Responding to Risks and Opportunities

To assess risks and opportunities arising from climate change, we have conducted scenario analysis using the “below 1.5°C scenario” (Glasgow Climate Pact), and the “below 4°C scenario”, which assumes that global temperatures will continue to rise at their current pace and will continue to review the impact we expect to face in FY2030 and the countermeasures we must implement. The scenario analysis revealed that, in areas of government policy and legal regulation, we will be confronted by risks arising from the introduction of carbon taxes, carbon pricing, European battery regulations and carbon border adjustment measures. On the other hand, it is expected that Denka will meet growing sales opportunities for its LEAF carbon agent and electronic materials for use in xEVs and other products, reflecting its diverse product and business portfolio. We will continue to strive to quantitatively assess the business risks and opportunities lying ahead and reflect the results in our management planning and business strategies based on appropriate courses of action in line with TCFD.
In addition, the Denka Group supports laws and policies related to climate change (e.g. Act on Rationalization of Energy Use and Shift to Non-fossil Energy, Act on Promotion of Global Warming Countermeasures) and responds through various reports to government agencies based in accordance with these laws.

Identification of Climate Change-Related Risks and Opportunities Based on Scenario Analysis

Scenario	TCFD classification	Item	Expected impact	Applicable Division (expected applicable products)	Impact on the business field	Countermeasures
1.5℃	Government policies and legal regulations	Introduction of carbon tax and emission trading system	Large	All divisions	Growing costs associated with overall volume of CO2  emissions and/or emissions in excess of upper limits set by emissions quotas	Progress in energy-saving measures to reduce CO2  emissions and reduction of non-energy derived CO2  through the introduction of new technologies
		Establishment of new ratios for the introduction of biomass-derived fuels and increased demand for mandatory plastic resource recycling (waste reduction)	Small	Polymer Solutions, Electronic & Innovative Products, Elastomer & Infrastructure Solutions	Deterioration in product properties and increased costs due to the move away from single-use plastics and the increased use of alternative biomass- derived raw materials	Promotion of resource recycling involving styrene-based resin by introduction of chemical recycling technologies, switchover to plastic products incorporating bio-polymers, improvement of physical properties, cost reduction
	Technology & Reputation	Decarbonization requirements for products that emit large amounts of CO2 during production and global promotion of CCUS	Large	Elastomer & Infrastructure Solutions (cement, special blends, calcium carbide, chloroprene)	Increased manufacturing costs Promotion of alternative materials if no action is taken	Information disclosure following early introduction of CFP assessment Progress in energy-saving measures to reduce CO2  emissions and reduction of non-energy derived CO2  through the introduction of new technologies Seeking opportunities for collaboration with surrounding companies and local government for each business site
	Resource efficiency	Emergence of new technologies with advantages in terms of LCA (CFP)	Medium	Electronic & Innovative Products (thermal materials, etc.)	Failure to disclose CFP calculations may hinder exports of alternative materials to EU countries	Expansion of production capacity in line with growing demand Promotion and disclosure of CFP calculations, reduction of CO2 emissions during product manufacturing
	Energy sources	Progress in transition to clean energy	Large	All divisions	Growing use of renewable energy and hydrogen-fired energy	Expansion of hydroelectric power generation capacity, the utilization of hydrogen-fired energy, and the planning of a hydrogen production process (electrolysis of water) fed by hydroelectric power
	Products/ services	Expansion of existing products and development of related parts in line with the increased use of EVs	Medium	Electronics & Innovative Products (power control units installed in xEVs, ceramic substrates used as thermal materials in batteries, spherical alumina, thermal materials, acetylene black, etc.) Elastomer & Infrastructure Solutions (DENKA ALCEN , amorphous silica paper for thermal insulation and fire prevention for lithium ion batteries)	Growth in product demand for EV-related components Determining feasibility for application, mass production, sales expansion Decrease in demand for internal combustion engine components	Expansion of production capacity in line with growing demand Verification of performance requirements through user work, promotion of trial production through collaboration with other companies, and determination of business feasibility to meet these needs, including price Capital investment and new product development Development of products for new xEV applications
		Development of renewable energy power supply systems	Medium	Electronics & Innovative Products (acetylene black) Elastomer (high-voltage cable)	Increased demand for components for use in storage batteries and the development of transmission networks	Expansion of production capacity in line with growing demand and the development of new products with superior functions
４℃	Physical risks	Damage to production facilities due to drought caused by changes in rain patterns, severe flood damage caused  by typhoons, heavy rains, floods, etc., shutdown of plants, and disruption of supply chains (supply network)	Medium	All divisions	Loss of profit due to the suspension of production activities and the emergence of costs associated with the restoration of production facilities Stagnation in our production and sales activities due to facility damage incurred by raw material suppliers and product consumers	Strengthening of facility maintenance measures due to the revision of  the expected level of disaster damage and an assumption of a disaster of greater magnitude Diversification of supply chains
	Products/ services	Growing number of heat stroke cases due to rising temperatures and infectious diseases (outbreaks of new infectious diseases）	Medium	Life Innovation	Growth in demand for diagnostic reagents and vaccines, including those for novel infectious diseases	Development of new diagnostic reagents and vaccines
		Growing demand for infrastructure development in line with the increasing magnitude of natural disaster damage	Medium	Elastomer & Infrastructure Solutions	Growth in demand for infrastructure-related products and services aimed at promoting disaster prevention measures and enhancing disaster resilience	Expansion of production capacity in line with growing demand and the development of new products with superior functions