Climate Change (TCFD)

Disclosure based on TCFD recommendations

In February 2022 the Group announced its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). In addition to enhancing governance, we strive to improve the quality and quantity of disclosure based on an analysis of the risks and opportunities that climate change presents to Group businesses.

Governance

We have developed a governance structure centered on oversight by the Board of Directors and management by the Sustainability Promotion Committee to promote basic policies and priority topics concerning environmental issues as a whole, including climate change, in accordance with our Environmental Policy.

Climate change management structure

Chaired by the director in charge of President's Office, the Sustainability Promotion Committee's membership consists of Group company operating officers and other executives. The Committee meets semiannually to discuss risks and opportunities related to climate change, and submitted or reported to the Board, which oversees the company's activities.

Sustainability Policies and Structures

Introduction of executive compensation linked to achievement of environmental indicators

In light of the importance of global climate change and other environmental issues, the compensation of the Chairman and CEO is set to be linked to the evaluation of the achievement of key environment-related indicators (progress in reducing greenhouse gas emissions and percentage of renewable energy use). The CEO proactively monitors progress toward the renewable energy adoption strategy and climate change targets, thereby encouraging the achievement of non-financial KPIs for the entire company.

Strategy

Scenario analysis

In implementing scenario analysis, the Group identifies important risks and opportunities related to climate change and assesses specific monetary amounts of their financial impact in the Sustainability Promotion Committee.
The analysis is based on the following two scenarios: one in which carbon neutrality is achieved by 2050, and the other in which global warming is most severe. The analysis is based on these assumptions in order to strengthen resilience.

Setup Scenarios

1.5℃ scenario

A scenario in which the global transition to decarbonization progresses at a level that achieves carbon neutrality by 2050, with changes in policy regulations and market trends forecasted to occur as a result of the transition.

Reference Scenario
IEA WEO2021 – SDS / APS / NZE2050
IPCC AR5 - RCP2.6
4℃ scenario

A scenario in which the transition to decarbonization is not undertaken beyond current levels, and global warming is assumed to become more severe, with more extreme weather events and associated adaptation needs being forecasted.

Reference Scenario
IEA WEO2021 – STEPS
IPCC AR5 – RCP8.5

As for the subject of the analysis, we chose two business areas we deem especially susceptible to the impacts of climate change: the Special Needs Employment Services (S-Pool Plus, Inc.) and the Logistics Outsourcing Services (S-Pool Logistics, Inc.).

Business impact assessment

The financial impact on the business based on the scenario analysis is evaluated by qualitative analysis and actuarial modeling for those items for which calculations can be made, and the impact on earnings assumed in 2030 is evaluated for each item. The risks and opportunities identified are shown in the table below.

Item			Impact			Evaluation ※1
Category	Subcategory	Sub-subcategory	Time axis ※2	Indictor	Considerations	4℃	1.5℃
Migration risks	Policy/regulatory	Carbon pricing	Medium term	Expenditures	[Groupwide] Rising costs related to electricity, fuel use, etc. at logistics facilities, farms, and other business sites due to carbon pricing	Low	Medium
		Responding to GHG emissions restrictions	Medium term - long term	Expenditures Assets	[Groupwide] Rising costs associated with measures to improve the environmental performance of logistics facilities, farms, and other facilities to meet more rigorous GHG reduction requirements	Low	High
		Plastic restrictions	Medium term	Expenditures	[S-Pool Logistics, Inc.] Cost of responding to regulations governing use of plastic and other packing materials	Low	Medium
	Markets	Changing energy costs	Short term - Medium term	Expenditures	[Groupwide] Higher selling expenses due to the rising cost of the fuel used in temperature controls	Medium	Medium
	Markets	Changing customer behavior	Short term - Medium term	Revenues	[Groupwide] As environmental awareness grows among clients, risk of declining revenue due to inability to shift to services and products with lower environmental impact	Low	High
	Reputation	Changing reputation among investors	Medium term - long term	Revenues Expenditures	[Groupwide] Falling stock prices or rising fundraising costs if investors determine our initiatives are inadequate based on their growing interest in environmental initiatives	Medium	High
Physical risks	Acute	Intensifying abnormal weather events	Short term - long term	Revenues Expenditures Assets	[Groupwide] Weather-related damage leading to the suspension of operations at farms, logistics facilities, etc.; reduced earnings due to suspended operations at client facilities	High	Medium
Physical risks	Chronic	Worsening working and construction conditions	Short term - long term	Revenues Expenditures	[S-Pool Plus, Inc.] Lower productivity or higher hiring costs due to fewer applicants as rising temperatures lead to worsening working environments inside greenhouses	High	Medium
Opportunities	Energy source	Use of renewable energy	Short term - Medium term	Revenues	[S-Pool Logistics, Inc.] Sales growth achieved by providing differentiated services using renewable energy	Low	Medium
	Products/Services	Decarbonization services	Short term - Medium term	Revenues	[S-Pool Logistics, Inc.] Sales growth achieved by using non-plastic packing materials in response to growing demand for ethical consumption	Low	Medium
	Products/Services	Disclosure	Short term - Medium term	Revenues	[S-Pool Blue Dot Green Inc. / S-Pool, Inc.] Greater demand for disclosure consulting services to meet corporate disclosure obligations	Low	High
	Market	emissions trading	Short term - Medium term	Revenues	[S-Pool Blue Dot Green Inc. / S-Pool, Inc.] Sales growth for emissions trading brokerage services	Low	High
	Resilience	Adapting abnormal weather events	Short term - Medium term	Revenues	[S-Pool Plus, Inc.] Providing services in urban areas based on indoor farms, which are less susceptible to climate change risks	Medium	Low

※1 Time horizon: Short-term = 1 to 3 years Medium-term = 3 to 10 years Long-term = 10 years and up
※2 Financial Impact Assessment: Large=More than 100 million yen, Medium=Less than 100 million yen, Small=Minor or no impact

Migration risks: Risks generated from reassessment of the financial value of assets with high levels of GHG emissions, accompanied with migration to low-carbon economy
Physical risks: Direct impact such as property damage caused by flooding, heavy wind and rain, and other weather conditions; indirect impact such as global supply chain disruptions and resource depletion
Thinking of financial impact (small, medium, large): Relative impacts assessed through quantitative and qualitative analysis

4℃ scenario: A scenario under which global mean temperatures by the end of this century are about 4℃ higher than before the industrial revolution due to the lack of progress on measures to counter climate change. While this scenario poses high physical risks, including intensification of abnormal weather events and rising sea levels, it also assumes no additional restrictions on corporate and consumer behavior from current levels.
1.5℃ scenario: A scenario under which global mean temperatures by the end of this century are about 1.5℃ higher than before the industrial revolution due to active initiatives toward achieving carbon neutrality. While this scenario envisions a controlled increase in physical risks, it also assumes stronger restrictions on corporate and consumer behavior through means such as taxation policies, laws, and regulations.

In assessing the scale of impact, based in part on the results of the quantitative business impact estimates, a significant impact is defined as one that has a financial impact of at least 100 million yen, and qualitative impacts are also assessed based on the same definition. The following chart shows the items that have been estimated. For physical risks (flood and storm surge damage and business interruption damage), the probability of a disaster occurring is taken into account, and the estimated damage is averaged out to an annual average for the relative assessment.

In terms of company-wide impact, with regard to physical risks, we expect damage due to wind and water disasters such as flooding. In particular, losses due to business shutdowns during the disaster, mainly at farms and distribution centers, are expected to put pressure on finances. The impact of the transition to decarbonization will be additional expenditure and higher energy costs due to the introduction of carbon pricing schemes. In particular, it is assumed that the increase in expenditure on electricity, the main energy source throughout the Group, will result from higher air-conditioning use due to rising temperatures and higher electricity prices as a result of the switch to renewable energy generation. On the other hand, various decarbonization measures are being considered by industry and public authorities to decarbonize, and it is expected that the application of these measures to administrative services and information disclosure by companies will increase, but demand for the decarbonization support services for municipalities that the Company provides and the environmental management support services provided by S Pool Blue Dot Green is expected to increase. Other impacts identified by business segment are as follows.

Special Needs Employment Services

Under the 4℃ scenario, the business is expected to suffer chronic impacts on farm operations, including worsening labor conditions, such as increased risk of heat stroke due to rising temperatures, and shutdowns due to difficulties in controlling temperatures related to crop growth. In contrast, the 2℃ scenario confirms that while operating costs are expected to increase due to the development of tax systems for decarbonization and higher energy prices, there are opportunities for increased sales and increased corporate value through the development of services that respond to changes in customer behavior and reputational awareness.
Logistics Outsourcing Services

For the 4℃ scenario, we reaffirmed the high physical risk of damage to Company logistics facilities and infrastructure due to intensifying abnormal weather events, resulting in the interruption of operations and rising costs of countermeasures and damages. Nevertheless, we also confirmed the possibility that this business could contribute to society by changing customer behavior in ways that increase use of e-commerce services and through systemic enhancements such as strengthening business continuity planning (BCP) measures. Other outcomes under the 2℃ scenario include the possibility of higher operating costs due to carbon pricing for decarbonization and opportunities for growth in corporate value by improving the environmental performance of packing materials, fixtures, and equipment.

The results of these analyses and deliberations will be enhanced resilience for future uncertainties by incorporating the results of deliberations in management strategies.

Specific Strategies and Initiatives

Based on the risks and opportunities identified in the scenario analysis above, the Group has begun to integrate the following strategies.

We contribute to solving environmental challenges by actively developing our business in the environmental area: from 2023, we will start providing decarbonization transition support services for municipalities, helping them to calculate and reduce their GHG emissions, thereby facilitating the realization of zero-carbon cities. In addition, by looking ahead to the trend towards 'mandatory' CO₂ reductions, we are working towards establishing new CO₂ reduction program services and building a new revenue pillar in the environmental sector. In our own initiative, we are promoting reduction initiatives by calculating emissions on a group-wide basis.
At Work Happiness Farms, in the face of weather anomalies exacerbated by climate change, we are considering countermeasures to fierce heatwaves and large-scale typhoons. To counter heatwaves, we are making continual environmental improvements, including modifying layouts to set up shaded spaces.
We are countering typhoons by installing windbreak fences that reduce damage, especially at farms that have suffered severe wind damage in the past. To realize further stability improvements in farm operations, we have opened indoor farms less exposed to the risks of climate change. We plan to establish a sustainable business structure through ongoing response to weather anomalies and by steadily opening additional indoor farms.
S-Pool Logistics, Inc. is advancing environmental management for net zero CO2 emissions to mitigate climate change. As part of our efforts to reduce our own environmental impact through voluntary environmentally friendly initiatives, we have participated in the 'RE Action 100 Renewable Energy Declaration' since 2020, and have introduced renewable energy at our main sites using FIT non-fossil certificates from 2023. We're cutting CO2 emissions by steadily switching to renewable energy sources and reducing labor needs through automation. As a new initiative, we plan to open an eco-friendly zero-emissions warehouse to help realize carbon neutrality. This is intended to achieve the goal of zero CO2 emissions. At the same time, seeing the expanding movement toward CO2 reductions as an opportunity, we're working to secure new customers among companies promoting their own climate change initiatives. We're striving to develop structures for sustained business operations through investments with an eye toward progress in automation technologies. We will seek to minimize the impact of events such as disruptions in logistics networks resulting from natural disasters by securing employee safety, assuring cargo security, and sharing information on delivery conditions with our customers.
We pursue the following initiatives to reduce greenhouse gas emissions and energy consumption and to improve efficiency.

We pursue the following initiatives to reduce greenhouse gas emissions and energy consumption and to improve efficiency.

Category	Initiatives
Mitigation	[All companies] Promoting paperless offices through use of laptops, tablets, and other technologies and devices Encouraging employees to wear cooler clothing [S-Pool, Inc.] Use of Forest Stewardship Council (FSC)-certified paper for printed materials (e.g., business cards and Company pamphlets) Environmental protection activities as part of the Ecology Cafe program Reducing emissions from commuting and other sources by adopting remote work [S-Pool Logistics, Inc.] Adoption of renewable energy with a 100% renewables use target Air conditioning temperature controls (28℃ in summer, 20℃ in winter) Purchasing ethically sourced materials (use of FSC-certified materials) Eliminating burnable waste through waste segregation Reducing emissions from commuting and other sources by adopting remote work Adoption of eco-friendly containers, packaging, and materials Reducing electricity and water use
Adaptation	[S-Pool Plus, Inc.] Vegetable cultivation in water-saving indoor farms less susceptible to natural disasters Use of recycled rock debris at Work Happiness Farms

Risk management

Significant risks related to climate change are identified and assessed by the Sustainability Committee. The identified risks and opportunities are evaluated and prioritized by the Sustainability Promotion Committee in an integrated manner from the two perspectives of corporate priority and social importance, regardless of type, and are reported to or discussed by the Board of Directors before being designated as materiality issues. The Board of Directors confirms and reviews the progress of the current status of materiality and manages risks appropriately in order to maintain and improve the company-wide risk management system.
In managing risks, the Risk Management Committee meets semi-annually to collect and analyze information on social conditions and the market environment to identify business-related risks at an early stage, and to take prompt and appropriate action when risks appear. The Sustainability Promotion Committee works with the Risk Management Committee to identify climate change risks identified by the Sustainability Promotion Committee, such as vulnerability to natural disasters (typhoons, torrential rains, water shortages, etc.) on farms and warehouses that are expected to have a significant impact on business and related laws and regulations, and to study measures to prevent the risk and mitigate the impact of such disasters. The committee will consider measures to prevent the risk and mitigate the impact.

Indicators and targets

Our Groupwide GHG emissions reductions targets call for reducing Scope 1 and Scope 2 emissions by 40% by 2030, and aims to achieve carbon neutrality in both Scope 1 and Scope 2 emissions by 2050.
* In light of domestic and international trends, the base year has been revised to the fiscal period ended November 2021. Reduction targets have been revised upward.
* The scope of targets is identical to the scope of calculations of greenhouse gas emissions provided below.

We have set a target of 100% of electricity consumed in Group business activities from renewable energy by 2030.

As a first step toward these goals, in December 2020, S-Pool Logistics, Inc. joined the “RE Action—Declaring 100% Renewable” program, introducing renewable energy by utilizing FIT non-fossil certificates at our main locations.
Please refer to our ESG data page for actual results and progress on targets for each indicator.

ESG Data

Participation and support of industry organizations, initiatives, etc.

The S-Pool Group participates in and supports the following industry organizations and initiatives to promote initiatives to address climate change.

Task Force on Climate-related Financial Disclosures (TCFD)

In March 2022, we announced our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Future plans call for continuing to incorporate initiatives to address climate change in our business strategies and disclosing information based on TCFD recommendations.

Japan Climate Initiative

In February 2021, we participated in the Japan Climate Initiative. Through this initiative, we will proactively work to achieve a low-carbon society.

COOL CHOICE

We support the national COOL CHOICE initiative, which promotes smart choices to counter global warming. We are registered as a corporate supporter of this initiative.

RE Action - Declaring 100% Renewable

S-Pool Logistics is a participant in RE Action – Declaring 100% Renewable, declaring its intent and taking actions to convert to 100% electricity from renewable energy sources.

We review our participation in and support for industry associations regularly for any major conflicts in thinking between the industry associations and the Company, with consideration for consistency with our business objectives, priority areas, and business activities. We consider withdrawal of our participation and support if any major deviations have been identified.