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Basic Concept
Governance
Strategy
Risk Management
Metrics and Targets
Information Disclosure in the EU

Basic Concept

The IDEC Group has been conscious of eco-friendliness since its foundation in 1945 through it's “Save all” and “Pursuit of saving” by words. We have formulated “The IDEC Way” in 2019 and have since been maintained a management focus on environmental issues and reduction of environmental impact through the realization of safety, ANSHIN, and well-being. Responding to climate change is a major societal challenge globally.

We identify responding to climate change as one of our priority issues. Having set the Vision for 2030 in the Materiality, we are promoting various initiatives aimed at achieving a sustainable society.

The IDEC Group has disclosed climate-related information based on the TCFD (Task Force on Climate-related Financial Disclosures) since FY2022. This year, we disclose climate-related information based on the IFRS (International Financial Reporting Standards) S2 that succeeds the TCFD recommendations.

Governance

The Environmental Strategy Committee, a specialist committee of the Sustainability Committee chaired by the CEO, plays a key role in our efforts to disclose climate-related financial information.

The Environmental Strategy Committee is composed of employees from various departments and meets monthly under direction by the Senior Executive Officer in charge of the Environment. Decisions made by the Environmental Strategy Committee are discussed by the Sustainability Committee, reported to the Top Management Meeting for approval, then reported to the Board of Directors for final approval.

Progress on the goals set in the medium-term management plan started in 2022 are reviewed at bimonthly meetings, and response measures are discussed if things are not progressing as planned. In FY2024, we also introduced a Performance Share Unit (PSU) system, as a medium-term incentive, under which restricted common shares equivalent to up to 10% of compensation are allocated to directors and executive officers. Non-financial indicators used in the calculation of PSUs include CO2 reduction ratio.

Framework of the environmental governance

Strategy

Climate resilience

According to the International Energy Agency’s World Energy Outlook 2023 (WEO2023), while the global energy situation has remained unstable since 2020, investment in clean energy has risen by 40% since 2020, and the share of electric vehicles in total global vehicle sales has increased five times in three years, from one in 25 vehicles sold in 2020 to one in 5 vehicles in 2023.

WEO2023 also describes that the transition to a sustainable energy system is progressing, although the path to a 1.5°C scenario will be difficult. It is recognized that the emergence of new clean energy sources, led by PV solar power generation and electric vehicles, will be key to achieving 1.5°C.
Based on these conditions, the IDEC Group’s selection scenarios for FY2024 are the same as in FY2023, and the transition risk scenarios are the WEO2023 STEPS (2.6°C scenario) and NZE (1.5°C scenario). For our physical risk scenarios, we adopt RCP2.6 (2°C scenario) and RCP8.5 (4°C scenario) of the IPCC Fifth Assessment Report.

Energy-related CO2 emissions
(2010-2050)

Source：WEO2023 issued by IEA

Strategy

The IDEC Group considers environmental strategy to be an important part of its business strategy, and its transfer plan is reflected in the medium-term management plan. Specifically, we have set metrics and targets for reducing the amount of CO2 emissions to achieve carbon neutrality, and established sustainability KPIs under the medium-term management plan, together with other environmental targets.

As part of our value chain responses, we have established CSR Procurement Guidelines and Green Procurement Guidelines, and we continue to request the cooperation of suppliers in reducing our environmental impact every year.

In terms of our business, we are working systematically to improve the business contribution of environment-related business activities, such as the development of eco-friendly products, and the environmental energy business. We therefore consider the analysis of risks and opportunities to be an important process in incorporating environmental strategies into our business strategies. In considering the climate-related risks and opportunities, the Environmental Strategy Committee identifies items that could reasonably be expected to impact the company’s prospects, based on factors that could be transition opportunities for the company.

Next, we consider and compile a list of the current and predicted future impacts of each specified item on the IDEC Group’s business model, along with future responses. Moreover, we calculate the potential impact on our business, the cost of responding to risks, and the costs of realizing opportunities. The contents of these considerations will be reflected in our medium- to long-term management plans in stages and incorporated into more specific action plans.

As for the development of eco-friendly products, one of our core environment-related business activities, we will further spread the necessity and importance of such products in relation to business contribution, as well as using transition opportunities to create business opportunities for each department more than ever.

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.

Category

Number

Item

Potential financial impact

Responses

Transition

risk

・Transfer costs in response to price increases by continuously mutual understanding with suppliers and customers.
・Reduce manufacturing costs in anticipation of medium to long- term increases in the cost of raw materials and reduce costs through planned product redesign and introduction of alternative parts and materials.

・Position environmental strategy as one of the priority items in the medium- to long-term plan, set materiality KPIs relating to the　environment, such as increasing the cumulative ratio of enhanced eco-friendly products among new products, and check progress.
・Promote to develop technology on a continuing basis relating to consideration and introduction of eco-friendly packing materials　and components.
・Engage in regular dialogues with investors and disclose appropriate information through IFRS and CDP, etc.

Delay relative to competitors in the transition of existing and new products to low-emission/low-carbon technologies

・Systematically incorporate technologies that we do not have and integrate them with our core technologies through long-term collaboration with other companies.
・Obtain and respond to regulatory information appropriately
・Expand operating temperature products with a range of temperatures that can be used in warm and cold regions.

Current

regulations

・Reduce the impact of rising energy purchase prices through the planned introduction of self-consuming renewable energy.
・Plan and implement planned upgrades to energy-saving equipment.
・Reduce indirect costs through efforts to save energy and improve the operating rate of factories.
・Drive decarbonization activities through the introduction of ICP.

Physical

Risk

Urgent/
chronic

・Enhance BCP measures to enforce the company’s resilience.
・Assess and review supply chain risks.
・Prepare hazard maps of manufacturing sites and find potential risks.
・Formulate recovery plans for each site and develop manuals for employee work procedures.
・Change manufacturing sites to be multi-skilled for flagship products.
・Ensure that employees affected by disasters are fully aware of how to confirm their safety as soon as possible.

Category

Number

Item

Potential financial impact

Responses

Resource
efficiency

・Accelerate technology innovation of flagship products based on environmental aspects as well.
・Applied research of easy recyclable materials for products.
・Develop products based on the assumption of recycling.
・Make unconstrained efforts to reduce packaging wastes.
・Expand environment-related services business.
・Secure a first-hand advantage by accelerating investment in development.
・Provide low-emission products and services throughout the life cycle, based on the concept of developing eco-friendly product we have currently addressed.

・Breakaway from prolongation of our conventional technologies.
・Enhance software and systems-related technologies by promoting M&A and business collaborations, etc. as well as adoption and development of human resources.
・Promote the incorporation of new technologies to respond to diverse needs through partnerships and collaborations with other companies.
・Foster a corporate culture of well-being.
・Develop products utilizing HMI and sensing technologies and propose solutions through systematization and packaging.
・Develop new products to meet the demands for market well-being and promote proposals for solutions.
・Promote safety, ANSHIN, and well-being to the world.
・Enhance lineup of environmental tolerance products.

Products
and
services

・Develop environment-related businesses such as solar power generation and fine bubble solutions for new markets.
・Innovate our environmental business, using the response as an opportunity.
・Enter into new markets using our new business as a door opener.
・Develop products utilizing HMI and sensing technology, enhance product lineup, and propose problem-solving solutions based on the needs of new markets.
・Adapt IDEC products to the power specific specifications r by new energy sources.

Risk Management

For each of the climate-related risks and opportunities identified by the Environmental Strategy Committee, we considered the likelihood of occurring, 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.

As for the climate-related risks, led by the Environmental Strategy Committee, we identified risks and opportunities that are expected to have a reasonable impact on the IDEC Group's outlook, while referring to the risk and opportunity items in the CDP questionnaire, which is one of the global standards for environmental information disclosure. While referring to and taking into consideration the applicability of the industry-specific identification topics (volume 49-electrical and electronic equipment industry) defined in the "Industry-based Guidance on implementing
Climate-related Disclosures", we identified transition risks/physical risks, identified the impact of climate-related risk opportunities that are reasonably expected to occur in either the short or long term, identified potential financial impacts, and defined the period.

Risk items
①Increase in material costs
➁Growing environmental awareness among customers and investors
➂Delay relative to competitors in the transition of existing and new products to low-emission/low-carbon technologies
➃Tendency of carbon pricing
⑤Natural disasters

Opportunity items
①Demand for low-emission products and a diverse variety of new products and services through R&D and technological innovation/Shifting consumer preference
➁Shift to alternative materials /diversification / new technologies
➂Transition to distributed energy generation and new market entry/Participate in the renewable energy program and adapt to energy-saving measures.

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Metrics and Targets

In terms of CO2 emission reductions, in our medium-term management plan we have set the targets of reducing CO2 emissions by 24% in Scope 1 and 2 by FY2025 and 50% by FY2031 (compared to FY2020. Internal Carbon Pricing (ICP) was introduced in FY2023 and is priced at 10,000 yen/ton in FY2025. At present, the impact of ICP on environmental investment decision-making is not yet large enough, but the Environmental Strategy Committee is working to raise awareness within the Group by introducing model cases of ICP utilization.

As for the CO2 emissions of FY2024, the total of Scope1 and 2 decreased from that of FY2023, and we have been able to reduce it continuously since FY2023 compared to FY2020.
The decrease in sales of FY2024 compared to the previous year has had a significant impact on the electricity consumption of factories. However, in addition to the effect of the introduction of CO2-free electricity, the continuous promotion of improving operating ratios at each factory has had a positive effect on CO2 reduction. As a result, regardless of the impact on sales, the electricity consumption per unit of sales is slightly lower than previous year. However, Return on Carbon (ROC), which is an indicator of how efficiently profits are earned with fewer amount of CO2 emissions, decreased from the previous year due to the decrease in operating income.

As for the Scope 3, the main items that account for the majority of it are Categories 1 and 11, which remained the same as the previous year, but the amount decreased compared to the previous year, mainly due to the decrease in sales.

Information disclosure in the EU (APEM, France)

APEM—which operates mainly in EMEA as the IDEC Group—has established a team to work on the requirements of the Corporate Sustainability Reporting Directive (CSRD) and is preparing for the disclosure in 2026. APEM has responded to EcoVadis, which the IDEC Group has addressed since FY2023, as a non-consolidated Group company in Europe, and is taking various measures to establish double materiality that will be required in the future.