Reducing Our Environmental Footprint

The activities of all living things, including people’s life and economy, rely on the bounties of nature. Since the foundation of Shiseido, we have positioned respect and gratitude for the blessings of the earth at the core of our business. In recent years, the impact of economic activities on the environment, such as climate change, the loss of biodiversity and plastic pollution, has been felt around the world and has become too big to ignore. To become the world’s most trusted beauty company and remain vital for the next 100 years and beyond, the simultaneous pursuit of environmental sustainability and the growth of business must be a priority. Consequently, we identified issues from a value chain perspective and set long-term targets for reducing our environmental footprint. Initiatives have been introduced throughout the business.
We are taking steps to reduce CO₂ emissions not only at our sites but also across our entire value chain (indirect emissions) to mitigate and adapt to climate change. We are also working to minimize climate change-related risks to our business while at the same time maximizing opportunities for business. In terms of water resources, we have reduced water consumption at our sites to ensure that water is used sustainably by working with stakeholders in the basins within which our sites are located. Waste is sorted based on the principles of the circular economy to ensure that resources are used in the most efficient way.

Climate change is leading to numerous environmental issues, including meteorological disasters, a water shortage and the loss of biodiversity, as well as social issues, such as health damage and inequity caused by the loss of land. Countries and regions around the world have agreed to the global goal of holding the increase in global average temperature to below 1.5°C above pre-industrial levels and to achieve net zero emissions. In 2024, the increase in global average temperature reached a record high of 1.55℃, indicating that further efforts to reduce CO₂^*1 emissions are required, not only at the national and regional levels, but also in corporate activities.

It is necessary to reduce the impact of our business activities, and accordingly, the CO₂ emissions across our entire value chain. To lay the groundwork for this, we are steadily reducing CO₂ emissions from the electricity and fuel used at our sites.

At our Kakegawa factory, EMS data analysis revealed heat loss during steam distribution from the central energy building to production buildings. By installing heat pumps in each production building, we successfully reduced heat loss and improved energy efficiency. At our West Japan Distribution Center, we installed thermal insulation panels in the exterior walls to help control room temperature. Our distribution center in the United States completed an ASHRAE^*3 Level 1 audit, the basic-level building performance assessment.

As part of our internal awareness initiatives, Shiseido provides an e-learning program on sustainability to all domestic employees. This program explains how various business operations contribute to CO₂ emissions and emphasizes the importance of collective action in addressing environmental challenges, including energy consumption reduction and energy efficiency initiatives. A knowledge assessment is conducted at the end of the program to evaluate employees’ understanding.

In manufacturing sites with high energy demands, we offer fundamental training on energy conservation and decarbonization. We also hold regular study sessions for engineering and facility management personnel, focusing on energy-saving practices using our Energy Management System (EMS). These sessions include EMS data analysis, collaborative discussions, and cross-site information sharing, supporting continuous enhancement of expertise in energy-saving activities.

Approximately 60% of energy-related CO₂ emissions caused in our business are due to production activities at factories. We decided to introduce an internal carbon pricing (ICP) system in 2023 to help make decisions on investments in factory equipment. In 2024, we started to apply the carbon price in the making of decisions on decarbonization investments in energy efficient facilities, renewable energy facilities, and similar facilities.

It is necessary to understand indirect CO₂ emissions and actively reduce them across our entire value chain.
Since 2011, we started analyzing them by means of a Life Cycle Assessment to assess their indirect CO₂ emissions via the value chain. Based on the results of our continual assessment, we identified the major sources of CO₂ emissions in our business activities and established science-based long-term reduction targets. We are working with stakeholders to reduce emissions across our entire value chain.

All our waste reduction initiatives are driven by employees. Therefore, we arrange online seminars and training sessions in Japan for managers and employees in charge of waste management at Shiseido Group companies. These sessions aim to promote understanding of waste management laws and reduction activities. When we outsource the disposal of waste from our factory or office to a waste disposal contractor, we make sure to assess the contractor, ensure that industrial waste is disposed of appropriately, ensure that a manifest is managed, and inform the importance of onsite confirmation to the contractor. Following the seminars and training sessions, each participant should be able to identify how to effectively manage waste with the help of our internal guidelines and checklists, ensuring adherence to legal standards.

In FY2019, Shiseido introduced performance-linked stock compensation (performance share units) in consideration of Directors' duties. The compensation that is paid annually is structured to serve as an effective incentive for creating medium-to-long-term corporate value. Social value metrics, one of the evaluation items, are given an evaluation weight of 20%. Social value metrics are comprised of multiple ESG-related performance indicators. The environmental aspect is evaluated according to the status of the achievement of the CO₂ emissions reduction target.

Shiseido is actively participating in global initiatives related to the cosmetics industry and beyond. Through the development of rules for CO₂ emissions measurement and environmental impact assessment methodologies, the company is working not only to reduce its own environmental footprint but also to promote the quantitative understanding and reduction of environmental footprint across the domestic and international cosmetics industry.

In addition, we are identifying locations and facilities with high water usage by increasing the number of monitoring points (measurement points) for water usage in our factories. The water usage of all factories is reported monthly, and we have established a system to track progress towards our targets and to develop measures to achieve them.
For instance, at our Kakegawa factory, we analyze data from measurement points and conduct training for environmental representatives in each workplace to identify the areas for water consumption reduction and find solutions. This initiative has raised our employees' awareness regarding water conservation, resulting in the development and execution of effective measures to reduce water consumption.

To ensure more effective use of water, we focus on circular systems that clean water and reuse or recycle it within the process.
At our Kakegawa factory, we launched a Discharged Water Recycling System in 2023. With this system, we recycle some of the discharged wastewater to use it as makeup water. At our Osaka Ibaraki factory, we introduced a circular system that utilizes re-used water to cool the manufacturing tanks. At our Nasu factory, we optimized our pure water manufacturing equipment, which consumes approximately half of all water used at the factory. We also installed a reverse osmosis system to recycle wastewater.
As a new initiative starting in 2024, efforts are also being made at our overseas factories in Hsinchu and Shanghai to reuse wastewater from our water purification and air conditioning condenser systems to cool manufacturing equipment. Collected rainwater is used to water plants at the sites.
At our Gien factory in France, we switched from water-based cleaning to alcohol-based cleaning for our fragrance manufacturing equipment and transportation components. The alcohol used is cleaned and reused in the process repeatedly.

We are engaged in the management of water resources as the common property of the water basin, including secondary use in cooperation with communities and initiatives set up with suppliers.
In the area around our Val de Loire factory in France, rainfall volumes are expected to fall in future. Therefore, we regularly share information with other local industries on good water practices to decrease water consumption. At our Shanghai factory in China which is located in a water-stressed^* area̶ we participate in a local environmental protection association and proactively obtain environmental information, such as environmental laws and regulations regarding factory activities.
We also report monthly water consumption to the government, which promotes water conservation and is working to improve water utilization rates and strengthen water conservation management.
At our Nasu factory, we use groundwater pumped up from a water-bearing layer that lies 150 meters below the ground surface. We treat wastewater appropriately to conform to our own strict standards before releasing it. The water is then reused as agricultural water. We are carrying out surveys of surrounding areas so that we can better understand the water environment of the entire basin. In addition to computer simulation, in 2024, we investigated how water from the surrounding countryside infiltrates into the ground with the support of a local high school and farmers.

The area is covered by trees that provide a habitat for a variety of native species. Children at KANGAROOM Kakegawa, an onsite childcare facility, visit the area to collect plants and interact with wildlife. Visitors can also admire the beautiful view from the nearby Shiseido Corporate Museum. The area has become a source of joy as well as brand communication. The certification body has recognized these benefits. We will continue to manage the green zone and carry out special surveys to monitor wildlife.

Bees play an important role in the pollination of crops. There are concerns around the declining population of honeybees. So our Val de Loire and Gien factories in France have incorporated the protection of honeybees and the conservation of ecosystems into their sustainability plans. As well as setting up beehives onsite, both factories prohibit the use of agrochemicals on factory grounds. In 2024, the factories’ beehives produced around 86 kg of honey.

To conserve biodiversity, we are growing native plants on a 13,300 m2 plot of land near our factory in the United States. We are also planning to conclude an agreement with a beekeeping company in 2025. As pollinators, bees released on the site will help plants reproduce, which contributes to the conservation of biodiversity.

Shiseido is promoting sustainability initiatives through our brands and regional businesses. Sustainability Committee was set up to ensure timely management decisions related to sustainability efforts and their proper implementation across the Group. In 2023, the committee was held regularly. The committee decides on Group-wide sustainability strategies, policies, and discusses specific topics such as risks and opportunities related to climate change and the natural environment, and actions for human rights, as well as monitors the progress of medium-to-long-term goals. The committee consists of the representative corporate executive officers and executive officers in charge of Corporate Strategy, Research & Development, Supply Network, Corporate Communications, and our Brand Holders, to discuss a range of issues from different perspectives. Important matters in the execution of business, which require approvals are proposed or reported to the Global Strategy Committee or the Board of Directors.
In order to ensure executing and promoting of sustainability actions, a Sustainability TASKFORCE was set up under the Sustainability Committee, consisting of the heads of key relevant functions. At the Sustainability TASKFORCE, practical approaches to achieve our long-term targets are discussed with relevant functions, regional headquarters, and local subsidiaries as necessary.

We conducted our scenario analysis for both the transitional and the physical risks/opportunities in terms of the 1.5/2℃ and 4℃ scenarios, respectively, based on the Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs) provided by the IPCC. Regarding transitional risk, the elements associated with the transition to a decarbonized society — such as policy, regulation, technology, market, and consumer perceptions — were considered. Physical risks related to the acute or chronic phenomena caused by the rise in temperature — such as floods and water shortages — were also considered. Based on these considerations, the financial impacts of the 1.5/2℃ and 4℃ scenarios were then analyzed.
The influence of carbon tax was identified as the transition risk, with projections pointing toward approximately JPY 50-870 millionin 2030. For physical risks, JPY 890 millionof floods and JPY 3.2 billion of water shortage were forecasted potentially. As for opportunities, in the 1.5/2℃ scenario, high awareness by consumers means there is a market for sustainable brands and products. Similarly, the 4℃ scenario identifies sales opportunities for products that can help people to live with high temperatures. At Shiseido, we aim to leverage these findings — by mitigating risks and making the most of opportunities to provide sustainable products to consumers and promote our beauty innovations.

For nature-related risks and opportunities, we conduct a quantitative analysis of the impact on biodiversity throughout the value chain by means of a Life Cycle Assessment. This revealed that the impact is great, particularly in raw material procurement. In response, we assumed places of origin of cosmetics raw materials with high dependence on biodiversity in line with the LEAP approach recommended by TNFD and evaluated the potential impacts due to land conversion. We thus monetized ecosystem services by pollinators, such as honey bees, as physical risk analysis in the aspect of dependencies. At the same time, we analyzed risks on sustainability-related regulations as transitional risks along with climate change issues.

We assess and identify the impactful risks holistically from a mid-to-long-term perspective. “Environmental (Climate Change, Biodiversity, etc.)” and “Natural Disaster, Infectious Disease and Terrorism” are listed as the categories related to sustainability. Climate-related and biodiversity-related risks are analyzed based on scientific and socioeconomic evidence and integrated into the enterprise risk management system as one of the elements related to climate change or natural disasters. According to their significance, the risks and their countermeasures are deliberated by the Global Risk Management & Compliance Committee and the Global Strategy Committee. The material risks are also proposed or reported to the Board of Directors as necessary.