Disclosure in Line with TCFD Recommendations

The Menicon Group considers climate change to be an important issue. Since 2021, we have conducted the Scenarios Analysis to improve our resilience against climate change over a mid-to-long term period. In April 2022, we established an organization to discuss and review sustainability issues, including climate change, in greater depth, and in July we announced our support to the TCFD Recommendations. In the future, we will expand our initiatives in line with TCFD framework, continue to strengthen our resilience, and enhance disclosure of climate-related financial information.

Governance

The Menicon Group discusses issues related to climate change at the Sustainability Committee and determines the basic action policies. The Sustainability Committee is led by our CEO, and consists of all our executive officers, internal directors, and heads of related departments. They are scheduled to meet more than four times a year. We have also set up a subcommittee on climate change issues which collects information from each department and review the contents to be discussed by the Sustainability Committee, such as evaluating risks and opportunities related to climate change and initiatives to address issues, as necessary. Among the content discussed in the Sustainability Committee, measures and policies that will have impacts on management will be approved by the Executive Committee and Board of Directors. Other matters which were discussed are also regularly reported to the Board of Directors. Sustainability management is promoted under the supervision of the Board of Directors.

Analysis process

The Menicon Group has examined the impact of climate change issues on our business, while referring to the items of risks and opportunities indicated in the TCFD recommendations. Using both the 1.5°C scenario and the 4°C scenario, we conducted analyses concerning changes in policies and market trends (transition risks and opportunities) and physical changes due to disasters (physical risks and opportunities). Through these analyses, we identified risks and opportunities, and analyzed and formulated the degree of impact on the business and countermeasures.

Climate change scenarios

◆ 1.5°C scenario (decarbonization transition scenario)

This is the 1.5°C scenario, which aims to limit the global average temperature rise to less than 1.5°C compared to pre-industrial levels by actively promoting global efforts to achieve carbon neutrality in order to curb the impacts of climate change. In this scenario, it is anticipated that stricter regulations, the introduction of carbon taxes, and the strengthening of emissions trading systems will be required in countries around the world to accelerate the reduction of greenhouse gas emissions. Therefore, the impact of policy and regulatory risks is expected to be greater compared to the 2°C scenario. In addition, companies are expected to be strongly required to rapidly transition to decarbonization technologies and renewable energy, and responses to these are expected to significantly impact corporate competitiveness and market valuation.

◆ 4°C scenario (high emissions scenario)

This is a scenario in which climate change measures do not progress beyond current efforts, and the global average temperature is expected to rise by about 4°C by the end of this century compared to pre-industrial levels. In this scenario, the intensification of extreme weather events becomes prominent as physical risks, with increases in the frequency and intensity of typhoons, heavy rains, and heatwaves expected. In addition, due to a rise in the sea level, the risk of flooding in coastal areas will increase, potentially causing severe impacts on people’s livelihoods and infrastructure. In this manner, the 4°C scenario is projected to cause widespread and severe impacts across society, the economy, and the natural environment.

Based on TCFD recommendations, we analyzed the impacts on our business using the 1.5°C scenario (IEA NZE 2050) where transition risks materialize and the 4°C scenario (RCP8.5) where physical risks materialize.
In the 1.5°C scenario, carbon costs (carbon taxes and emissions trading), strengthened regulations, and increasing customer demands for decarbonization affect revenue and cost structures, while the increase in demand for low-carbon products and services presents opportunities. In response to this, we will expand procurement of renewable power, promote electrification, and improve energy efficiency to capture revenue opportunities and mitigate cost increases.
In the 4°C scenario, risks increase significantly due to frequent flooding, storm surges, and extreme heat, potentially damaging our own facilities and those of key suppliers, causing operational shutdowns, and disrupting logistics. In response to this, we will strengthen resilience through flood countermeasures and redundancy based on hazard assessments for each facility, location diversification and securing alternative procurement, and enhancement of BCP, thereby minimizing business interruption risks and response costs.
Based on this analysis, we will implement emission reductions and adaptation measures in alignment with medium-term plans and investment plans, and convert climate change into medium- to long-term growth opportunities in the aim to establish a resilient business structure and sustainable revenue base.

Type of risks		Factors (Drivers)	Indicator	Time horizon *1	Impact on business	Impact level *2		Anticipated countermeasures
Type of risks		Factors (Drivers)	Indicator	Time horizon *1	Impact on business	Qualitative	Quantitative	Anticipated countermeasures
Transition risks	Regulations and policies	Increase in carbon prices	Expenditures	Short-term to long-term	The introduction of carbon taxes will cause additional costs based on our Scope 1 and 2 emissions, which will increase operating costs	Medium	Medium	Purchase and expansion of renewable energy power contracts (such as power with non-fossil certificates) Introduction of renewable energy through solar panel installation Reduction of energy consumption through introduction of high-efficiency air conditioning and lighting equipment Introduction of biomass boilers
		Strengthening of GHG emission reduction regulations	Expenditures	Medium-term to long-term	Due to the strengthening of GHG emission reduction regulations, responses such as purchasing renewable energy generation equipment and introducing high-efficiency production equipment will be necessary, which will increase investment costs	High	ー	Investment in upgrading to high-efficiency heat source equipment and production equipment Promotion of renewable energy power procurement using PPA models Introduction of an investment evaluation system considering carbon prices
		Strengthening of GHG emission reporting obligations	Expenditures	Medium-term to long-term	Due to increased demand for carbon offsets to achieve emission reduction targets, carbon credit prices will rise, which will increase reduction costs	High	ー	Strengthening of in-house emission reduction efforts to reduce dependence on credits Advance procurement of reliable domestic and international credits (such as J-credits) Consideration of credit creation through in-house projects (REDD+, renewable energy investments, etc.)
		New legal regulations on products and services	Revenue	Medium-term to long-term	Strengthened regulations on the ratio of recycled plastic use in packaging materials will create risks of sales restrictions for non-compliant products, which will lead to lost sales opportunities and a decrease in sales	Medium	High	Introduction of recycled plastic materials and review of packaging design Promotion of packaging design based on horizontal recycling Strengthening of collaborations with partners for stable procurement of recycled materials
		New legal regulations on products and services	Expenditures	Medium-term to long-term	If regulations on waste recycling methods are strengthened or new regulations are introduced, response costs will be incurred	Medium	Low	Establishment of collection schemes for used products (expansion of 1Case Project, etc.) Product design supporting resource separation and recycling Strengthening of recycling partnerships with local governments
	Technology	Costs for transitioning to low-emission technologies	Expenditures	Medium-term to long-term	Investment costs will increase for technologies related to improving energy-saving performance of products (such as product design changes or introduction of new manufacturing processes)	High	ー	Upgrade to energy-saving manufacturing equipment (drying, molding, heating processes, etc.) Review of product design utilizing life cycle assessment (LCA) Introduction of energy management systems in manufacturing processes
	Market	Changes in customer behavior	Revenue	Medium-term to long-term	As consumers prioritize products and services that reduce environmental impact, demand for conventional products will decrease, leading to a reduction in net sales	Medium	High	Development and lineup expansion of environmentally friendly products (recycled materials, recyclable packaging) Strengthening disclosure of environmental information per product (CO₂ emissions, water usage, etc.) Product differentiation through acquisition of environmental certifications (Eco Mark, etc.)
	Reputation	Increase in stakeholder concerns or negative stakeholder feedback	Other	Short-term to medium-term	Delays in GHG reduction efforts or insufficient information disclosure will lower evaluations from investors, making raising funds difficult	Medium	ー	Enhanced disclosure aligned with guidelines such as TCFD/SBT/ISSB Formulation of climate transition plans and public disclosure of a decarbonization roadmap
Physical risks	Acute	Increase in severity of extreme weather events such as cyclones and floods	Revenue	Short-term to long-term	Damage to our plants will cause stagnation or shutdown of production activities, leading to a decrease in net sales	High	Medium	Reevaluation of plant locations using hazard maps for high-risk areas Enhanced flood and wind resistance measures for plant buildings and equipment (waterproof walls, rooftop water storage, etc.) Establishment and BCP training of domestic and international alternative sites for operational transfer during disasters
	Acute		Revenue	Short-term to long-term	Damage to plants of suppliers will cause stagnation or shutdown of parts and raw material supplies, affecting our production and leading to a decrease in net sales	High	ー	Minimization of financial impact through comprehensive damage insurance policies Transactions with multiple suppliers
	Chronic	Changes in precipitation patterns and extreme variability in weather patterns	Expenditures	Medium-term to long-term	Increased risk of water resource depletion or revisions to water utility rates will lead to an increase in water usage costs	High	ー	Reduction of dependence on external water supply through use of recycled water and rainwater Monitoring and setting KPIs of water usage in manufacturing processes Introduction of water stress evaluation in plant location selection
	Chronic	Rise in average temperatures	Expenditures	Short-term to long-term	Costs for employee heatstroke countermeasures (or safety and health measures) will increase with the rise in average temperatures	Low	ー	Introduction of work environment monitoring (WBGT value management) Redesign of work shifts and break systems, and implementation of heatstroke training Introduction of air conditioning auxiliary equipment (cooling vests, blower fans, etc.)

Types of opportunities		Factors (Drivers)	Indicator	Time horizon *1	Impact on business	Impact level *2		Anticipated countermeasures
Types of opportunities		Factors (Drivers)	Indicator	Time horizon *1	Impact on business	Qualitative	Quantitative	Anticipated countermeasures
Opportunities	Resource efficiency	Use of more efficient production and distribution processes	Expenditures	Short-term to long-term	Reduce operating costs by implementing product specifications and manufacturing processes that enable reduced resource usage	Medium	ー	Introduction of precision manufacturing technology to improve raw material yiel Optimization of energy usage in molding, cleaning, and drying processes Reduction of water costs through recovery and reuse of process wastewater
	Energy sources	Transition to distributed energy sources	Expenditures	Short-term to long-term	Introduction and expansion of solar power generation and energy storage technologies will reduce electricity purchase costs	Low	ー	Installation of solar panels at our facilities and utilization of PPA models (on-site PPA, off-site PPA) Introduction of the battery systems aimed at reducing peak electricity Setting and management of renewable energy usage ratio targets per production facility
	Products and services	Expansion of water-stressed regions	Revenue	Medium-term to long-term	Increase in net sales of 1-DAY lens, which reduce water usage during production and use, due to the expansion of water-stressed regions	High	ー	Strengthening information dissemination on the water usage reduction effects of 1-DAY lens Expansion of sales channels to high-stress areas with high awareness of water reduction New development of 1-DAY lens products with reduced water usage in manufacturing stages
		Changes in consumer preferences	Revenue	Medium-term to long-term	Due to frequent extreme weather, the shift to remote work and decrease in outdoor activities will increase opportunities for eye strain, which will lead to an expansion of the myopic population and heightened needs for myopia control and increase net sales	High	ー	Expansion of myopia control lens lineup Implementation of awareness activities for parents of school-age children Expansion of prescriptions through the training of eye care professionals
		Spread of products and businesses that reduce environmental impact	Revenue	Medium-term to long-term	Growth in demand for environmentally low-impact agricultural materials, fertilizers, etc., will increase net sales	Low	High	Development of products reducing plant stress caused by rising temperatures Joint research and commercialization of related products aimed at generating carbon credits
		Spread of products and businesses that reduce environmental impact	Revenue	Medium-term to long-term	By promoting product designs considering resource circularity (circular economy) (horizontal recycling and upcycling of packages), we can utilize resources as sales products through the construction of renewable systems, which will increase net sales	High	ー	Horizontal recycling design for products, including collection schemes
	Market	Development and/or expansion of low-emission goods and services	Revenue	Medium-term to long-term	Providing environmentally friendly goods and services will expand sales volume to environmentally conscious customers, which will increase net sales	High	High	Rollout of eco-friendly products (products using recycled materials, products with resource-saving design)
	Resilience	Climate change risk assessment and countermeasures	Expenditures	Medium-term to long-term	Prevent disaster risks proactively through decentralized production sites and backup power systems, and reducing response costs associated with business interruptions	Low	ー	Securing multiple geographically dispersed production sites and introducing integrated management systems Strengthening backup systems during power outages through self-generation and batteries BCP training based on disaster scenarios and preparation of recovery protocols

*1 Definition of time horizon: 　
[Short-term: Present to 2027] [Medium-term: 2028 to 2030] [Long-term: 2031 onward]

*2 Definition of impact level:
[Qualitative] Magnitude of impact x probability of occurrence
• High: Serious impact on overall management (operational shutdown, long-term disruption, major losses, etc.) and/or high probability of occurrence within the assumed period
• Medium: Significant impact on business operations (partial profitability deterioration, loss of market share, etc.) and/or moderate probability of occurrence
• Low: Minor impact (limited effect on operations/market share) and/or low probability of occurrence

[Quantitative] Financial impact amount (annual)
• High: JPY 1.0 bn or more / Medium: JPY 100 mn to JPY 1.0 bn / Low: Less than JPY 100 mn

*Opportunities are evaluated at the same threshold as positive impacts increasing revenue or profit

[Summary of carbon tax burden calculation]

As countries accelerate the introduction of carbon taxes and emissions trading systems, we identified the impact on our business as “additional costs based on our Scope 1 and 2 emissions, which will increase operating costs.” Therefore, to assess the quantitative financial impact, we have calculated the carbon tax burden based on the assumed Scope 1 and 2 emissions in 2030 as follows.

Breakdown of financial impact calculation

Approximately
JPY 440 mn

Annual carbon tax
burden in 2030

[Calculation policy]
• Approach: Differential method ((1) BAU scenario vs (2) transition scenario)

(1) BAU scenario: No reduction measures, incorporating business expansion leading to an increase in Scope 1 and 2

(2) Transition scenario: Advancing renewable energy introduction, efficiency improvements, electrification, fuel switching, and other measures lead to the achievement of Scope 1 and 2 targets while incorporating business expansion

Carbon price: USD 140 per ton (from IEA WEO 2023)
Exchange rate: JPY 152.58 per USD (from recent annual average TTS)
Conversion value: JPY 21,361/tCO2
Scope 2 emissions: Evaluated based on market standards

The above estimation results clearly demonstrate that implementing countermeasures can significantly avoid increased carbon costs, even considering business expansion.

[Main countermeasure]

Renewable energy power contracts (power with non-fossil certificates, ensuring additionality assurance)
Introduction of self-consumption renewable energy through solar panel installation
Energy efficiency improvements through high-efficiency equipment upgrades (air conditioning, lighting, etc.)
Reduction of combustion-derived emissions through the introduction of biomass boilers

Risk identification
The Sustainability Department collects information on the company’s response to internal and external environmental changes from each department more than once a year. The department then sorts out the identified risks, and the committee chairman determines the important risks after deliberation by the Sustainability Committee.
Risk response plan
The Risk Response Department drafts a action plan.
Progress report
The Risk Response Department regularly reports on the progress of the plan at the Sustainability Committee meeting or other meeting.
Review
The Sustainability Committee instructs the plan to be reviewed as necessary depending on the progress of the response plan.
Risk monitoring
Each department monitors the identified risks and reports any changes to the Sustainability Department.

		FY2022 Results	FY2023 Results	FY2024 Results
Scope 1+2	22.27	25.24	22.54
	Scope 1	3.92	3.93	4.81
	Scope 2	18.35	21.31	17.73

		FY2022 Results	FY2023 Results	FY2024 Results
Scope 3 - indirect emissions other than Scope 1 and 2		178.75	192.22	204.90
	Category 1 - Purchased goods and services	116.70	130.15	137.74
	Category 2 - Capital goods	35.34	28.74	30.46
	Category 3 - Fuel- and energy-related activities not included in Scope 1 or 2	4.02	4.30	4.15
	Category 4 - Upstream transportation and distribution	7.52	10.49	12.41
	Category 5 - Waste generated in operations	0.41	0.48	0.51
	Category 6 - Business travel	1.86	4.11	3.84
	Category 7 - Employee commuting	1.10	1.14	1.27
	Category 8 - Leased assets (upstream)	N/A
	Category 9 - Downstream transportation and delivery	N/A
	Category 10 - Processing of sold products	N/A
	Category 11 - Use of sold products	1.46	1.37	2.50
	Category 12 - Disposal of sold products	10.34	11.44	12.01
	Category 13 - Downstream leased assets	N/A
	Category 14 - Franchises	N/A
	Category 15 - Investments	N/A

Corporate
Social contribution and sustainability
Disclosure in line with tcfd recommendations

	(1) BAU scenario	(2) Transition scenario
2023 S1+2 emissions (results)	25,240 t-CO2	25,240 t-CO2
2030 S1+2 emissions (projected)	35,090 t-CO2	14,387 t-CO2
Carbon price	JPY 21,361 / t-CO2 (common)
Annual estimated cost burden	Approximately JPY 750 mn	Approximately JPY 310 mn