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
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.
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
Risks
Opportunities
1.5°C
Regulatory changes and impacts, such as
carbon pricing and greenhouse gas
emission reduction targets. *1
Market growth for sustainable products
(e.g. low-carbon, improved performance).*2
Increased supplier costs from climate
adaptation and decarbonization actions.
Development of new products and
services to capture climate-related
business opportunities.
Changes in customer and consumer
expectations and behavior during the
transition to a low-carbon future.
—
4°C
Increased extreme weather events (e.g.
floods) and climate impacts (e.g. water
stress) impacting operations and supply
chain.
Market growth for sustainable products
(e.g. low-carbon, improved performance in
temperature extremes).
Product claims and brand damage due to
performance deterioration (e.g. temperature
extremes).
Development of new products and
services to capture climate-related
business opportunities.
*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
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.
Nippon Paint Group’s CO2 emissions reduction target (Scope 1 and 2)
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
PCG
current targets
2022 progress & 2023 plans
GHG emissions
(Scope 1 and 2)
reduction
Energy
consumption
NIPSEA
Group
2025: 15% reduction
2060: Net zero
2025:
8% reduction
of energy
consumption
Individual sites continued to progress with initiatives to achieve the 2025 targets, including
solar installations at 8 factories in China and a further 13 factories planned in 2023.
Scope 3 footprint to be calculated in 2023.
DuluxGroup
(Pacific)
2030: 50% reduction
2050: Net zero
2030:
50% renewable
electricity
consumption
Developed action plans to achieve 2030 targets and commenced implementation, which
will continue in 2023, including site energy efficiency plans, solar installations, preparation
for renewable power purchase, and preparation for fleet electric vehicle transition.
Climate risks and opportunities analysis completed, together with ongoing development
of business continuity plans for critical supply chains.
Scope 3 footprint calculated for fourth year, with reduction analysis to be completed and
potential reduction target determined in 2023.
DuluxGroup
(Europe)
-
-
Cromology commenced 100% renewable power purchase in all European countries.
JUB commenced large solar installation at Serbia plant, with planned completion in 2023.
Carbon and energy reporting to be implemented and potential targets developed in 2023.
Japan
Group
2030: 37% reduction
2050: Net zero
-
Renewable power purchase commenced, with levels to be increased in coming years.
Scope 3 footprint calculated for third year.
Dunn-Edwards
-
-
Scope 1 and 2 reporting to be implemented in 2023 and reduction targets to be considered
in the future.
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 1 and 2 (kg/t)
The scope of coverage: Japan Group, NIPSEA Group, DuluxGroup (including Cromology
beginning in FY2022 and excluding JUB)
Renewable electricity consumption Percentage to total electricity consumption(%)
The scope of coverage: Japan Group, NIPSEA Group, DuluxGroup (including Cromology
and JUB beginning in FY2022)
Greenhouse gas emissions — Scope 3 by category (t-CO2)
DuluxGroup (Pacific)+ Japan Group / 2022
A: Category 1. Purchased goods and services 1,742,146
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)
PCG
Carbon
Energy
Key performance drivers
GHG
emissions
(Scope 1 and 2)
(kg/t)
Total energy
consumption
(GJ/t)
Renewable
energy
consumption
(% of total
energy
consumption)
Renewable
energy
consumption
(% of total
electricity
consumption)
NIPSEA Group
48 (+17%)
0.32 (+28%)
1.6% (+0.9pp)
2.8% (+1.6pp)
Inclusion of solar installation at 8 factories in China.
DuluxGroup (Pacific)
146 (+4%)
0.99 (+11%)
1.6% (+0.7pp)
3.0% (+1.4pp)
Reduced production at Dulux Rocklea plant due to major
flood event.
Solar installation completed at Cabot’s Dandenong plant and
installations commenced at multiple Dulux Trade Centers.
Changes in production mix across different business units.
DuluxGroup (Europe)*1
30*2
0.8
31.60%
66.20%
Cromology renewable power purchase in all
European countries.
Solar installation commenced at JUB Serbia.
JapanGroup
153 (-7%)
3.31 (-2%)
1.9% (+1.9pp)
7.3% (+7.3pp)
Commenced purchase of renewable power.
Changed from oil to gas at Okayama plant.
Dunn- Edwards
-
0.19 (-5%)
-
-
-
*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.
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