In addition to identifying the reduction of environmental impact as one of the seven sustainability material issues resolved by the Board of Directors in 2020, we have also designated climate change as one of the social issues that our Group should contribute to addressing in our Medium-Term Management Plan 2023.
The Risk Management Committee, which is responsible for our company-wide risk management, has positioned climate change risk as a material risk issue and is currently performing the appropriate risk management for this risk under the supervision of the Board of Directors.
The Sustainability Committee, which is chaired by the President & CEO, focuses its deliberations on addressing the issue of climate change by approaching it not only as a risk but also as a source of business opportunities for our Group.The Sustainability Committee reports the results of its deliberations to the Board of Directors twice a year and promotes the relevant initiatives under the supervision and direction of the Board of Directors.

The Paris Agreement, which came into effect in November 2016 as a response to global climate change, calls for efforts to keep the global average temperature rise to well below 2℃, and preferably within 1.5℃, as compared to pre-industrial levels. In view of this, our Group has taken action by developing a long-term plan in line with the Paris Agreement.

We have assessed the impact of climate change on our Group as the first step in formulating our strategy. The target period for our risk assessment was designated as the next 10 years, given that the effects of climate change on the products of our Group have already become apparent. We then analyzed two scenarios: 1.5℃ and 4℃.

Based on these scenarios, we have identified the impact of stricter regulations on our business as the greatest risk and have decided to focus on adopting measures to mitigate this risk.

1.5℃ scenario

This scenario assumes the impact of stricter regulations aimed at reducing CO₂ emissions on our business activities and transition risks such as the increased burden on our business costs as exemplified by the carbon tax. One high-level risk is the tightening of regulations on thermal power generation using fossil fuels. In addition, the higher demand for energy-saving technologies among customers in their manufacturing processes will call for the development and provision of even more energy-saving products. On the other hand, based on our analysis, the impact of stricter regulations on internal combustion engines for construction machinery and other equipment will emerge over a relatively longer time frame, as it will take time to develop alternative technologies for heavy machinery, develop the necessary infrastructure, and make the required adjustments to international standards and regulations in various countries. While this scenario assumes higher carbon tax and raw material costs, their impact is limited in our analysis as they only account for a small percentage of our overall costs.

4℃ scenario

This scenario assumes an increase in physical risks that are exemplified by increasingly severe extreme weather events. The severity of natural disasters is designated as a medium-level risk, and we anticipate the need to strengthen our business continuity plan (BCP) not only at our manufacturing sites but also across our entire supply chain. In addition, while rising sea levels could have an impact on our manufacturing sites in coastal areas in the long term, we have assessed their impact at the 10-year mark to be relatively minor.

In our pursuit of the reduction of CO₂ emissions from product use, we are exploring the possibility of implementing decarbonization measures that include those in areas that cannot be counted toward a reduction of our CO₂ emissions based on the definition of Scope 3 emissions.

Tracking CO₂ emissions reduction in the broad sense is a unique approach of the SHI Group that seeks to evaluate the contribution of our Group’s products to reducing CO₂ emissions following their delivery to customers. For instance, our products support the decarbonization of production processes through electrification at our customers’ production sites and resource conservation from a lower failure rate. Moreover, since our Group provides products and technologies that support the manufacturing process of power semiconductors, we are able to contribute to the impact of various energy-saving products that utilize power semiconductors.
In these various ways, we are currently implementing and considering further measures that allow us to contribute to the reduction of CO₂ emissions in society as a whole through our Group’s products

Among the segments, we focused on the Energy & Lifeline Segment and the Mechatronics Segment, which are expected to have a relatively large impact on our business due to the large amount of CO₂ emissions from the product use, and assessed the risks and opportunities.

Impact on our Energy & Lifeline (E&L) segment

Given that demand for coal-fired power plants is already on the decline as society moves toward decarbonization, we are shifting our focus to biomass power plants. Meanwhile, for biomass power generation, which is considered carbon neutral, we are working on the development of energy storage systems, anticipating tighter regulations from the perspective of CO₂ emissions generated during the transportation of the fuel.
Through these multifaceted efforts, we will contribute to the stable supply of renewable energy throughout society.

Impact on our Mechatronics segment

With the acceleration of the current trend toward the electrification of hydraulic-drive mechanisms at manufacturing sites, demand for inverters and motors is expected to grow. It is therefore vital for us to respond appropriately to market changes and expand our business opportunities. As we anticipate a growing customer demand for the supply of products with even better energy-saving performance, we will develop not only inverters and high-efficiency motors but also monitoring systems for motors as well as novel solutions that integrate electronic and control devices with gear reducers.

Our business operations are monitored by the Budget Council, which meets twice a year and comprises the President & CEO as well as other members of senior management. In formulating our Medium-Term Management Plans, backcasting is performed with the aim of addressing social issues that would become relevant in the next 10 years before business plans are formulated by evaluating the risks and opportunities for each business division. Segments whose management is expected to be significantly impacted by issues such as CO₂ emissions during the use of products by customers and business scale are flagged for more focused deliberations by the Board of Directors so that improvement measures can be implemented.
The Risk Management Committee, which meets twice a year, identifies risks that have a significant impact on our Group and assesses the priority level of each identified risk for the Company by evaluating its frequency of occurrence and the magnitude of the resulting impact when it occurs. The Risk Management Committee assigns each identified risk to a division to ensure that the risk is managed appropriately while supervising the progress made in this regard. Climate change has been positioned as a material risk issue by the Risk Management Committee.
In response to the increasingly severe extreme weather events in recent years, we will strengthen our business continuity plan (BCP) at our manufacturing sites and across our entire supply chain. In April 2022, we established a dedicated BCP department within the General Administration Group whose role is to formulate and implement an effective BCP for the SHI Group.

In May 2022, we resolved at a Board of Directors meeting to achieve carbon neutrality for the entire SHI Group by 2050. To achieve this goal, we identified the reduction of CO₂ emissions, which is one of the most abundant greenhouse gases, as a material issue, and set two CO₂ reduction targets to be achieved by 2030.
One is "the emission reduction target at manufacturing sites" for Scopes 1 and 2*1, aimed at addressing possible future increases in carbon tax rates as a transition risk, and the other is "the CO₂ emission reduction target during product use" for Scope 3 (Category 11)*2, aimed at contributing to the realization of a decarbonized society through the provision of products and services that are the foundation of the SHI Group' s business.

*1：Greenhouse gas emissions coming directly and indirectly from our own business domains
*2：Scope 3 is greenhouse gas emissions from our own value chain. Within Scope 3, Category 11 is emissions from the use of products, services, etc., manufactured and sold.

Scopes 1 and 2 - Reduction of CO₂ emissions during product manufacturing: 50% reduction by 2030 (compared to FY2019)

Besides implementing various measures aimed at reducing CO₂ emissions during manufacturing, we have also started to procure renewable energy in fiscal 2022. We have introduced a policy of reflecting CO₂ emissions for each division within the SHI Group in our business evaluation through the implementation of an Internal Carbon Price.

Scope 3 (Category 11) - Reduction of CO₂ emissions during product use: 30% reduction by 2030 (compared to FY2019)

In addition to developing new products and technologies that contribute to energy saving and decarbonization, we will review our product portfolio to reduce CO₂ emissions during product use by narrowing down existing products with a particularly high negative environmental impact to energy-saving and decarbonizing products and models.
Furthermore, we will shift from one-time equipment (hardware) sales to a subscription-based business model to provide customers with products that have a lower negative environmental impact and work to reduce negative environmental impact across the entire product lifecycle. 

Recognizing that protecting the global environment and engaging in recycling-oriented economic activities are part of our corporate social responsibility, we set targets for the next three years in our medium-term environmental plan, which is formulated every three years, and carry out activities to reduce negative environmental impacts. Under the 6th Medium-Term Environmental Plan launched in 2020, we are currently working to achieve our targets for FY2022.