Information Disclosure Based on TCFD Recommendations 2021

Endorsement of the Task Force on Climate-Related Financial Disclosures (TCFD) and Our Corresponding Efforts

The global environment is the foundation for all human beings, living creatures and ecosystems on this earth. The activities of corporations could not continue without a sound global environment. 　Recognizing that climate change is a grave challenge faced by the world, the EBARA Group added its signature in endorsement of the TCFD in 2019. Through dialogue with our stakeholders, we will continue to improve our engagement with climate change and our information disclosures.

Governance

The Sustainability Committee chaired by the president shares the concept that our engagement with climate change is a key challenge in corporate management as one of the materialities of E-Vision2030 with all executives. The Committee also develops engagement policies and action plans and manages their progress.
Climate change response activities deliberated by the Sustainability Committee are reviewed by the Board of Directors.

A risk management panel handles short-to medium term risks. The Corporate Planning Committee, which manages the progress of action plans for corporate management challenges, monitors issues regarding ESG, including climate change, as well as financial aspects. 　

An Environmental Control Committee, chaired by the executive officers in charge of risk management, has been established as an environmental management framework. We are engaging across the entire Group on a global level on the continuous improvement of environmental management, including climate change response.

Climate Change Governance Structure

Strategy

We followed the following processes in our consideration of the impact of climate change upon the EBARA Group’s businesses.

Identification and evaluation of risks and opportunities
Scenario analysis
Evaluation of financial impact
Establishment of measures

Identification and evaluation of risks and opportunities of climate change

We identified and evaluated climate-related risks that are likely to affect EBARA Groups’ businesses by 2022, the target year of E-Plan2022, and by 2030, the target year of E-Vision2030. Based on the classification of risks and opportunities specified in the TCFD, we believe that the matters in the table below will have a certain level of impact on EBARA Group’s businesses.

CCUS:

Carbon dioxide Capture, Utilization and Storage
Carbon dioxide Capture and Utilization (CCU) is a technology that converts captured CO2 into new products and energy.
Carbon dioxide Capture and Storage (CCS) is a technology that captures CO2 generated by factories and power stations before it is released into the atmosphere, transports it to geological strata suitable for underground storage, where it is stored in a stable condition for long periods of time.

GHG:

Greenhouse gases

Scenario Analysis

The TCFD recommends organizations to develop the scenario for limiting warming to 2°C. According to this recommendation, we deliberated on multiple scenarios including the scenario for limiting warming to 2°C, regarding the identified and evaluated climate-related risks and opportunities, using the World Energy Outlook 2019 (IEA) and resources released by the Japanese government.

2-degree scenario

In response to the strengthening of environmental regulations, progress in CO2-reduction technologies, and growing environmental awareness among consumers, we expect that sales of energy-saving products and products that contribute to curbing GHG emissions will increase. On the other hand, there will also be factors that adversely affect our business performance, such as a decline in sales at some of our major clients and increases in raw material costs.
We believe that the precision machinery business will grow due to progress in electric vehicles and digital technologies and increasing demand for them.

Category Major events Risks Opportunities
Policies / regulations Rise in the price of steel, the main raw material for our products •Increase in manufacturing costs leading to deterioration of earnings
•Decline in sales of conventional products that are not environmentally conscious, including CO2 emissions related to manufacturing processes		 Increase in sales of GHG-reducing and energy-saving products
Growth of LNG-related businesses
Growth of precision machinery business
Growth in petroleum-alternative energy industries (LNG, etc.)
Technological innovation Commercialization of CCUS, greater trend toward energy-saving and high efficiency in pumps and compressors, and commercialization of next-generation refrigerants with lower environmental footprint (green and natural refrigerants)
Progress in hydrogen and ammonia-fueled power generation technologies and in hydrogen production and storage technologies
Market preference Increased demand by users for carbon-free production due to acceleration of shift toward carbon-free supply chains
Increased need for energy-saving products and products that contribute to curbing GHG emissions
Shift toward distributed energy production
Expansion of popularization of electric vehicles
Decline in thermal recycling needs
Increase in chemical recycling needs
Increased interest in CCUS
Increased interest in hydrogen energy

4-degree scenario

We assumed a worldview that is an extension of 2020. We believe that the impact on increases and decreases in sales and expenses brought about by the 4-degree scenario would be low.
However, there would be common impacts from all scenarios.

Category Major events Risks Opportunities
Policies/
regulations		 Slight rise in the price of steel, the main raw material for our products
Limited impact on petrochemical-related products and increase in customers’ sales among major customers who are likely to be affected by climate policies		 •While manufacturing costs will increase due to heavier tax burdens, the impact of earnings will be limited. No major change in sales compared to 2020
Technological innovation Stagnation of commercialization of CCUS, greater trend toward energy-saving and high efficiency in pumps and compressors and lack of progress in bringing to market new energy-saving products and services that satisfy consumers’ needs by Ebara and its competitors
Market preference
Increase in demand for energy-saving products and products that contribute to curbing GHG emissions, albeit at a more moderate rate than under the 2-degree scenario
Continued dependence on thermal power generation to a certain extent
Increased demand for electric vehicles, albeit at a more moderate rate than under the 2-degree scenario.
Continuation of thermal recycling in Japan.

Midway scenario (2-degree scenario with stagnation of technological innovation)

We assumed a scenario in which policies and regulations are strengthened in a similar way to the 2-degree scenario and customers’ environment-oriented preferences increase, but technological innovation has stagnated and the launch onto the market of products and services that satisfy consumers’ needs is not progressing. Under these circumstances, we believe that sales of energy-saving products and products that contribute to curbing GHG emissions, which can be achieved by the efforts of the EBARA Group, will increase.

Category Major events Risks Opportunities
Policies/
regulations		 Rises in the price of steel, the main raw material for our products, due to the introduction of/increases in carbon pricing. •Increase in manufacturing costs leading to deterioration of earnings
•Decline in sales of conventional products that are not sufficiently environmentally conscious, including CO2 emissions related to manufacturing processes		 Increase in sales of energy-saving products and products that contribute to curbing GHG emissions
Technological innovation Stagnation of commercialization of CCUS, greater trend toward energy-saving and high efficiency in pumps and compressors and lack of progress in bringing to market new energy-saving products and services that satisfy consumers’ needs by EBARA and its competitors
Market preference
Increase in demand for energy-saving products and products that contribute to curbing GHG emissions, albeit at a more moderate rate than under the 2-degree scenario
Continued dependence on thermal power generation to a certain extent
Increased demand for electric vehicles, albeit at a more moderate rate than under the 2-degree scenario.
Continuation of thermal recycling in Japan.

Common scenario (common risks and opportunities that will manifest in all scenarios)

Physical risks such as torrential rains and flooding caused by climate change would be manifested in all scenarios and the costs of repairs may place an added burden on our businesses.
On the other hand, damage from floods and the like suffered by our customers may cause the creation of demand for maintenance by the EBARA Group, which we believe may lead to an increase in sales.

Category Major events Risks Opportunities
Policies/
regulations		 No common events due to dependence on the degree of strengthening of policies/regulations •Increase in repair costs accompanying damage to EBARA Group’s facilities
Decline in productivity due to more frequent shutdowns caused by temporary disruptions to supply chains (Increase in cost)
Decline in sales accompanying decline in major customers’ sales		 Demand for IoT and M2M related products and components will increase due to growing momentum for energy conservation through lifecycle from the perspectives of BCP measures and production efficiency improvements, such as yield improvement (resource-saving) and curbing of rework, which will increase sales.
Increase in sales due to ability to capture demand for products and maintenance accompanying damage to some customers' factories
Increase in sales of products and services for prevention and mitigation of disasters
Decline in manufacturing costs due to increase in efficiency of production facilities
Technological innovation Increase in EBARA’s production efficiency in line with updating of production facilities.
Expansion of demand for semiconductor-related products required for factory automation, due to production innovation at customers and customers’ BCP measures (prevention of shutdowns due to heat stroke and infectious diseases).
Market preference Divestment from businesses that are large GHG emitters and stagnation in petroleum demand Some impact on sales of some customers, such as the oil refining industry
Growing need for products that are effective in prevention and mitigation of disasters in light of the frequent occurrence of physical risks such as torrential rains and flooding
Physical risks Frequent shutdown of our own and our suppliers’ plants due to water damage such as typhoon, heavy rain, and flooding.
Damage to our customers’ facilities (power stations, factory production facilities, public infrastructure such as roads and water supply and sewage systems) due to water damage, requiring their replacement and maintenance.
M2M (Machine to Machine):

Machines exchange information with each other over communication networks, thus performing autonomous control and operation to an advanced degree.

Divestment:

Withdrawal of invested financial assets.

Impact of climate-related risks and opportunities on financial planning

Based on analysis of the four above scenarios, we consider the financial implications climate change by 2030 to be as follows. We predict that none of these scenarios would have significant negative impact on our overall financial position.

Scenario Impact on businesses by 2030
2-degree scenario In response to the strengthening of environmental regulations, progress in CO2-reduction technologies, and growing environmental awareness among consumers, sales of energy-saving products such as pumps, refrigerators, compressors &turbines, and semiconductor manufacturing apparatus, products that contribute to curbing CO2 emission, and chemical recycling-related products will increase.
The precision machinery business will grow with the increase in demand for higher efficiency in various industries, due to progress in electric vehicles and digital technologies.
On the other hand, business performance will decline due to increases in manufacturing costs caused by rises in the costs of our products’ main raw material and the decline in sales at some of our major customers, due to divestment from businesses that are large GHG emitters.
Midway scenario
(2-degree scenario with stagnation of technological innovation)		 While policies and regulations will be strengthened in a similar way to the 2-degree scenario and customers’ environment-oriented preferences will increase, technological innovation will stagnate, and the launch onto the market of products and services that satisfy consumers’ needs will also stagnate.
On the other hand, sales of energy-saving products and products that contribute to curbing GHG emissions, which can be achieved by the efforts of the EBARA Group, will increase.
4-degree scenario This is a world positioned as an extension of 2020, with little impact on increases and decreases in sales and expenses brought about by the 4-degree scenario.
Common to all scenarios Manifestation of physical risks (e.g., torrential rain, typhoon, high tide, flooding, and drought) will be common to all scenarios.
While disaster-caused repair expenses will be incurred, customer demand for maintenance and responses to disasters at public facilities will also be generated, which will lead to increase in sales.
Demand for IoT and M2M related products and components will increase due to growing momentum for energy conservation through lifecycle from the perspectives of BCP measures and production efficiency improvements, such as yield improvement (resource-saving) and curbing of rework, which will increase sales.

Strategy based on climate-related risks and opportunities

As a result of analysis of these climate-change scenarios as of 2020, we will focus on the following for our business strategy by 2030. Looking ahead to this, we incorporated them into E-Plan2022.

Businesses Strategies until 2030
Fluid Machinery & Systems Business Looking ahead to the strengthening of climate-related regulations, increases in raw material prices due to the strengthening of climate-related regulations, and development of divestment from businesses that are large GHG emitters, it will be necessary to consider the development of CCUS and hydrogen and ammonia-fueled power generation technologies, and the formulation of strategies for new businesses such as hydrogen production and storage technologies.
Environmental Engineering Business In response to increase in customers’ environment-oriented preferences, it will be necessary to respond to advanced recycling needs, such as chemical recycling of waste plastics.
Precision Machinery Business Promote development of products that contribute to energy-saving needs through product lifecycle, to automation needs that leverage IoT and M2M technologies as highly efficient production systems, and to the shift from petroleum-fueled vehicles to electric vehicles.
EBARA Group’s general production activities As customers are expected to demand a shift toward carbon-free supply chains, it will be necessary to consider cutting CO2 emissions generated from manufacturing processes.

Risk management

In the development of E-Vision2030 and E-Plan2022, we used scenario planning to analyze social trends and changes to the market environment over the medium to long term. Fluctuation risk as a long-term trend, short-term volatile risk, and risks in face-to-face markets and for each of EBARA’s individual businesses have been identified. The identified risks and opportunities are managed under the corporate governance framework. 　Based on the results of regular risk assessments conducted by our risk management division, significant risks that we are likely to face in the short to medium term have also been identified. In these risk assessments, the likely risks are sorted out and leaders of individual businesses and divisions are surveyed and interviewed about them. Based on the outcomes, the risk response frameworks are re-assessed and reflected in operations, with the supervising divisions made clear. 　

Metrics and Targets

In E-Plan2022, we developed action plans for both financial and non-financial corporate management challenges, which set metrics and targets to manage the progress of these action plans. The non-financial action plans set metrics and targets for risks and opportunities regarding environment, including climate change, society, and governance. The Sustainability Committee and Corporate Planning Committee monitor progress of these plans.

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