Environment - Climate change

The Group believes that helping mitigate global environmental impacts through the effective use of resources, such as water, energy, and raw materials, and the prevention of environmental pollution are indispensable actions to ensure the sustainability of companies. With this belief, we will advance various initiatives and also build a sustainable business by actively deploying innovative technologies.

Climate change

climate change

Policy on climate change

Climate change is causing serious impacts to our lives in recent years. Recognizing that climate change is a critical social issue that must be addressed sincerely, the Nippon Paint Group has established a global policy on climate change and energy in order for the entire Group to mitigate and adapt to its impacts.

-Nippon Paint Group Global Policy-

We proactively reduce the intensity of energy consumption and increase renewable energy to meet global Net Zero carbon requirements.

Pursuant to this global policy, the Group is now working to rein in its greenhouse gas (GHG) emissions and minimize business risks caused by the progression of climate change. The reduction of energy used in the paint manufacturing process and proactive use of renewable energy will not only help to combat climate change by controlling GHG emissions, but also make a difference in the issue of energy resource depletion.

Report based on the TCFD recommendations

In September 2021, the Nippon Paint Group expressed its support for the final report of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. For Maximization of Shareholder Value (MSV), we are working to enhance climate change-related measures and information disclosure.

Governance

The Nippon Paint Group launched a new three-year Medium-Term Plan in fiscal 2021. To achieve the revenue and operating profit targets laid out in the plan for fiscal 2023, we are promoting business following the two axes of regional and business strategy and sustainability strategy. Under the latter, climate change is positioned as a top priority item of materiality, and the Board of Directors supervises climate-related issues. At the execution level, the Global Team with members from our key partner companies around the world and works directly under the Directors, Representative Executive Officers & Co-Presidents (the Co-Presidents) formulates the Group’s strategies, policies, and action plans for sustainability initiatives for each item of materiality including climate-related issues, and directly reports the progress to the Co-Presidents. The Co-Presidents report the progress of sustainability initiatives, including climate change actions, to the Board of Directors whenever necessary.

Strategies

We have identified climate-related risks and opportunities that are critical to the Group’s strategies and are working to assess their financial impacts. In light of the increasing interest in climate change countermeasures in recent years, there are concerns that global warming taxes will be hiked, resulting in higher energy costs and additional costs related to capital investment and technology development for decarbonization.
In addition, in the event of the greater severity and frequency of floods and other events caused by extreme weather, there is a risk that sales could decline due to damages to our plants that result in the suspension of production.
Global warming is of interest to society as a whole, including the Group’s major customers. While it entails physical and regulatory risks, global warming can be linked to opportunities to expand our business by addressing its impacts strategically.
Specifically, such opportunities include expanding sales of products that improve ship fuel efficiency, help reduce CO2 emissions at automobile manufacturing plants, and mitigate the rise of road surface temperature.
For information about R&D expenses related to climate change, see here.

Examples of strategies for climate change risks and opportunities

Estimated financial impact of carbon taxes

The Group consumes a large amount of energy, especially in the manufacturing processes. This includes cooling water required in the process of dispersing and stabilizing pigments and other raw materials. We have identified carbon taxes as the greatest risk that could directly affect our operations and anticipate cost increases due to higher carbon prices. Therefore, we have started considering the sourcing of renewable energy as a workaround. Carbon taxes have already been introduced in some countries and it is expected that the tax rates will be hiked gradually to achieve the net zero targets of each country.
In terms of climate-related scenarios, the Group has conducted reviews on the 2-degree and 4-degree scenarios.
According to a report by the International Energy Agency (IEA), carbon prices in developed countries will increase to 100 USD/t-CO2 in 2030 if a shift to decarbonization proceeds worldwide (if the world achieves the 2-degree scenario). If CO2 emissions in 2030 remain unchanged from 2020 levels, the impact on the Group is estimated to be around 2.5 billion yen. Assuming the 4-degree scenario of the IEA where current policies for decarbonization go unchanged, we will continue to incur certain costs if we do not make progress with lowering our Scope 1 and Scope 2 emissions in Japan. There are concerns that carbon prices will have an even greater impact on operating costs, given the potential increase in emissions associated with the Group's future business expansion.

Lowering CO2 emissions of the automotive coating process

The auto industry is expanding its efforts toward decarbonization. A rising number of our main business partners are actively sharing their climate change countermeasures externally, and our environmentally-friendly automotive coatings address the decarbonization needs of these main business partners. In addition, looking at the long term, including internationally, the automotive industry should see a slower growth rate than before due to car sharing and other innovations, but the growth rate of new automobile sales is expected to increase at 2% per annum until 2030, which should keep production of new automobiles rising going forward. In recent years, our main business partners are speeding up initiatives for carbon neutrality or CO2 reduction throughout the entire automobile life cycle, giving rise to initiatives and plans focused on the environment. With each passing year there is growing demand to reduce CO2 emissions during paint application because this process has a large carbon footprint within the overall automobile production process. Coatings and electro-deposition used during the automobile manufacturing process have a high baking temperature, requiring large amounts of energy to be consumed; thus, paint that can be applied in a shorter period of time than conventional ones is now in demand. Going forward, these products are expected to see increased sales. Wet-on-wet paint developed by Nippon Paint shorten the baking process for the second coat, which reduces CO2 emissions during paint application compared to conventional paint.

Lowering CO2 emissions in anti-fouling paint for ship bottoms

LF-Sea and A-LF-Sea, both fuel-saving anti-fouling paint for ship bottoms that help lower CO2 emissions, can improve a ship’s fuel efficiency by 4% to 10% by reducing frictional resistance. In addition to improved fuel efficiency, we developed FASTAR, a new anti-fouling paint with low VOCs and low solubility, which was launched in 2021. Considering the more active efforts in the marine shipping business to reduce environmental impacts including lowering CO2 emission, we are aiming to increase sales of anti-fouling paint that are proven to improve ship fuel efficiency.
The International Maritime Organization (IMO) has established a roadmap for reducing CO2 emissions from the marine transportation sector. According to this roadmap, the IMO aims to lower CO2 emissions from international marine transportation by 50% compared to 2008 by 2050 and by 40% compared to 2008 by 2030. The reduction target for 2030 is expected to be achieved through energy-efficient technologies and improved operational efficiency. Our fuel-saving anti-fouling paint for ship bottoms is an effective energy-efficient technology, and going forward we anticipate sales for these paint will increase steadily.
We are working to increase sales of environmentally-friendly products and sustainable products, including fuel-saving anti-fouling paint for ship bottoms, having established KPI. Demand has risen for reducing CO2, which is the factor behind global warming, while heavy oil prices have increased since 2005, resulting in recommendations for a shift from Bunker C to lower sulfur content Bunker A following tighter restrictions on SOx. As a result, marine shipping companies have been concerned about the soaring cost of fuel. Given this, Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) announced guidelines for reducing CO2 emissions from international marine transportation, which lead us to begin development of anti-fouling paint that helps lower fuel consumption. This resulted in the introduction of LF-Sea as a biomimetics product with viscosity and smoothness inspired from the skin (covered in mucous membrane) of marine organisms (tuna).
Studies have confirmed that LF-Sea lowers ships'fuel consumption by 4%. However, we began development of A-LF-Sea following requests from customers for even greater fuel savings and after receiving financial support from MLIT as part of the program called Support for Technology Development from Marine Vessels for Curtailing CO2. During the development of A-LF-Sea, which is an improved version of LF-Sea, we conducted joint R&D through a national project involving three companies; namely, Nippon Paint (at the time; currently, Nippon Paint Holdings), Nippon Paint Marine Coatings and Mitsui O.S.K. Lines. R&D received financial support from MLIT and covered the joint research topic of "R&D on greenhouse gas reducing technologies in international marine transportation" by Nippon Kaiji Kyokai (ClassNK). Studies have confirmed that the paint lowered fuel consumption 10% by improving LF-Sea’s hydrogel technology, reducing frictional resistance even more and combining it with the viscosity control technology of an undercoat. Since launching LF-Sea in 2008, both LF-Sea and A-LF-Sea have been used on more than 3,500 ships as of December 2020.

Controlling the increase in road surface temperature with solar heat reflective paint for asphalt road surfaces

Solar heat reflective paint for asphalt roads reflects the sun’s heat to control the increase in surface temperature. ATTSU-9® heat shielding coatings for asphalt road surfaces reflects the sun’s infra-red rays to control increases in road surface temperature, helping to mitigate the heat island effect in urban areas and reduce the use of energy to power air conditioners. Application of ATTSU-9 ROAD® to an asphalt road surface has been proven to lower the surface temperature by between 11 and 14 degrees Celsius (during the afternoon in the summer time).

In Japan, this heat island effect driven by global warming in recent years has resulted in significant temperature increases in urban areas. It has been reported that the temperature increase in August in Tokyo over the 100-year period since temperature statistics were first recorded in 1901 was 2.4 degrees Celsius. As a countermeasure against urban heat island including in Tokyo, the national government has formulated “guidelines on urban planning for mitigating heat island”, which have become an important guideline for local governments' Low Carbon City Development Guidance pursuant to the Low Carbon City Act. These guidelines cite primarily three causes of heat island; one of which is artificial ground surface coatings. In other words, heat is accumulated in road surfaces such as asphalt andvconcrete, causing the temperature of urban areas to rise. Highly reflective pavement is effective as a countermeasure, which also has a CO2-mitigating effect by controlling heat islands. Consequently, we believe that sales of ATTSU-9 ROAD®, which produces a highly reflective asphalt pavement, will grow not only for local governments, but also companies that endorse its use as a way of mitigating environmental impacts. Currently, net sales of ATTSU-9 ROAD® total around 100 million yen, but we have calculated latent market to be worth 750 million yen when multiplying existing sales by the road pavement coatings market growth rate of 7.5 times expected to occur up to 2030.
We aim to increase sales of environmentally-friendly products and sustainable products, including heat shielding coatings for asphalt road surfaces, having established KPI. We have explored expanding application for heat shielding roof coatings under the company-wide Heat Shielding Project launched in 2006.
We needed to maintain the heat shielding performance of these roof coatings while improving adherence to asphalt surfaces and increasing durability concerns over constant wear and tear from contact with automobile tires. Tokyo Metropolitan Government had wanted to lower the road surface temperature by 10 degrees Celsius in the summer time to counteract the heat island effect. From around 2009, Tokyo Metropolitan Government began using MMA coatings as a heat shielding coatings for roads to counteract urban heat islands. From around 2014, the problem of paint peeling began to emerge (our urethane/urea coatings do not peel). In addition, MMA coatings have a strong odor, which became a problem unto itself. In response, ATTSU-9 ROAD®, a urethane/urea coating developed by Nippon Paint, reduces peeling while also offering slip resistance, wear resistance, no odor, and low VOC. The results of a Tokyo Metropolitan Government survey found that our urea coatings rarely if ever experienced peeling. As a result, Tokyo Metropolitan Government revised its requirements to address the peeling issue, selecting urethane/urea coatings (same as our ATTSU-9 ROAD®) as the principal solution. This accelerated their introduction and earned ATTSU-9 ROAD® a high market share.

Risk management

The Global Team that works directly under the Co-Presidents identifies and assesses risks, including their importance, based on the criteria of factors directly related to our operations (the amount of raw materials used, energy, water and CO2 in the manufacturing processes) and external factors (users’ application-based needs and product feature needs).

Once identified and assessed, the Global Team proposes risks and opportunities and their action plans to the Co-Presidents. The Co-Presidents set targets and propose the targets to the Board of Directors. These targets, after approval by the Board of Directors, are set as group-level targets. The Group’s partner companies formulate business plans in line with these group-level targets and action plans.
For integration of climate change risks in enterprise risk management, see Risk Management.

Metrics and targets

We will accelerate our response to climate change by conducting activities to reduce CO2 emissions based on the net zero targets and the carbon neutral policies of the government of each country and contributing to net zero in our operating regions around the world. As concrete measures, we will focus on reducing emissions intensity in emerging countries, where markets are expanding, by introducing renewable energy and replacing equipment with energy-saving and electrified models. We will also consider renewable energy introduction targets (power generation targets). In 2021, the Group established a target to achieve net zero CO2 emissions with 2020 as the base year. We currently calculate Scope 3 emissions from our operations in Japan and have taken steps to calculate them from our operations around the world.

In Japan, our energy usage and CO2 emissions (Scope 1 and Scope 2) in fiscal 2020 declined year over year due to production adjustments and telecommuting instituted to address the spread of the COVID-19 pandemic, but CO2 emissions intensity increased. CO2 emissions increased in fiscal 2017 and fiscal 2019 due to the expanded reporting boundary.
Emissions of other greenhouse gases have not been calculated because of their small amounts*.
* None of our production processes emit five of the six greenhouse effect gases, excluding CO2, namely methane, nitrous oxide, hydrofluorocarbons (HFC), perfluorocarbons (PFC) and sulfur hexafluoride (SF6), in an amount requiring measurement pursuant to regulations.
Regarding F-gases, we perform appropriate maintenance to prevent their leakage from freezing/refrigeration units. Based on the above, we consider these emissions to be effectively zero.

* Reporting boundary:
FY2016 to FY2018: Nippon Paint Automotive Coatings (NPAC), Nippon Paint Industrial Coatings (NPIU), Nippon Paint (NPTU), Nippon Paint Surf Chemicals (NPSU), Nippon Paint Marine Coatings (NPMC) (April-December for FY2016)
FY2019 to FY2020: NPAC, NPIU, NPTU, NPSU, NPMC, AS Paint (ASP), AS Resin (ASR), and Nippon Paint Anti-Corrosive Coatings (NAC)

In Japan, we have established a short-term target of reducing intensity of energy usage / CO2 emissions per year (Scope 1 and Scope 2) by 1% through Responsible Care activities. Toward this end, we are promoting activities to reduce energy usage and CO2 emissions.

Targets and results of Responsible Care activities

Targets for 2020Results in 2020Evaluation
of 2020*
Targets for 2021
Initiatives to prevent global warming
  • Plan and implement activities to improve CO2 emissions intensity and energy consumption intensity by at least 1% on average per year
  • Plan and implement activities to improve energy usage intensity related to cargo transport by at least 1% on average per year
(Both compared to 2019 as base year)
  • Not achieved by some companies as a result of decreased production volume due to COVID-19.
  • Worked to establish a data collection method for energy consumption in cargo transportation.
++Initiatives to prevent global warming
  • Plan and implement activities to reduce total CO2 emissions to below the actual results in FY2019
  • Plan and implement activities to reduce total CO2 emissions related to cargo transport to below the actual results in FY2019

* Evaluation standard: Domestic average achievement rate of +++: at least 80% or above, ++: at least 50%, +: less than 50%
Bold text for 2021 reflects changes from 2020

Framework comparison between TCFD and our responses to CDP Climate Change 2021 Questionnaire*


GovernanceStrategiesRisk managementMetrics and targets

Disclose the organization’s governance around climate-related risks and opportunities.Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
Recommended disclosure itemsDescribe the board's oversight of climate-related risks and opportunities.Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.Describe the organization’s processes for identifying and assessing climate-related risks.Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
C1.1bC2.1a, C2.2a, C2.3, C2.3a, C2.4, C2.4aC2.1, C2.2, C2.2aC4.2
Describe management’s role in assessing and managing climate-related risks and opportunities.Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.Describe the organization’s processes for managing climate-related risks.Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
C1.2, C1.2aC2.3a, C2.4a, C3.1, C3.3, C3.4C2.1, C2.2C6.1, C6.3, C6.5

Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.
C3.2C2.1, C2.2C4.1, C4.1b, C4.2

* Items covered in the CDP questionnaire that correspond to the recommended disclosure items in the TCFD recommendations are highlighted in gray color.

In addition to the above, we provide detailed explanations through responses to the CDP climate change questionnaire.

We respond to the questionnaires administered by CDP, an international NGO. In fiscal 2021, we responded to the climate change questionnaire and water security questionnaire.
See here for our responses to the CDP climate change questionnaire.

Efforts for net zero emissions

Identify specific issues and measures in each region toward net zero target (Released March 16, 2022)

Japan
  • Agreed Japan targets of 37% carbon* reduction by 2030 from 2019 levels, plus net zero carbon* by 2050
  • Purchase renewable energy in Japan. (100% renewable energy at Osaka headquarters in FY2021, approx. 7% of electricity used in Japan in FY2022. Afterwards, increase gradually
  • Consider energy-saving and use of renewable energy to reduce the impact of carbon taxes
  • Implement energy-saving (ex: heavy oil to LNG)
NIPSEA Group
(Asia)
  • Formulated NIPSEA Green Plan 1.0, the movement to advance the agenda on sustainable development – Profit, People, Environment
  • Carbon intensity (kgCO2/ton) reduced by 15% in 2021 mainly by the new solar projects and less energy consumption
  • Installed solar panel in several plants in FY2021 and saved cost. Other plants follow
  • Implemented the green production including batch cycle time reduction, maximization of batch size
DuluxGroup
(Oceania)
  • Achieved a 5% reduction in energy consumption and 5% reduction in carbon* emissions, our lowest levels on record
  • Agreed DGL targets of 50% renewable energy consumption and 50% carbon* reduction by 2030, plus net zero carbon* by 2050
  • Commenced development of detailed action plans to achieve the 2030 targets, with plans to be finalised early 2022
  • Commenced pilot program of specialist energy efficiency studies at 2 factories to identify reduction opportunities
Dunn-Edwards
(U.S.)
  • Discussed scope, financials, and timeline for new corporate office to operate on generated renewable energy
  • Committed to reducing energy usage at new corporate office through efficient lighting, EnergyStarTM equipment, and enhanced systems
  • Committed to providing electric vehicle charging resources to select facilities within the next 4 years
  • Committed to adopting software by Q2 2022 to track company-wide Scope 1, 2, and 3 emissions in order to achieve true metrics for net zero carbon* by 2050

*Scope1 & 2

We have not yet introduced internal carbon pricing at present, but we are now gathering information to consider its introduction in the future.

Other initiatives concerning climate change (mitigation and adaptation)

Participation in the Osaka Zero Carbon Foundation

We have decided to participate in the Osaka Zero Carbon Foundation made up of administrative organizations under Osaka Prefectural Government and private-sector companies. The Foundation was established to contribute to the realization of sustainable economy and society in harmony with the environment by carrying out a wide range of activities for the SDGs and decarbonization through public-private collaboration.
The Foundation includes Osaka Prefectural Government and local governments in the prefecture along with groups and companies involved in manufacturing, consulting, real estate, healthcare/welfare with a head office or business office in Osaka Prefecture. The Foundation is working to resolve social issues through collaboration with various stakeholders in promoting a sustainable, decarbonized society.

Initiatives Nippon Paint is involved in

We participated in the Keidanren Voluntary Action Plan on the Environment from fiscal 1997 to fiscal 2012 as a member of the chemical industry through the Japan Chemical Industry Association. During this time, we continued to promote energy conservation and activities that mitigated CO2 emissions. From fiscal 2013, we began participating in Keidanren’s Commitment to a Low Carbon Society. Since then, we have been promoting global warming countermeasures following the four pillars of: (a)curtail CO2 emissions from domestic business operations; (b) strengthened co-operation with lead actors for reducing CO2 emissions across the entire supply chain through the spread of low-carbon products and technologies; (c) contributions on the international level, including the promotion of technology transfers to developing countries of Japan’s chemical products and processes; and (d) the development of innovative technologies using medium- to long-term technical development focused on commercialization in 2020 and beyond.

Nippon Paint endorses the targets and initiatives of the Japan Chemical Industry Association and we are cooperating to propel initiatives forward as a company driving the paint industry.
In addition, through our membership in the Japan Chemical Industry Association, we confirm whether policies align with our strategies. Our main direct and indirect activities with external parties are reported to the ESG Committee on a quarterly basis to verify whether they align with our climate change strategy. To ensure consistency of these initiatives, the ESG Promotion Department, which is the secretariat for the ESG Committee, regularly checks whether responses align with our strategies. Material matters are delegated to subcommittees and the global team, with these matters taken up as issues of the ESG Committee to check whether they align with our strategies and policies. In the event consistency is found to be lacking, we hold discussions again with related parties inside the company and stakeholders involved in the policy, repeating this process until consistency is achieved. Matters requiring approval are discussed by the ESG Committee and then approved by the Board of Directors to ensure they align with strategies and policies.

Environment - Climate change initiatives

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