Sustainability

Information Disclosure Based on TNFD Recommendations

What is TNFD?

The Taskforce on Nature-related Financial Disclosures is a global initiative launched in 2021 amidst an international sense of crisis about environmental degradation and the increasing importance of restoring nature. Its aim is to construct a framework for risk management and disclosure of nature-related risks by companies. The taskforce presented its recommendations in September 2023, calling for companies to be aware that nature-related issues are related to strategic risks, and encouraging companies to identify and disclose the nature-related dependencies and impacts they have through their business, as well as the accompanying risks and opportunities.
The TNFD recommendations lay out a framework for disclosure with the same four basic pillars as the Task Force on Climate-related Financial Disclosures (TCFD): governance, strategy, risk and impact management, and metrics and targets. Moreover, these four pillars contain disclosure items that are specific to nature-related issues. For example, since nature-related risks and opportunities are easily influenced by the local natural characteristics in which companies are involved, so it is recommended that disclosures be based on the locations in which companies interact with nature through their value chain.
Also, in January 2024, the NGK Group declared that we would begin early disclosure as a TNFD Early Adopter.

1. Companies and organizations that will begin information disclosure by FY2025 (As of January 2024: 320 companies in 46 countries, 80 of them Japanese)

This is the Taskforce on Nature-related Financial Disclosures (TNFD) Early Adopter log.

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NGK Group Approach to Nature and Biodiversity

Our society and its economic activities depend on nature and its blessings. But nature is said to be in rapid decline worldwide. Amidst a growing sense of urgency and awareness of the importance of restoring nature, the Kunming-Montreal Global Biodiversity Framework (GBF) was adopted at the 15th meeting of the Conference of the Parties to the Convention on Biological Diversity (COP15) in 2022. It sets a common global goal of being "nature positive," which means taking action to stop and reverse the loss of biodiversity by 2030.
Since nature-related issues may have an impact on the NGK Group's business activities themselves, we believe that it is important to ascertain how our business relies on nature throughout our entire value chain, and what kind of impact our business is having on nature. In the NGK Group Environmental Vision, we set the idea of harmony with nature as one of our most important issues. And NGK aims to operate in harmony with nature by minimizing its environmental impact on ecosystems and raising awareness among each and every employee through awareness-raising activities.

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Objectives of Disclosure

Through proactive TNFD disclosure, NGK will make clear the interface between the NGK Group's business activities and nature, ascertain the importance of our dependencies and impacts on nature, as well as related risks and opportunities, and meet the expectations of society and stakeholders. In addition, through disclosure the entire Group will promote nature-related initiatives, which will help to achieve the goal of coexistence with nature espoused in the NGK Group Environmental Vision and bring about a sustainable society.

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Scope of Disclosure

To achieve full disclosure in line with the TNFD recommendations by FY2025, we are considering TNFD recommendations and their evaluation method, the LEAP approach (described below), to identify nature-related dependencies, impacts, risks, and opportunities for the NGK Group. Since the TNFD recommendations recommend partial disclosure in advance, this time we will disclose the results of analysis as of July 2024, based on the LEAP approach.
Moreover, the details of this disclosure have been reported to the Board of Directors following deliberation by the ESG Management Committee.

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Overview of LEAP Approach

The TNFD recommendations endorse analysis based on the LEAP approach as a method for evaluating nature-related dependencies, impacts, risks, and opportunities. The LEAP approach consists of the processes: Locate, Evaluate, Assess, and Prepare, the details of which are shown in the table below.

Implementation Details of LEAP Approach

Locate
the Interface with Nature
Evaluate
Dependencies and Impacts
Assess
Risks and Opportunities
Prepare
to Respond & Report
  • Consider areas in the value chain where dependencies and impacts on nature are important
  • Understand the activity locations and related ecosystems for areas in our business locations and value chain where dependencies and impacts on nature are important
  • Evaluate priority areas (ecologically sensitive areas, areas where dependencies and impacts are important)
  • Identify the dependencies and impacts on ecological services at each place in our business locations or value chain
  • Evaluate and measure important dependencies and impacts
  • Identify and evaluate the importance of nature-related risks and opportunities based on the details of our dependencies and impacts
  • Identify particularly high-priority risks and opportunities
  • Consider management process for risks and opportunities
  • Consider handling strategy based on contents of evaluation
  • Consider method for setting targets
  • Consider details of information disclosure

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Sorting Out Dependencies and Impacts on Nature throughout Business Value Chain

Based on the LEAP approach, we created a heat map for each NGK Group business of the importance of dependencies on ecosystem services and the impact on nature at each major stage of the value chain with reference to the tools ENCORE*2 and SBTs for Nature*3, as well as the CDP water impact tool*4. This allowed us to gain an overall picture of the dependencies and impacts of the business.
Please note that the content of this disclosure is only a provisional assessment of the importance of dependencies and impacts on nature based on information gained from academic papers and research results in fields to which the NGK Group's business belongs or is similar to. It is not based on the actual state of the NGK Group's business. Going forward, we will conduct a fact-finding survey to comprehensively determine the actual degree of impact, business scope, etc. and review the level of importance of the dependencies and impacts.

2. A tool developed through collaboration between the Natural Capital Finance Alliance, a network of financial institutions, and the United Nations Environment Programme World Conservation Monitoring Centre (UNEP-WCMC) to help financial institutions ascertain the impact of companies on nature and the extent of their dependence on nature.

3. A tool recommended for use in goal setting by SBTs for Nature, an initiative that develops and promotes science-based goal-setting approaches related to nature. It allows you to select a sector or activity and check the importance of impacts on nature at that industry level.

4. A tool for evaluating the degree of impact on water (water withdrawal, pollution) by industry. It is provided by CDP, a non-profit organization that operates a global information disclosure system for companies and others to disclose information on their environmental impacts.

Results of Assessment of Dependencies and Impacts on Nature in Primary Value Chain
(General assessment of industrial fields similar to that of the NGK Group)

This table shows the results of assessment of dependencies and impacts on nature in our value chain. We calculate and show an overall picture of the dependencies and impacts of our business at each major stage in the value chain. These are: procurement, production, logistics, and sales.

The results of the assessment mainly identified the following for each stage of the value chain.

Procurement Stage

In terms of dependencies, we have large dependencies on nature from the perspective of water resource use, water cycle/quality, and climate regulation.
In terms of impact, we have a significant impact due to changes in land use and water pollution when extracting raw materials derived from nature.

Production Stage

In terms of impact, we have a significant impact from water use.

Logistics and Sales Stage

In terms of dependence, we have a significant dependence on nature in terms of climate regulation.

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Ascertaining Points of Contact with Nature at NGK Group Production Sites

We evaluated the points of contact with nature for the NGK Group's production sites. In our evaluation, we used a variety of data on the importance of biodiversity and the integrity of ecosystems*5. This includes big data on biodiversity based on the academic expertise of Think Nature Inc. Concerning physical risks for water, we also used databases related to water risks, pollution, etc.

Evaluation Conducted on Points of Contact with Nature

Examination Item Details
Evaluation concerning importance of biodiversity
  • Assess proximity of production facilities to protected areas*6 and Key Biodiversity Areas (KBAs)*7
  • Investigate importance of biodiversity at latitude and longitude of production site
Evaluation of ecosystem integrity
  • Evaluate integrity of ecosystem at latitude and longitude of production site, and evaluate development pressures
Evaluation of physical water risks
  • Investigate water stress, water pollution, and risk of water-related disaster

5. This is an indicator of ecosystem health, and it can be said that areas with advanced urbanization have low ecological integrity.

6. Areas protected by region, country, international treaty, etc.

7. Key Biodiversity Areas (KBAs) which have been identified based on standardized scientific criteria and thresholds and are important for protecting biodiversity.

Results of Evaluation of Importance of Biodiversity and Integrity of Ecosystems

The NGK Group evaluated the importance of biodiversity and integrity of ecosystems at 49 of our production sites in Japan and around the world. As the figure below shows, many of our production sites are in areas where biodiversity is very important (areas with many rare and endemic organisms) and areas where the integrity of the ecosystem is low (areas with a high degree of ecosystem loss). In addition, you can see that some sites are in protected areas (IUCN Category IV: Habitat/Species Management Areas*8) or within a 500-meter radius of areas that are important to biodiversity. We work to prevent environmental pollution and improve environmental conservation by ensuring NGK and relevant sites abide by environmental laws and other requirements, and by instituting our own voluntary standards. Going forward, we will select several sites on a priority basis for detailed analysis, taking into account the results of this survey and business details of each site.

8. Categories of protected areas aimed at protecting and restoring important plants, animals, and habitats at global, national, and regional levels.

Results of a General Evaluation of the Importance of Biodiversity and Integrity of Ecosystems at Production Sites inside and outside of Japan

This diagram shows the results of a general evaluation of the importance of biodiversity and integrity of ecosystems at production sites inside and outside of Japan. We evaluated the environmental integrity of 49 NGK Group production sites inside and outside Japan, and found that 45 sites were located in areas where biodiversity is very important.

Physical Water Risks

In the same way, we evaluated 49 NGK Group production sites inside and outside Japan. The results confirmed that there were no high-risk sites in terms of water pollution. On the other hand, it was found that some sites were high-risk in terms of the risk of water-related disaster and water stress. Based on these results, we will select several sites for detailed analysis in the future.

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Overview of Nature-Related Risks and Opportunities

We referenced the risk classification in the TNFD recommendations, and confirmed the specific risks and opportunities currently expected based on the primary nature-related dependencies and impacts for the entire NGK Group. First, the table below shows the primary nature-related dependencies, negative impacts and risks expected at present.

Primary Nature-Related Dependencies, Impacts, and Risks

Risk Category Primary Dependencies and Impacts Risks
Physical Risks Acute/Chronic
  • Dependence on water resources for raw material extraction and manufacturing processes
  • Water shortages due to excessive water withdrawal and climate change
  • Dependence on climate regulation, disaster mitigation, and soil stability
  • Disasters due to decline in climate regulation, disaster mitigation, and soil stabilization capacity
Transitional Risks Policy
  • Dependence on natural resources
  • Land changes due to raw material extraction
  • Increasing prices due to restrictions on resource extraction and land changes
  • Water use
  • Increasing water prices due to restrictions on water withdrawal
  • Emissions of pollutants
  • Water pollution
  • Increased handling costs due to strengthening of obligations for information disclosure regarding pollutant emissions, water, and raw materials
Market
  • Natural resource use
  • Land changes due to raw material extraction
  • Water use, water pollution
  • Increasing prices of sustainable raw materials (recycled materials, certified materials, etc.)
Reputation/Liability
  • Factory land use
  • Emissions of pollutants
  • Water use
  • Deteriorating reputation and decline in sales due to generation of pollution and water pollution, and excessive water use
  • Increasing costs due to legal claims such as fines

Next, the NGK Group develops and provides products and technologies that contribute to the global environment. The table below shows the expected opportunities at present for each of our main products to make a positive impact on nature.

Nature-Related Positive Impacts from NGK Group Products

Business Details Products Positive Impacts on Nature
Climate change Land
use changes
Resource use Contamination/Decontamination
Greenhouse
gas emissions
Terrestrial ecosystem use Other
resource use
Waste Air pollution other than greenhouse gases Soil pollution Water pollution
Environment Business Group Automotive
Ceramics
Business
Ceramics for exhaust gas purification
NOx sensors
Industrial Process Business Industrial heating systems, Refractory products
Membrane separating systems
High-temperature dust collector
Low-level radioactive waste treatment units
Digital Society Business Group HPC Business Ceramics for semiconductor manufacturing equipment
Electronic Devices Business EnerCera battery
PEC Business AMB and DCB substrates
Special Metals and Mold Business Special metals and mold products
Energy & Industry Business Group Energy Storage Business NAS batteries
Insulator Business Insulators

Hereafter, as interest in nature grows stronger worldwide, there is a risk that the cost of procuring raw materials derived from nature will increase. On the other hand, ceramics are generally heat-resistant, corrosion-resistant, durable, and have a long service life. So, it is possible to reduce the raw materials used and waste generated compared to when using other materials.
In addition, we expect the products and services provided by the NGK Group to help reduce impacts on nature.
For example, we have increased the performance of ceramics for purifying automobile exhaust by making their walls ultra-thin. They purify harmful substances contained in automobile exhaust gases even more effectively than existing products. Plus, NAS batteries can regulate the balance of supply and demand for renewable energy generation, which varies depending on weather, day/night cycles, etc. This reduces the amount of electricity generated through reliance on natural resources like fossil fuels.

The NGK Group has long believed that contributing to society through our business activities is one of our most important missions. Leveraging the skills we have built up in the century since our founding, we plan to help achieve carbon neutrality and bring about the digital society outlined in the NGK Group Vision, and to develop and provide products and technologies that contribute to the global environment.

Products / Services Contributing to Environmental Protection

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Future Initiatives

Moving forward, the NGK Group will reassess our dependence and impact on nature as well as our risks and opportunities related to nature. This assessment will be based on the characteristics of our business operations and production facilities combined with the objective results of our recent evaluation. In particular, the assessment of our dependence and impact on nature will focus on whether or not our actual use of water resources and land use causes an environmental impact. On the subject of the connection between production facilities and nature, we will carefully examine the actual impact our operating activities have on nature. In addition to these detailed surveys, we will also enhance four pillars of information as we prepare to provide information disclosure for 14 categories based on TNFD recommendations in FY2025.

Reference: Existing nature-related initiatives

Protecting and Restoring Biodiversity

(Written in July 2024)

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