Climate-Related Financial Disclosures

Responding to TCFD Recommendations

Climate change is greatly impacting society and Epson sees it as a significant societal problem. The goal of the Paris Agreement is to achieve decarbonization and limit the global average temperature to well below 2℃ above pre-industrial levels and try to limit the temperature increase to 1.5℃. To achieve this, Epson is working to reduce total emissions in line with a 1.5℃ scenario1 by 2030. Furthermore, Epson coordinated the revision of Environmental Vision 2050 with the announcement of the Epson 25 Renewed Corporate Vision. To attain our goals of becoming carbon negative and underground resource free2 by 2050, we are working to decarbonize and to close the resource loop. We are also providing products and services that reduce environmental impacts and developing environmental technologies.

Since indicating its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in October 2019, Epson has disclosed information (on governance, strategy, risk management, and metrics and targets) based on the TCFD framework so as to enable good communication with shareholders, investors, and a broad spectrum of other stakeholders. Epson has decided to disclose the level of financial impact in 2021 in a quantitative manner for the first time. Furthermore, in 2022, Epson enhanced its disclosure of specific initiatives and achievements aimed at reducing GHG emissions in response to the update to the TCFD recommendations.

1 Target for reducing greenhouse gas emissions aligned with the criteria under the Science Based Targets initiative (SBTi)
2 Non-renewable resources such as oil and metals


Scenario Analysis Findings

We analyzed scenarios based on the TCFD framework to quantitatively assess the financial impact of climate-related risks and opportunities on Epson's strategy. In a 1.5℃ scenario in which there is rapid decarbonization of society, we found that there is transitional risk of an increase in operating costs due to market changes, policies, and legislation, but we expect to limit the financial impact by strengthening products and services based on inkjet technology and paper recycling technology.

Epson will spend approximately 100.0 billion yen (approximately 25.0 billion yen from 2021 to 2025 and approximately 75.0 billion yen from 2026 to 2030) over a period of 10 years ending in 2030 to accelerate decarbonization, close the resource loop, and develop environmental technology. The solution to climate-related risks aligns with the materialities we have set of achieving sustainability in a circular economy and advancing the frontiers of industry and will lead to opportunities for business expansion with Epson's low environmental impact products and services that save electricity and reduce waste. These products and services will help to mitigate customers' environmental impact and control climate change.

Based on the results of these analyses, Epson will continue to try to maximize its opportunities while addressing recognized risks in order to achieve decarbonization, which we believe is a rational goal both for society and for Epson.

On the other hand, even in a 4℃ scenario in which global warming has advanced because the world failed to take additional measures, we found that the impact of physical risks on our domestic and overseas sites due to the damages arising from weather extremes would be small.

Governance

Important matters related to climate change are supervised by the board of directors, which receives reports at least once a year from the Sustainability Strategy Council, an advisory body to the president that plans and reviews strategic sustainability activities for the Epson Group, including matters related to climate change.

In addition, Seiko Epson's president and representative director, who has ultimate responsibility and authority for climate-related issues, delegates responsibility for climate-related issues to the sustainability director, a director and senior managing executive officer. The sustainability director heads the Sustainability Promotion Office and oversees the execution of climate change initiatives, including TCFD.

Main Climate Change Initiatives

FY2019 FY2020 FY2021 FY2022
  • Declared support for the TCFD recommendations
  • Studied risks of natural disasters caused by climate change (2℃ scenario and 4℃ scenario)
  • Qualitatively disclosed the financial impact based on the disclosure recommendations of the TCFD framework (2℃ scenario)
  • Studied risks of natural disasters caused by climate change (1.5℃ scenario)
  • Revised Environmental Vision 2050 and set clear objectives, including becoming carbon negative
  • Quantitatively disclosed the financial impact based on the disclosure recommendations of the TCFD framework (1.5℃ scenario)
  • Enhanced disclosures on the results of specific initiatives in line with the revised TCFD recommendations
  • Studied risks of natural disasters caused by climate change, taking into account the changes in the IPCC Sixth Assessment Report

Strategy

Epson has determined that achieving sustainability in a circular economy and advancing the frontiers of industry are material matters. To achieve these, we are reducing greenhouse gas (GHG) emissions by leveraging our efficient, compact, and precision technologies to drive innovation. Furthermore, to transform business models, increase resilience against climate change, and drive progress toward Environmental Vision 2050, we established a new Environmental Strategy Council in 2021, under which various subcommittees have been created. The committee meets regularly to discuss and formulate strategic initiatives.


Increasing resilience FY2021 initiatives & results
Transforming business models Began examining a transition to business models (e.g., expanded subscription services) that deliver environmentally considerate products and services that can be used longer and that generate less waste
Environmental Strategy Council Decarbonization Switched to 100% renewable energy at all domestic sites. Examined switching at overseas sites. Upgraded facilities and equipment to save energy.
Closed resource loop Examined introducing resource loop indicators to become underground resource free. Began sales of products that contain recycled materials and refurbished equipment.
Customer environmental impact mitigation Increased our contribution to the reduction of environmental impacts by getting customers to replace their current products with environmentally considerate Epson products and services.
Environmental technology development Developed technology for recycling scrap metal and reusing silicon waste material. Selected packaging material projects that apply dry fiber technology.


Scenario Analysis of Climate-Related Risks and Opportunities

Epson identified and evaluated scenarios in the categories of transition risk, physical risk, and opportunity to evaluate the importance of climate-related risks and opportunities. Six risks and opportunities were singled out for evaluation. We evaluated the business impact and financial impact of each on the basis of the scenarios corresponding to temperature increase of 1.5℃ presented by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) as well as on the basis of internal and external information.



Climate-Related Risks and Opportunities in a 1.5℃ Scenario

The results of evaluating climate-related risks and opportunities based on scenario analysis are as follows.

Category Evaluated risks & opportunities Actualization Business impacts Financial impact
Transition risks Market changes Policy & laws and regulations Paper demand Short-term Impact
  • We were unable to detect a strong relationship between climate change and the change in paper demand, but demand for printing and communication paper is assumed to be on a declining trend. Even if the shift to paperless advances further due to changes brought about by COVID-19 (such as the contraction of office printing because of decentralization), we expect only a limited financial impact from the strengthening of products and services based on inkjet technology and paper recycling technology (reduction of printing costs, reduction of environmental impacts, increase of ease of printing, appeal using usefulness of paper information).
Small
(Initiatives in Environmental Vision 2050)
- Decarbonization
- Closed resource loop
- Environmental technology development
Short-term Impact
  • Decarbonization of products, services, and supply chains as well as advanced initiatives in resource recycling are needed to respond to the shared global societal issues of climate change and resource depletion.
  • Scientific and specific solutions are necessary to develop environmental technologies linked with the rapid decrease of environmental impacts.
Response to risks
  • Decarbonization
    - Renewable energy use
    - Energy-saving facilities & equipment
    - Greenhouse gas removal
    - Supplier engagement
    - Carbon-free logistics
  • Closed resource loop
    - Use resources effectively
    - Minimize production losses
    - Extend product service lives
  • Environmental technology development
    - Dry fiber technology applications
    - Naturally derived (plastic-free) materials
    - Material recycling (metal, paper)
    - CO2 absorption technology
Invest a total of approximately ¥100.0 billion by 2030
Physical risks Acute Damage to business sites due to floods Long-term (End of 21st century) Impact
  • Based on the results of the latest FY2022 risk assessment for 36 sites (17 sites in Japan and 19 sites overseas), the changes in future operational risks due to flooding (rivers overflowing), high tides and water shortage are limited.
  • Short-term climate change risks to the supply chain will be addressed in line with our business continuity plans.
Small
Chronic Damage to business sites due to rising sea levels
Impact on operations due to drought
Opportunities Products and services (Initiatives in "Environment Vision 2050")
- Customer environmental impact mitigation
Short-term Assumed scenarios
  • The need for environmentally considerate products and services will increase due to the introduction of a carbon tax, soaring electricity prices, rising waste disposal costs, sustainable production volume, and reduced resource use.
Business opportunities
  • In the growth areas defined in Epson 25 Renewed, we expect to grow revenue at a CAGR (compound annual growth rate) of 15% by providing 1) inkjet office printing, commercial & industrial inkjet printing and printheads that reduce environmental impacts, increase work productivity, and reduce printing costs; and 2) production systems with expanded use of new production devices to reduce environmental impacts.
Large
CAGR of 15% is expected in growth areas by FY2025
Environmental business Short-term Assumed scenarios
  • Market growth is expected in the areas of global warming prevention, waste treatment, and effective utilization of resources.
  • The shift to a circular economy is expected to drive market growth for recycled plastics, high-performance biomaterials, bioplastics and metal recycling.
Business opportunities
  • Generate revenue by upcycling (enhancing functionality), eliminating plastics (packing and molding materials), creating new high-value-added materials and carrying out other measures through the establishment of technologies, such as applications of dry fiber technology, including paper recycling, development of naturally derived materials (elimination of plastics) and recycling of raw materials (metal and paper recycling) as effective solutions for combatting global warming and shifting to a circular economy.
Medium

Actualization Short term: ≤ 10 years Medium term: 10-50 years Long term: > 50 years
Financial Impact Small: ≤ 1 billion yen Medium: 1-10 billion yen Large: >10 billion yen

Epson implemented the following initiatives in FY2021 to promote decarbonization, close the resource loop, develop environmental technology, and mitigate environmental impacts on the customer's end.

Category Evaluated risks & opportunities Initiatives implemented in FY2021 FY2021 quantitative results
Transition risks Market changes Policy & laws and regulations Paper demand In Office & Home Printing, sales of printers increased in terms of both units and revenue. Sales of ink were stabilized and flat year on year. The financial impact of fluctuations in demand for paper in the market targeted by Epson was limited. -
Decarbonization Switched to 100% renewable energy for electricity used at all domestic sites3 ¥3.32 billion (breakdown)
·Investment: ¥1.06 billion
·Personnel expenses: ¥1.26 billion
·Expenses: ¥1.00 billion
Closed resource loop Decided to invest in the construction of a new plant to recycle metal waste as materials for metal powder products (Epson Atmix).
Environmental technology development Invested in a prototyping line for packaging materials using dry fiber technology. Reinforced manpower for environmental related areas and development of materials.
Physical risks Acute Damage to business sites due to floods Assessed the latest risks based on the IPCC Sixth
Assessment Report for 36 sites (17 in Japan, 19 overseas).
  • Confirmed that the volatility in Epson's future operation risk caused by floods (river flooding), high tides and drought is limited. Implemented BCP measures against the risk of inundation of facilities on lower floors of Toyoshina Office4.
-
Chronic Damage to business sites due to rising sea levels
Impact on operations due to drought
Opportunities Products and services Customer environmental impact mitigation Promoted initiatives in the growth areas (office printing, commercial & industrial printing, printhead sales, production systems) under Epson 25 Renewed. FY2020 →FY2021
Revenue CAGR +22%
Environmental business Established environmental business subcommittees and began examining specific steps toward expanding business through environmental technology development. -

3 Excluding some rental properties housing sales sites.
4 A major domestic site with a long-term flooding risk (end of 21st century).

Risk Management

As the environment in which we operate grows more complex and uncertain, effectively dealing with risks that could have a significant impact on corporate activities will be essential in order to carry out business strategies and business objectives.

Epson sees climate-related issues as risks that could significantly impact management and manages them appropriately.

Climate-Related Risk Identification, Assessment and Management Process

1. Study 2. Identify & assess 3. Manage
  • Considering the changes in the IPCC Sixth Assessment Report, conduct surveys on natural disaster risks caused by climate change at major sites in Japan and overseas.
  • Research social trends.
  • Identify risks and opportunities from the policies and actions of Epson 25 Renewed and Environmental Vision 2050.
  • Evaluate scenario analysis through the Sustainability Strategy Council and board of directors.
  • Effectively manage risks through the Sustainability Strategy Council and the board of directors.

Metrics and Targets

Epson aims to achieve the medium- and long-term greenhouse gas (GHG) emission reduction targets to realize Environmental Vision 2050. For this reason, we are working to reduce environmental impacts throughout the value chain by improving the environmental performance of our products, utilizing renewable energy, enhancing our business activities and taking other steps based on our efficient, compact, and precision technologies.

GHG Reduction Targets (general indication of aggressive total emissions reduction targets in line with the 1.5℃ scenario5)

Scopes 1, 2, 3 Reduce GHG emissions by 55% compared to FY2017 by FY2030.

5 Target for reducing greenhouse gas emissions aligned with the criteria under the Science Based Targets initiative (SBTi)
Scope 1: Direct emissions from the use of fuel, etc., by the reporting company
Scope 2: Indirect emissions from purchased energy
Scope 3: Emissions from the reporting company's value chain

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