Approach to climate change

Group policy

Climate change is impacting our business, people, and communities. We will work to reduce our greenhouse gas emissions, manage climate-related risks, and capture climate-related opportunities.

Pursuant to this group 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, 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

Nippon Paint Group has shifted to an　autonomous management structure based on Asset Assembler model with a new sustainability structure launched in 2022 designed to enhance sustainability initiatives with business activities, rather than initiatives led by the headquarters. We have set up five Global Teams based on Materiality including climate change directly under the Directors, Representative Executive Officers & Co-Presidents, in order to implement sustainability strategy aligned across the Group globally. The Global Teams will directly report to the Co-Presidents their progress and make suggestions on actions related to climate change. Then the Co-Presidents will report the information obtained from the Global Teams to the Board of Directors as necessary. In this manner, the Board of Directors oversees the Group’s sustainability actions.

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 foods 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.
In the meantime, we are considering taking actions that lead directly to businesses, such as entering new markets by developing products that contribute to reducing CO2 emissions using the Group’s technologies.
We are incorporating our analysis of these climate-related risks and opportunities in formulating the medium- and long-term growth strategy of the Group.
Although our energy intensity is not significant compared to many other manufacturing businesses, our group scale means we still collectively consume a considerable amount of energy and therefore seek to actively reduce our energy consumption. 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), we will continue to incur certain costs both in a scenario where we will shift to a decarbonization process worldwide (the 2-degree scenario) and a scenario where the current policies for decarbonization go unchanged globally (the 4-degree scenario), unless we make progress with lowering our CO2 emissions assuming our CO2 emissions remain unchanged from 2020 levels. 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.
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 instance, ATTSU-9 ROAD®, which produces a highly reflective asphalt pavement, is expected to contribute to reducing CO2 emissions by counteracting the heat island effect. We have estimated the financial impacts of road pavement coatings, including degree of contribution to earnings, based on the market growth forecast for these coatings.

Climate-related scenario analysis

*1 Based on the net zero scenario (IEA), the carbon price (impact on our Group) is estimated to be JPY4.3 billion in 2030 and JPY7.4 billion in 2040 (Assumptions: carbon price of USD130 for Advanced economies and USD90 for Selected emerging market and developing economies in 2030; and USD205 for Advanced economies and USD160 for Selected emerging market and developing economies in 2040. The exchange rate is the actual rate for FY2022 (USD/JPY =132.1).) Our Group plans to avoid this impact through emission reductions and other initiatives.
*2 In the automotive coatings business of Japan Group, we expect sales

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. Group partner companies formulate business plans in line with these group-level targets and action plans.

See here for details on the integration of climate change risk management to comprehensive company-wide risk management

Comprehensive company-wide climate change 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.
By taking these actions, our Japan Group, DuluxGroup in Australia, and Dunn-Edwards in the U.S. will aim to achieve Net Zero by 2050 and NIPSEA Group by 2060.
We currently calculate Scope 3 emissions from our operations in Japan and DuluxGroup in Australia, and have taken steps to expand the coverage to our global operations.

Ambition & improvement

Each PCG has continued to develop their individual goals and improvement plans for climate-related impacts, risks, and opportunities during the year. The current targets and plan progress for each PCG are summarized in the following table.

Targets by Partner Company Group

Performance

Total greenhouse gas emissions (Scope 1 and 2) and total energy consumption increased during the year, as did the consumption of renewable energy and electricity. Significant contributors to these performance changes were the European acquisitions of Cromology and JUB within DuluxGroup, while other individual factors within each PCG also contributed.
Greenhouse gas emissions (Scope 1 and 2) increased 14% to 55.6 kilograms per tonne (kg/t). The overall increase was driven by the Cromology acquisition, inclusion of previously unreported sites in NIPSEA Group, reduced production in DuluxGroup Pacific due to a major flooding event at the Dulux Rocklea plant, together with changes in production mix across different business units.
Total energy consumption increased 27% to 0.51 kilograms per tonne (kg/t), renewable energy consumption increased 4.1 pp to 4.6% of total energy consumption and renewable electricity consumption increased 9.3 pp to 10.3% of total electricity consumption. The increase in total energy consumption was driven by the same factors that impacted Scope 1 and 2 emissions performance, while the increase in renewables was driven by renewable power purchase in Cromology and Japan Group, together with solar installations in NIPSEA China, DuluxGroup Australia, and JUB Serbia.

Greenhouse gas emissions — Scope 3 by category (t-CO2)

DuluxGroup (Pacific)+ Japan Group / 2022 A: Category 1. Purchased goods and services 1,742,146 B: Category 2. Capital goods 129,501 C: Category 3. Fuel-and-energy-related activities 45,755 D: Category 4. Upstream transportation and distribution 55,717 E: Category 5. Waste generated in operations 21,824 F: Category 6. Business travel 4,083 G: Category 7. Employee commuting 18,258 H: Category 9. Downstream transportation and distribution 115,722 I: Category 11. Use of sold products 8,706 J: Category 12. End-of-life treatment of sold products 60,763 K: Category 13. Downstream leased assets） 9,487 L: Category 15. Investments 16,313 M: Other 1,385 * Emissions from Categories 8,10,14 were calculated as zero because no activity related to these categories was conducted.

2022 performance and changes versus the prior year for individual PCGs are summarized in the following table, together with the key performance drivers for the changes.

Performance by Partner Company Group (PCG)

*1 Businesses were acquired in 2022, hence no prior year comparison is available for performance metrics.
*2 Excludes JUB

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

View more

View more