Assessing Climate Risks and Opportunities

Governance

The Shiseido Sustainability Committee discusses management decisions concerning sustainability issues. The committee is chaired by the Representative Director, President and CEO, and consists of executive officers in charge of Corporate Strategy, R&D, Supply Network, Corporate Communications and Brands, as well as Corporate Auditors. The committee makes decisions on group-wide sustainability strategies and policies, manages the progress of medium- and long-term targets, and implements plans such as the Task Force on Climate-related Financial Disclosures (TCFD) and human rights actions.

For decisions regarding important business matters, issues are also discussed at the Global Strategy Committee and the Board of Directors. In 2021, due to the significance of climate change-related issues, the Board of Directors stressed the importance of reflecting our stakeholders’ expectations (employees, consumers, business partners, shareholders, society, and the Earth) into our sustainable initiatives.

Strategy (Scenario Analysis)

We conducted our scenario analysis for both the transitional and the physical risks/opportunities in terms of the 1.5/2°C and 4°C 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°C and 4°C scenarios were then analyzed. The influence of carbon tax was identified as the most significant financial impact, with projections pointing toward approximately USD 1-7.2 million in 2030, depending on the number of countries and regions where carbon tax would be introduced.

As for opportunities, in the 1.5/2°C scenario, high awareness by consumers means there is a market for sustainable brands and products. Similarly, the 4°C 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.

Risk Management

We assessed and identified the impactful risks holistically from a mid-to-long-term perspective. “Environment and Climate Change” and “Natural and Human-made Disasters” are listed as the categories related to sustainability.

Climate-related risks are analyzed based on scientific and socio-economic evidence and integrated into the enterprise risk management system as one of the elements related to climate change or natural disasters. The identified risks and their countermeasures are periodically reviewed by the Global Risk Management & Compliance Committee. As for the critical matters, they are also reviewed by the Global Strategy Committee and the Board of Directors.

Metrics and Targets

In order to mitigate the climate-related risks, we set the reduction of CO₂ emissions as our target. We aim to achieve carbon-neutrality (Scope 1 and 2) by 2026, and we monitor the progress every year. In terms of mitigating market risks and creating opportunities in the 1.5/2°C scenario, we support the concept of a circular economy, and aim to reduce CO₂ emissions and eliminate single-use plastics with the target of switching to 100% sustainable packaging by 2025. To manage the risk of water shortage in the 4°C scenario, we selected water consumption at our sites as an indicator and set a target of reducing it by 40% by 2026 (versus 2014). As for other physical risks, we will examine appropriate metrics from the viewpoint of long-term risk management.

Climate-Related Disclosure

We support the Task Force on Climate-related Financial Disclosures (TCFD) and disclose the results of our climate-related risk analysis based on the TCFD framework.

In preparation for a decarbonized society, we have compiled our climate-related goals, scope and initiatives into a transition plan. We are disclosing climate-related information through our responses to the CDP, as well as our website, Integrated Report, and Sustainability Report. Our disclosures on CO₂ emissions (Scope 1, 2, and 3) are verified by an independent third party, SGS Japan, to ensure transparency. In addition, our target for mitigating climate change is certified by SBTi, and we have joined RE100.

Risks and Opportunities

● Risk factor analyzed qualitatively and quantitatively.

• Climate-related Financial Disclosure, including detailed results of scenario analysis.