Reduction of Environmental Burdens

Climate change

Climate change is beginning to have a serious impact on our lives every year. To mitigate the impact of climate change, the Nippon Paint Group will work to reduce greenhouse gas (GHG) emissions and minimize business risks caused by climate change.

Report based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations

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

Governance

The Board of Directors supervises climate-related issues by themselves, formulates the Group’s strategies, policies, and action plans for ESG initiatives at the executive level including climate-related issues, and holds the ESG Committee to evaluate and promote their progress, chaired by the Representative Executive Officer & Co-President.
The Representative Executive Officer & Co-President reports the progress of ESG initiatives, including activities on climate-related issues, to the Board of Directors at least four times a year. As an example of climate-related decision-making, in July 2020, the ESG Committee identified six materialities and decided to set climate change as a top priority within the materialities.

Strategies

We have identified climate-related risks and opportunities that are critical to the strategies of our Group, and are working to assess their financial impact. In light of the increasing interest in climate change countermeasures in recent years, there are concerns that the global warming tax will be raised, resulting in increase in operating energy costs and additional costs related to capital investment and technology development for decarbonization.
In addition, in the event of increase in the severity and frequency of floods and other events caused by extreme weather, there is a risk of sales decline due to the damage on our plants resulting in the suspension of production.
Global warming, on the other hand, is of interest to the entire society, including our Group’s major customers. While global warming entails physical and regulatory risks, it can be linked to business opportunities to expand our business by strategically addressing it. 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.

Risk management

The ESG Committee, commissioned by the Board of Directors, formulates our Group’s strategies, policies, and action plans for ESG and sustainability initiatives, including climate change issues, and evaluates and promotes their implementation. For the identification of risks, the ESG Committee and its subordinate organization, the Global Working Team1, determine the importance of risks based on evidence, scope, and business opportunities and time frame, with 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’ needs for usage and needs for product features).
Once identified and assessed, risks and opportunities and their action plans are proposed to the ESG Committee. The Committee discusses and decides relevant company- wide targets and action plans, and submits them to the Board of Directors. Our Group’s partner companies formulate business plans in line with the company-wide targets and action plans above.

Metrics and targets

We will accelerate responses to climate change by conducting activities to reduce CO₂ emissions based on the net zero targets and the carbon neutral policy 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 per unit 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). We currently calculate Scope 3 emissions from our operations in Japan and have taken steps to calculate them from our operations around the world.

Estimated financial impact of carbon tax

Our Group consumes a large amount of energy, especially in the manufacturing processes, such as cooling water required in the process of dispersing and stabilizing pigments and other raw materials. We have identified the carbon tax as the greatest risk that could directly affect our operations, and anticipate cost increase due to the rise of the carbon tax prices. Therefore, we have started considering the sourcing of renewable energy as a workaround. The carbon tax has already been introduced in some countries, and it is expected that the tax rates will be gradually raised to achieve the net zero targets of each country. According to the International Energy Agency (IEA), there is a report that carbon prices in developed countries will increase to 100 USD/tCO₂ in 2030 if a shift to decarbonization proceeds worldwide. IEA also estimates that if CO₂ emissions in 2030 remain unchanged from the 2020 levels, the impact would be around 2.5 billion yen. There are concerns that carbon prices will have an even greater impact on operating costs, given the potential increase in emissions associated with future business expansion of our Group.

Framework comparison between “TCFD” and “Our responses to CDP Climate Change 2021 Questionnaire” ^*2

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

Prevention of global warming

Our Group is committed to the prevention of global warming in Japan mainly through efforts to reduce energy use.
In FY2020, both energy use and CO₂ emissions (Scope 1 and 2) decreased from the previous fiscal year due to production adjustment and telecommuting in response to COVID-19 while per unit emissions increased. Emissions increased in FY2017 and FY2019, mainly due to the expansion of the scope of data collection.

Efforts for net zero emissions

The following are examples of our Group’s initiatives to achieve net zero CO₂ emissions.

• Replacement of air conditioning equipment and compressors with the latest energy-saving models
• Improvement of efficiency by reviewing operation methods of freezing/refrigeration units
• Adoption of LED lighting in offices and plants
• Energy conservation at manufacturing plants (improvement of paint dispersion processes, turning off unused lighting and manufacturing equipment, etc.)
• Energy conservation in offices (strict control of AC thermostat settings, turning off unused office equipment)

We will continue to consider measures such as replacement of production facilities to improve manufacturing and production efficiency. Specifically, we will consider and implement the following measures.

• Sourcing of renewable energy
• Adoption of energy-saving equipment at existing facilities
• Investment in renewable energy generation
• Estimating the financial impact of carbon pricing such as the carbon tax
• Decarbonization of new plants and the Head Office buildings
• Adoption of EVs and fuel cell vehicles (FCV)
• In addition to the above, we are considering and implementing sales of products and setting research themes that contribute to mitigation of climate change

• Coverage of data collection:
  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)

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Resources and environment

Effective use of resources such as water, energy, and raw materials, and prevention of environmental pollution are important matters for sustainable business. We will advance these efforts throughout life cycle of products.

Reduction of waste, etc. and zero emissions

In Japan, the Nippon Paint Holdings Group has adopted an integrated waste material management system that is compatible with the electronic manifest system. We make Group-wide efforts to reduce waste such as management, proper disposal, and effective use of waste generated. In FY2019, the amounts of waste generated increased due to soil emissions from unplanned construction work at some business sites, causing the recycling rate to decrease. We will work to enhance waste management in order to reduce waste generation and achieve a recycling rate of 100%.

Comprehensive management of chemical substances

Paints contain various chemical substances originating from their raw materials and some of them can be harmful to the human body or the environment. For the management of these chemical substances, the Group Product Safety Committee, which is set up under the Responsible Care Committee, holds discussions with Group companies and prepares management standards to standardize the handling of chemical substances and Comprehensive management of chemical substances
Initiatives in FY2019 prevent incorrect operation. We properly responded to domestic and international laws and regulations in FY2019, including the submission of notifications in accordance with the revised Chemical Substance Control Law and partial revision of the Cabinet Order for the Designation of Poisonous and Deleterious Substances, as well as the submission of preliminary notification about existing chemical substances in accordance with South Korea’s Act on the Registration and Evaluation of Chemicals (K-REACH).
hazardous materials and obtained materials for leakage treatment and also provide training dedicated to the prevention of the leakage of hazardous materials in an emergency drill organized in each area every year. For example, we assume a case where products have leaked on the road after an accident with a truck transporting them on a surface road and provide training for preventing expansion of the leakage and recovering the products in order to develop the ability to respond quickly to  mergency situations.

Air and water conservation

The Group complies with all laws and regulations pertaining to air pollution and water contamination through setting of voluntary reference values and other measures in Japan. In FY2019, emissions and the amount of water used increased because the scope of data collection was expanded to include the group’s subsidiaries.
We make efforts to prevent air and water pollution through periodic pollution load measurements, improvements to the efficiency of cleaning processes at production sites, and recycling the water used for these processes.
In 2020, we identified "resources and environment" as one of our materiality items. We will start exploring issues from a new global ESG perspective.

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Responsible Care

Based on the principle of actively contributing to Responsible Care activities including environmental beautification and preservation through the creation of colors and landscape and the protection of materials and resources in the business activities, the Nippon Paint Holdings Group is committed to the activities through the coordination of all organizations in the Group, including all employees, with awareness of the respective missions and responsibilities, aiming to contribute to the establishment of relationships based on mutual trust with the global community, local communities, and customers. To this end, all of our business activities are required to follow the rules below:

1. We will endeavor to preserve the global environment and protect the ecosystem while striving to conserve energy and other resources in the course of all business activities.
2. We will promote the development of products with less environmental impact and technologies that help the products reduce such impact and will consider the impact of our products on the environment, safety, and health at all stages of their lifecycle from development to disposal.
3. We will work to reduce the environmental impact of our operations and ensure security and disaster prevention while striving to ensure the health and safety of local residents and employees.

PLAN Establish the objectives and goals of RC	RC Committee
Do Setting of RC objectives/targets	Nippon Paint Holdings Group (in Japan) Nippon Paint Holdings (NPHD) Nippon Paint Automotive Coatings (NPAU) Nippon Paint Industrial Coatings (NPIU) Nippon Paint (NPTU) Nippon Paint Surf Chemicals (NPSU) Nippon Paint Marine Coatings (NPMC) Nippe Trading (NTJ)
Check Inspection and corrective/ preventive actions	External review for ISO 14001: SGS (management system certification body accredited by JB) Internal RC audit: In-house assessment by internal RC auditors
Action Management review	RC Committee → President

Environmental and work safety management

Nippon Paint Holdings Group received ISO 14001 multi-certification for seven domestic operating companies
and their subsidiaries. In addition, we provide active support to overseas Group companies for their health and
safety activities. In Asia, we provide support to enable Group companies to establish improvement activities. In
Europe and the Americas as well, we conduct audits and provide support for corrective actions on an as-needed
basis in cooperation with domestic operating companies.