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℃ scenario*1 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 free*2 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 Epson declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in October 2019, it 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.

*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 100 billion yen 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 advancing the frontiers of industry and achieving sustainability in a circular economy 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 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 after deliberations by the Sustainability Strategy Council, which formulates medium- to long-term strategy for the Epson Group's sustainability activities and reviews the status of implementation as the president's advisory body.

In addition, Seiko Epson's president and representative director, the individual who has the highest responsibility and authority for climate-related issues, delegates responsibility for climate-related issues to the Sustainability Director, who heads the Sustainability Promotion Office and manages and promotes climate change initiatives, including TCFD.

Main Climate Change Initiatives

FY2019 FY2020 FY2021
  • 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)

Strategy

Epson has determined that achieving sustainability in a circular economy and advancing the frontiers of industry are material matters in its value creation story. To achieve these, we will further reduce greenhouse gas (GHG) emissions by leveraging our efficient, compact, and precision technologies to drive innovation.

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. The results of the evaluation of climate-related risks and opportunities based on this scenario analysis are as follows:


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 that shift to paperless advances further due to changes in trends due to COVID-19 (such as the contraction of office printing because of decentralization), we expect that the 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) will be limited.
Small
(Initiatives in Environmental Vision 2050)
- Decarbonization
- Closed resource loop
- Environmental technology development
Short-term Impact
  • "Decarbonization" of products and services as well as the supply chain and advanced initiatives in "resource recycling" are needed to respond to "climate change" and "resource depletion," which are social issues shared globally.
  • 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
    - Greenhouse gas removal
    - Supplier engagement
    - Carbon-free logistics
  • Closed resource loop
    - Effective use of resources
    - 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, etc. Long-term Impact
  • Based on the results of the latest FY2021 risk assessment for 36 sites (17 sites in Japan and 19 sites overseas), the changes in future operational risks due to flooding (rivers overflowing) and high tides 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
Opportunities Products and services (Initiatives in "Environment Vision 2050")
- Customer environmental impact mitigation
Short-term Assumed scenarios
  • The need for environmentally friendly products and services will increase due to the introduction of a carbon tax, soaring electricity prices, rising waste disposal costs, sustainable production amounts, and reduced resource use.
Business opportunities
  • For the growth areas of "Epson 25 Renewed," a CAGR (compound annual growth rate) of 15% is expected for revenue growth by providing 1) office printing, commercial & industrial printing and printhead sales utilizing inkjet technology to achieve a reduction of environmental impacts, increased work productivity and reduction of printing costs and 2) production systems with expanded use of new production devices to achieve a reduction of environmental impacts.
Large
CAGR of 15% is expected in growth areas until 2025
Environmental business Short-term Assumed scenarios
  • Market growth is expected in the field of combatting global warming and the field of waste treatment and effective utilization of resources.
  • Due to the shift to a circular economy, market growth is expected for recycled plastics, high-performance biomaterials, bioplastics and metal recycling.
Business opportunities
  • As effective solutions for combatting global warming and responding to the shift to a circular economy, 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).
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

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
  • Study risks of natural disasters caused by climate change at major sites worldwide.
  • 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

Under Environmental Vision 2050, in order to achieve the medium- and long-term greenhouse gas (GHG) emission reduction targets validated by the Science Based Targets initiative (SBTi), we are actively working to reduce environmental impacts throughout the value chain. We are doing so primarily by improving the environmental performance of our products, utilizing renewable energy, and enhancing our business activities, based on our efficient, compact, and precision technologies.

The current targets validated by the SBTi correspond to the 2℃ target. In FY2021, we plan to update the reduction targets to those that correspond to the 1.5℃ target, which is the target in Environmental Vision 2050.

GHG Reduction Targets (reduction targets in line with "SBT 1.5 Scenario")

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

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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