Information Disclosure Based on the IFRS Sustainability S2 Disclosure Standards

Strategy

The IDEC Group regards environmental strategy as an integral part of its business strategy, and has incorporated eco-friendly products into its transition plan starting in FY2026 by introducing sales targets for eco-friendly products as KPIs. This will enable us to systematically improve the level of environmental contribution of our business activities.

We are also accelerating the development of our value chain with suppliers by setting supply chain engagement rate as a KPI and revising CSR procurement and green procurement guidelines. In addition, we are continuously engaged in various environmental initiatives, including reducing CO2 emissions to achieve carbon neutrality, reducing industrial waste, and increasing recycling rates. 　

These transition plan-related activities align with the IDEC Group's purpose of contributing to the realization of safety, ANSHIN, and well-being for people worldwide, as a harmonized approach to environmental considerations. In addition, ESG-related information, including disclosures based on the TCFD Recommendations, has been included in our Securities Report since of FY2024.

Climate Resilience

The World Energy Outlook 2024 (WEO2024) report published by the International Energy Agency states that due to global geopolitical tensions and divisions, the world faces energy security risks, which pose major risks to concerted efforts to reduce emissions.

While geopolitical risks abound, the report explains that the fundamental balance of the market is loosening, setting the stage for fierce competition between different fuels and technologies. Momentum for clean energy remains strong and is expected to lead to a peak in demand for various fossil fuels by 2030.

Based on our selected scenarios, we held workshops at IDEC head office and GEMS Steering Committee members’ countries and regions in FY2025 to analyze risks and opportunities together with team members from various departments. In our workshops, we used the International Energy Agency's World Energy Outlook 2024 (WEO2024), IFRS S2 and industry-specific disclosure topics, CSRD/ESRS, and the Materiality Assessment Implementation Guidance (MAIG) as reference materials for risk and opportunity assessments.

Findings were categorized into transition and physical risks, time-related impacts, and potential financial impacts, and organized into our 1.5°C/2°C and 4°C scenarios.

Risk management

For each of the climate-related risks and opportunities identified by the Environmental Strategy Committee, we considered the likelihood of occurrence, degree of impact, and amount of potential financial impact, and compiled them into a risk and opportunity map. The identified results and risk items that have been assessed as important in our mapping are managed by referring to an integrated risk map for the IDEC Group. They are also reflected in the risks and opportunities associated with natural capital, one of our materialities.

The Environment Promotion Department lists environmental risk management items on an annual risk management table, specifies performance indicators, and reports the state of achievement to the Risk Monitoring Subcommittee.

Descriptions of risk items
①Increase in raw material costs
②Growing environmental awareness among customers and investors
③Delay in relative to competitors in the transition of existing and new products to low-emission/low-carbon technologies
④Tendency of carbon pricing
⑤Natural disasters (heavy rain, hail, snow/ice, cyclones, hurricanes, typhoons, floods, inundation, earthquakes) and temperature rise

Descriptions of opportunity items
①Demand for low-emission products and a diverse variety of new products and services through R&D and technological innovation
②Shift to alternative materials / diversification / new technologies
③Transition to distributed energy generation and the creation of new markets

Risks and Opportunities

In an effort led primarily by the Environmental Strategy Committee, we have identified risks and opportunities that could reasonably be expected to affect the outlook of the IDEC Group in reference to the risks and opportunities items of the CDP Climate Change Questionnaires, one of the global standards for environmental information disclosure. Referring to and considering the applicability of the industry-specific disclosure topic (Electrical & Electronic Equipment industry) as defined in the IFRS S2 Industry-based disclosure requirements, we identified transition risks and physical risks, impacts of climate-related risks and opportunities that can reasonably be expected to occur over any short to long-term period, potential
financial impacts, and defined timeframes.

Metrics and targets

To reduce CO2 emissions, in our medium-term plan we have set the targets of reducing Scope 1 and Scope 2 CO2 emissions by 35% by FY2028 and 50% by FY2031 (both compared to FY2020). The internal carbon price (ICP) introduced in FY2023 has been set at 14,000 yen/t for FY2026. While the impact of ICP on environmental investment decision-making is not yet sufficient, the Environmental Strategy Committee is working to raise awareness within the Group by introducing model cases of ICP utilization on the intranet.

With the Performance Share Units (PSUs) introduced into the executive compensation system in FY2024, approximately 10% of compensation may be allocated to directors and executive officers in the form of common stock, with non-financial indicators being used in the calculation of PSUs. Our return on carbon (ROC) profit ratio, which indicates how much CO2 was reduced and how efficiently profits were earned, has continued to decline in line with the decrease in operating profit.

Information disclosure based on TNFD

The IDEC Group has been disclosing information in accordance with TCFD since 2021 and has been disclosing information in accordance with IFRS S2 since 2024, but stakeholder demands are expanding from climate change to include biodiversity and TNFD.
Therefore, starting in fiscal 2025, we have begun preparations to disclose information aligned with the TNFD framework and to identify nature-related issues using the LEAP approach for risk and opportunity assessment.

Utilizing LEAP, we disclose information aligned with the four elements of the TNFD framework: governance, strategy, risk and impact management, and metrics and targets.
The LEAP elements practiced under the TNFD approach are represented by the letters L (Locate), E (Evaluate), A (Assess), and P (Prepare).
The letters and numbers are quoted from “TNFD Approach - LEAP” published in the ‘‘Recommendations of the Taskforce on Nature-related Financial Disclosures.’’

Governance

The board of directors oversees important sustainability matters such as TCFD and TNFD. The Environment Strategy Committee, one of the specialized committees of the Sustainability Environmental Strategy Committee, takes the lead in conducting analysis and evaluation regarding nature-related risks and opportunities, dependencies, and impacts. [P3, P4]
Regarding the evaluation and management system for climate-related and nature-related dependencies, impacts, risks, and opportunities, it is deliberated by the Sustainability Committee, then submitted to the Management Council for reporting and approval and subsequently reported to and approved by the Board of Directors. [P3, P4]
Through regular meetings with the Global Environment Management System steering committee and APEM, we regularly collect information from global bases to grasp region-specific risks. [P3, P4]

Strategy

To organize the relationship between IDEC Group's business activities and their dependence and impact on nature, we conducted a materiality assessment using the external tool "ENCORE."
The dependence and impact items shown by ENCORE are general items common to industries, and some items did not represent analytical results that reflected the characteristics of IDEC Group's specific business activities.
Therefore, from the materiality assessment results, the items with a significant connection to IDEC Group's business activities were selected as water supply for dependency, and CO2 emissions and the discharge of harmful pollutants into water and soil for impact.
Based on the analysis results of ENCORE and the discussions from the workshops, four natural capitals dependent on IDEC's business activities were selected: water, soil, biodiversity, and minerals.
Next, the relationship between IDEC's business activities and natural capital was organized in terms of "dependency × impact."
Next, based on the worldview organized in workshops on risks and opportunities conducted in Japan and in each country and region participating in the global environmental management system, as well as other examination results, items of transitional and physical risks and opportunities expected to reasonably affect the outlook of the IDEC Group were established (please refer to Risk and Impact Management).
Next, for each risk and opportunity item, the time frame (short-term, medium-term, long-term), occurrence probability, and degree of impact were calculated and summarized in a table.
The timeline is set with the short-term ending fiscal 2027, the medium term ending fiscal 2030, and the long-term ending fiscal 2050. [E1]