painting Acquisition of skills that will contribute to the reform of painting processes, and promotion of product development Improvement in high coating efficiency, development of energy-saving technologies Examples of commitments to the Paint Finishing System Division Development and verification of equipment with reduced environmental burdens, such as hydrogen burners Development and commercialization of painting systems with high coating efficiency Development of CO2 recovery and recycling technologies, etc., creation of businesses Examples of new businesses Direct capture of CO2 (DAC), utilization for plant growth, etc. New water treatment, maintenance and effective use of water resources, and generation technologies (MOF, etc.) Digital fusion for research and development and the creation of new businesses Development of automatic work robots and construction work support robots at construction sites Examples of commitments to the Paint Finishing System Division Speedup and sophistication of research and development through robot technologies and digital twins Development and verification of equipment that will not produce CO2, and equipment capable of recycling CO2
Physical risks and opportuni-ties	Chronic	Average temperature rise	Deterioration of labor productivity due to an average temperature rise and suspension of construction works due to the increase of extremely hot days (increase of about 400 million yen in operating costs in the 4°C scenario and of about 370 million yen in the less-than-2°C scenario) Revision of labor laws and regulations (decrease in sales)	Growth of demand for air conditioning system technologies (increase in sales) Promotion of the mechanization and automation of installation works (increase in sales) Growth of demand for plant factories (increase in sales)			Diversified expansion of the plant factory business, energy recycling of plant factories Promotion of the mechanization and automation of installation works Examples of commitments Introduction of robots to construction work management and field work Improvement of the working environment, such as good air conditioning and enough rest areas Promotion of countermeasures against heatstroke Examples of commitments Measurement of WBGT values, water and salt intake, patrols, etc.

The Taikisha Group is endeavoring to reduce material risks, including climate change, and minimize risks that will become apparent. The Risk Management Committee assesses the level of each risk, selects risks we should deal with, and formulates and implements policies, for reducing risks from the overall perspective of the group.
Specifically, we have established the Risk Management Rules and organized the Risk Management Committee based on the rules to conduct centralized, effective, and efficient management of the group’s risks. The Committee, chaired by the President and Representative Director, is held twice a year and whenever necessary, and establishes and thoroughly disseminates basic policies, responsibility systems, and operation for company-wide risk management.
When it comes to material risks, including climate change, each of the departments in charge identifies items and determines the “degree of risk (degree of importance)” with three levels - High, Medium, and Low - taking into account the “impact on management” and the “frequency of occurrence.”
Among them, High items that have a significant impact on our strategies or financial status are selected as risks that should be preferentially dealt with and reported to the Risk Management Committee after formulating priority management policies and targets.
The Risk Management Committee assesses the degree of each risk and discusses the priority management policies and targets from a company-wide, comprehensive perspective, and formulates basic policies. Then, each department in charge monitors the progress of its activity plan and reports the results to the Risk Management Committee.
The Chairperson (President and Representative Director) of the Risk Management Committee scrutinizes the status of company-wide risk management and reports it to the Board of Directors twice a year after discussion by the Internal Control Committee.
In addition, the Management Committee, which determines important management matters on the whole, discusses the risks and opportunities of climate change, reviews climate change scenarios, and reflects them in long-term strategies. The Management Committee reports related issues, including the risks of climate change, concurrently with the reporting to the Risk Management Committee.
In order to strengthen risk assessments from a company-wide, comprehensive perspective, the members of the Internal Control Committee conduct additional company-wide assessments and formulate policies.

In order to manage climate-related risks and opportunities, various measures are implemented by setting not only GHG emissions but also indicators, such as energy consumption, water usage, and waste emissions.

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We contribute to realizing a decarbonized society by actively endeavoring to reduce CO₂ emissions of equipment designed and constructed by us during the operation stage, under long-term reduction targets.