The Daio Paper Group Sustainability Vision was established on May 27, 2021. On the same day, the Daio Paper Group (“the Group” or “we”) also expressed its support for the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). The Group is working to align its disclosure of climate-related financial information with the TCFD recommendations, such as by assessing its climate-related risks and opportunities and by integrating the processes into the Group’s management strategy and overall risk management.

Governance

The Daio Paper Group Sustainability Vision was established by the Board of Directors of the Group in May 2021. In conjunction with that, the Sustainability Committee meets once a month to assess and deliberate on matters regarding climate-related risks and opportunities, including the targets, policies, strategies, and progress of its initiatives.
The Sustainability Committee is chaired by the Representative Director-cum-Executive Vice President in charge of Finance, and comprises directors-cum-managing executive officers, outside directors, and executive officers engaged in ESG-related operations. Audit & Supervisory Board Members (including outside members) attend as observers.
The Chairman of the committee reports matters decided by the Sustainability Committee once each quarter at the Board of Directors’ meeting. The matters are presented as recommendations to the President-cum-Representative Director, who chairs the Board. All members of the Board of Directors assess, discuss, and oversee the implementation and progress of the proposals, as well as approve and decide on important matters.
The following subcommittees of the Sustainability Committee examine and implements the specific initiatives related to sustainability, including initiatives regarding climate-related risks and opportunities: the Climate Change Response Subcommittee, the Environmental Impact Reduction Subcommittee, and the Value Co-Creation Subcommittee. These three subcommittees, chaired by executive officers, are responsible for identifying risks and opportunities and managing the progress of our initiatives. The Group has identified “Response to Climate Change” as one of the Group’s material issues. Among the possible responses, decarbonization is a priority for us. The Director-cum-Managing Executive Officer in charge of the Production Division leads our efforts toward zero dependency on coal. Inside directors and executive officers also report on and monitor these efforts at the Medium-Term Business Plan Implementation Meeting.

Strategy

The Group has conducted a scenario analysis based on the 2°C or lower scenario and the 4°C scenario to determine how climate change would impact the domestic businesses of the Paper and Paperboard Unit and the H&PC Unit.
When setting the conditions of each scenario, we referenced scenarios such as the RCP2.6 and RCP8.5 scenarios in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), and the SDS and the STEPS in the World Energy Outlook 2021 of the International Energy Agency (IEA).
With regard to physical risks, we conducted risk assessments based on data from sources such as Aqueduct provided by the World Resources Institute (WRI), “Climate Change in Japan 2020” by the Ministry of Education, Culture, Sports, Science and Technology of Japan (MEXT) and Japan Meteorological Agency (JMA), Four Twenty Seven, Inc. and ENCORE.

【Scenario Analysis】

Transition risks

We recognize that in a 2°C or lower scenario, we face regulatory risks such as carbon taxes as well as other risks such as rising raw material prices. We will take actions to reduce energy-related risks by reducing CO2 emissions from fossil fuel combustion by 46% from 2013 levels by 2030. Furthermore, we will work actively to adopt energy-saving measures and speed up fuel transition to achieve carbon neutrality by 2050. We will also work with our raw material supply chain to promote a shift to low-carbon solutions.

A 2°C or lower scenario

Risks Implications Actions
Policies and regulations Mandatory CO2 emissions reduction obligation scheme

Tightening of regulations on GHG emissions

Rising carbon pricing
・Introduction of GHG emissions regulations and carbon pricing
・Increase in cost of sales due to rising energy prices
・Switch from fossil fuels to waste-based fuels by installing two waste-to-energy boilers and shutting down one coal boiler by 2030
・Adopt and continue investments in energy-saving technologies
・Adopt renewable energy sources such as solar energy
・Expand area of forest plantations
・Promote initiatives such as the Shikokuchuo City Carbon Neutrality Council
・Increase in prices of various materials due to the introduction of carbon tax ・Choose low-GHG-emitting materials from the first stage of product development to curb cost increases
Technologies Low-carbon energy transition in goods transport ・Increase in costs due to the adoption of new technologies and other measures to lower carbon intensity of transport modes ・Continue to promote a modal shift from trucks to coastal vessels and Ro-Ro ships and a reduction in transport distances. Adopt new technologies in line with advances in autonomous vehicles, hydrogen or ammonia-powered trucks, etc.

Physical risks

In a 4°C scenario, we expect that the physical risks posed by droughts and storm surges to our major domestic sites will not differ greatly from current levels in 2030. However, we recognize an increased risk of disruptions to the distribution of goods from flooding. To reduce such risks, we will enhance our business continuity plan (BCP) and business continuity management (BCP), including for logistics, as well as promote water-saving technologies and the rate of water recycling. Furthermore, we recognize that our overseas forest resources face an increased risk of wildfires and other fire hazards due to climate change. We will diversify procurement sources, increase tree planting to secure enough quantity of raw materials, select tree species suitable for the region and climate, as well as take other measures to reduce risks.

A 4°C scenario

Risks Implications Actions
Acute Increase in frequency of typhoons and torrential rains ・Impact of natural disasters such as floods on production activities
・Damage to roads, railroads, and port facilities leading to supply chain and distribution disruptions
・Continue to enhancing BCP and BCM
Chronic Changes in precipitation and weather patterns and an increase in average temperature ・Damage to plantation forests and raw material suppliers affecting procurement stability ・Diversify suppliers for stable procurement
・Increase tree planting to secure enough quantity of raw materials
・Select, breed and develop tree species suitable for the region and climate of our plantations

Opportunities

While climate change poses risks to us, opportunities could also arise from it. As shown in our Roadmap to Achieving Carbon Neutrality (P51 and P52 of our Integrated Report in 2021*), we will actively work to reduce our dependence on fossil fuels by applying know-how and new technologies to enable us to use alternative fuels. We will also promote energy transition by installing waste-to-energy boilers, solar power generation facilities and other such facilities, as well as promote energy-saving through the adoption of new technologies. These do not only affect the Group, so we will work on them as part of our initiatives toward coexistence with local communities. In addition, by promoting the development of products that are environmentally conscious or help consumers adapt to climate change and launching such products in the market, we will work toward achieving the Three Well-beings (Hygiene, Life, and Regeneration) to embody our philosophy of “Shaping an Abundant and Affable Future for the World.”
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Opportunities Implications Actions
Products
and
services
Changes in consumer needs

Development of new products and services through technological innovation
・Increase in demand for environmentally conscious products (FSC products, plastic removal and plastic reduction products)
・Increase in demand for products that help consumers adapt to climate change (products for sweat control and emergency preparedness)
・Changes in perceptions of recycling
・Pressure to reduce industrial waste
・Increase in water efficient products to conserve water resources
(Paper & Paperboard Unit)
・Increase lineup of products to replace plastic, and lineup of packaging and functional materials
・Increase lineup of products with forest certification (e.g. FSC-certified paper)
・Develop CNF and RFID technology and increase lineup of such products
(H&PC Unit)
・Switch to plastic-free packaging materials
・Increase lineup of products that help consumers adapt to climate change, such as masks and hygiene products
・Develop and increase sales of sweat control products and products to stay cool in heat waves
・Develop products to support water conservation, e.g. products that easily disintegrate in water
Plastic recycling ・Rise in demand for plastic recycling and demand for biomass-derived reinforcement materials ・Make further progress in deploying technology to reinforce recycled plastics with CNF
Energy source Rise in use of renewable energy

Strengthening recycling and Zero Waste Emission efforts
・Fuel cost improvement by procuring waste-derived fuel that is not currently being effectively used

・Thermal recycling (energy recovery) of waste which had been simply incinerated
・Material recycling of waste paper which had been simply incinerated or sent to landfills due to high contaminant content
・Install a waste-to-energy boiler that contributes to the entire community

・Conduct research on industrial and municipal waste that is not effectively used
・Increase use of hard-to-recyle recovered paper and its contaminants (plastics)
Resource
efficiency
Recycling of raw materials

Reuse of materials
・Cost reduction by establishing a recycling system for raw materials
・Higher consumer satisfaction via compliance with environmental policies and requirements
・Establish a system for collecting and recycling used disposable diapers
・Install facility to reuse materials
・Launch environmentally conscious products

Risk Management

At the Daio Paper Group, the Sustainability Committee is in charge of the comprehensive management of all sustainability-related issues, including climate change.
Three subcommittees under the Sustainability Committee—the Climate Change Response Subcommittee, the Environmental Impact Reduction Subcommittee, and the Value Co-Creation Subcommittee—identify issues related to sustainability, including climate-related risks and opportunities, monitor domestic and overseas trends and changes in the environment surrounding our Group, and manage the progress of sustainability-related initiatives using KPIs.
The main Sustainability Committee deliberates the matters reported by the subcommittees.
The Sustainability Committee has performed a scenario analysis to identify and assess climate-related risks. First, we comprehensively extracted all possible drivers of climate change drivers (risks and opportunities) and sorted them into the following categories:
1) Transition risks (a. Policies and regulations, b. Technologies, c. Market, d. Reputation),
2) Physical risks (a. Acute, b. Chronic), and
3) Opportunities (a. Energy source, b. Market, c. Resilience, d. Products and services, e. Resource efficiency).
We also identified the items that would affect finance.
Next, we assessed the scope of impact and the degree of uncertainty (high/low) for these items. We also conducted both qualitative and quantitative assessments to determine the magnitude of the financial impact of these items. In carrying out these assessments, for transition risks, we referenced scenarios such as the SDS and the STEPS in the IEA World Energy Outlook 2021. For physical risks, we used data (carbon pricing, raw material prices, etc.) from sources such as Aqueduct provided by the WRI, “Climate Change in Japan 2020” by MEXT and JMA, Four Twenty Seven, Inc. and ENCORE.
Our climate-related risk management structure is as follows: The Environmental Impact Reduction Subcommittee and the Value Co-Creation Subcommittee are in charge of identifying and assessing climate-related risks for the Paper and Paperboard Unit and the H&PC Unit respectively. The Climate Change Response Subcommittee is in charge of that for energy, logistics and other mutual areas. Climate-related risks identified by the subcommittees are shared at joint meetings involving all three subcommittees. The results of the joint meetings are reported by the Environmental Impact Reduction Subcommittee to the Sustainability Committee which deliberates the results.
Matters deliberated by the Sustainability Committee are reported to the Board of Directors once each quarter and integrated into the operation of our Group. Similarly, the Compliance Committee, which is chaired by the Representative Director-cum-Executive Vice President in charge of the Corporate Unit (the same person who chairs the Sustainability Committee), is in charge of identifying and assessing compliance risks, such as compliance violations and misconducts, that may have a material impact on our overall management. These risks are also reported regularly to the Board of Directors and integrated into our operations.
The Sustainability Promotion Department serves as the secretariat of the Sustainability Committee, and the Legal Department serves as the secretariat of the Compliance Committee. The two departments are organized under the Corporate Planning Division. Therefore, risks are comprehensively and integratedly managed by the Corporate Planning Division.

Metrics and Targets

The Daio Paper Group Sustainability Vision, the Group’s sustainability strategy, was established in May 2021. In conjunction with this, the Group set a goal to achieve carbon neutrality by 2050, which also serves as its long-term vision on global warming countermeasures. As a milestone goal, we have set a target of reducing scope 1 and 2 CO2 emissions from fossil fuel combustion by 46% from 2013 levels by 2030.
Our Roadmap to Achieving Carbon Neutality presents our target to shut down all three coal boilers at the Mishima Mill, our main manufacturing plant, by 2050. We have set milestone targets to shut down the first boiler by 2030 and the second boiler by 2040 for a gradual transition from coal. Internally, we will carry out a fuel transition to renewable energy and low-carbon fuels (such as LNG) and undertake further energy-saving measures. To contribute to reducing CO2 emissions of the entire community, our waste-to-energy boiler will also make use of waste generated in the region for thermal recycling.
With regard to scope 3 emissions, we will work to align our business strategy of increasing the proportion of H&PC products (absorbent products such as disposable diapers) within our business portfolio with our sustainability vision, and continue to work to quantify scope 3 emissions of the entire Group. Going forward, we will set and disclose our scope 3 emissions reduction targets and work to reduce emissions throughout the supply chain.
Furthermore, we will strive to increase our carbon sequestration capacity by expanding our forest plantations. By reducing emissions and increasing carbon sequestration, we will achieve carbon neutrality by 2050.

Target (Scope 1 and 2)

Results (Scope 1 and 2)

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