SustainabilityEnvironmentResponse to the TCFD Recommendations
In August 2023, TOCALO announced its support for the TCFD*1 recommendations.
TOCALO’s vision is to contribute to a bright future for people and nature, so we have positioned tackling climate change as a management priority. We will focus our expertise as a coating manufacturer to help clients conserve resources, reduce labor, and lower environmental burden for a decarbonized society. We will also actively disclose our efforts concerning climate-related risks and opportunities. Following the change in the basis of climate-related disclosure regulations from the TCFD to the ISSB*2, we will continue to stay informed and up to date on the changes in disclosure standards and further enhance disclosure of our climate change activities.
- The Task Force on Climate-related Disclosures. The TCFD was established in 2015 by the Financial Stability Board, a body representing the central banks and financial authorities of various countries as well as international organizations, following the mutual recognition by influential countries that climate change is having a major impact on financial markets. The TCFD recommendations on climate-related financial disclosures were released in 2017. In addition to encouraging companies and other organizations to disclose information related to climate change, they also provide a framework for making such disclosures. The TCFD disbanded in October 2023.
- The International Sustainability Standards Board. The International Financial Reporting Standards (IFRS) Foundation formed the ISSB in November 2021 as an entity to develop international sustainability standards. Following the TCFD disbandment, in 2024 the ISSB assumed the responsibility of monitoring the progress of corporate disclosure of climate-related data.
Governance
The president is responsible for supervising activities related to climate change risks.
The Sustainability Committee formulates sustainability policies and action plans, monitors the progress of our efforts, and deliberates on our response to climate change. The committee, which meets four times a year in principle and is chaired by the president who acts as the individual in charge, includes full-time directors and the general managers of business divisions among its members.
The Board of Directors receives reports from the committee concerning every aspect of sustainability, including climate change, and deliberates on and approves matters as necessary. The Board of Directors approved a medium-term management plan that includes climate change-related targets at a meeting held in October 2021 and material issues that include climate change initiatives at a meeting held in December 2021.
The Sustainability Committee consists of a full-time director, general manager of the Sales Headquarters, general manager of the Production Headquarters, general manager of the Quality Management Headquarters, general manager of the Administrative Headquarters, general manager of the Thermal Spraying Technology R&D Laboratory, division manager of the Marketing Planning Division, division manager of the Environment Promotion Division, division manager of the Personnel and General Affairs Division, division manager of the Overseas Business Division, division manager of the Accounting Division, and division manager of the Corporate Planning Division. The following 10 individuals are the main members of the committee in positions of executive officers or higher.
| Name | Position |
|---|---|
| Kazuya Kobayashi | Representative Director, President and Executive Officer |
| Noriyuki Mifune | Chairman & Representative Director |
| Nobuyuki Kuroki | Director, Deputy President and Executive Officer |
| Hiroshi Goto | Director, Managing Executive Officer; General Manager, Administrative Headquarters |
| Takayuki Yoshizumi | Director, Managing Executive Officer; General Manager, Sales Headquarters |
| Hiroyuki Aisaka | Executive Officer; General Manager, Quality Management Headquarters |
| Katsunori Nakai | Executive Officer; Division Manager, Personnel and General Affairs Division |
| Yasuki Nakahira | Executive Officer; General Manager, Overseas Business Headquarters |
| Takeshi Takabatake | Executive Officer; General Manager, Production Headquarters |
| Takema Teratani | Executive Officer; General Manager of Thermal Spraying Technology R&D Laboratories |
Strategy
In 2022, we launched a broad examination of climate-related risks and opportunities and in
June identified countermeasures for the main risks and opportunities to TOCALO Co.,
Ltd.
In 2023, we deepened our analysis by calculating the financial impact of each risk
and opportunity and used the results to set indicators and targets for the countermeasures
that we have deemed of critical importance.
In June 2024, we updated our scenario
analysis
and verified the progress of our countermeasures. The updated analysis is based on the
global trend to target 1.5℃ warming, and we are conducting analysis using the
Decarbonization Scenario (1.5℃ to 2.0℃) and the Global Warming Progression
Scenario
(4.0℃).
We will continue to refine our analysis and
apply measures guided by indicators and targets to reduce risks and increase opportunities.
- Scope: Carbon tax items are TOCALO Corporation consolidated; other items are TOCALO Corporation non-consolidated
- Period: Present to 2050
- Scenarios
・Decarbonization Scenario (1.5℃ to 2.0℃): A world in which the average global temperature rise since the Industrial Revolution is limited to 1.5℃ to 2.0℃
・Global Warming Progression Scenario (4.0℃): A world in which the global average temperature rise since the Industrial Revolution is about 4.0℃ - Scenario reference materials
・IEA WEO 2023 NZE・SPS・APS
・Fifth Assessment Report of the IPCC, RCP2.6 (2.0℃), RCP8.5 (4.0℃)
・Sixth Assessment Report of the IPCC, SSP1-1.9 (1.5℃), SSP5-8.5 (4.0℃)
Risks, Opportunities, and Response Measures
| Category | Type | Details | Timeframe | Impact on Business | Financial Impact Unless indicated, the scenario is 1.5℃ to 2.0℃ in fiscal 2030 |
Response Measures |
|---|---|---|---|---|---|---|
| Transition risks | Policy and regulatory | Increase in energy procurement costs following the introduction of carbon pricing systems | Medium- to long-term | Medium | Carbon tax: ¥380 million* *TOCALO Co., Ltd consolidated *2030 carbon tax estimated to be $140/t-CO2 *Foreign exchange rate $1 = ¥153 |
Renewable energy
Facilities
Vehicles
|
| Increase in materials procurement costs following the introduction of carbon pricing | Medium- to long-term | Medium | ― | Enhance information gathering | ||
| Market | Decreased coating demand from coal-fired power plants and other power generation facilities that use fossil fuels | Short- to medium-term | Medium | Decrease in sales related to thermal power generation: ¥1.11
billion (down 51% from fiscal
2023*) *The rate of decline in thermal power generation is based on the Japanese government’s Sixth Strategic Energy Plan |
Adapt to technology geared toward alternative fuels such as hydrogen, ammonia, and biomass | |
| Reputational | A loss of reputation among stakeholders, investor outflow and a drop in share price, or rejection of recruitment opportunities due to insufficient response and information disclosure regarding climate change | Short- to medium-term | Medium | ― | Enhance and expand management and information disclosure concerning CO2 emissions | |
| Strengthen communication with stakeholders | ||||||
| Consider acquiring third party certification to improve the trustworthiness of information disclosure | ||||||
| Physical risks | Acute | Incurring of recovery costs due to damage to plants and
operational stoppages caused by disasters such as typhoons, heavy rains,
and lightning strikes Production delays and increased costs due to supply chain disruptions |
Medium- to long-term | Large |
Many of our business sites are located in coastal areas, where potential
flood risk damage is higher from storm surges than from other sources,
such as river flooding. Event of a flood-class disaster at the six business sites*1 located in potential storm surge flood areas: Sales loss due to shutdown: ¥5.89 billion*2 Damaged facility restoration cost: ¥9.29 billion*3 *1 Local government hazard maps indicate six business sites located in potential storm surge areas: Nagoya Plant, Head Office, Akashi Plant, Thermal Spraying Technology R&D Laboratories, Kurashiki Plant, and Kitakyushu Plant *2 The number of days of shutdown is based on the Manual for Economic Evaluation of Flood Control Investment of the Ministry of Land, Infrastructure, Transport and Tourism *3 Assumption is one flood event will cause 70% of machinery and equipment to fail beyond repair |
Formulate disaster plans and consider moving plants in coastal areas that have a high risk of flooding due to rising tides and high waves |
| Counter instantaneous power failures caused by lightning strikes (complete introduction of UPS devices, countermeasures for hydraulic control equipment) | ||||||
| Strengthen business continuity planning, including measures concerning supply chains | ||||||
| Chronic | Procurement difficulties and steep price rises due to increasing metal demand amid decreasing extraction volume | Medium- to long-term | Large | Increase in processing material costs: ¥1.24 billion
(an increase of 43.0% of fiscal
2023*) *The rate of price increase for processed materials is based on the market growth forecast for the main metal materials used by the Company |
Lower material volume by reducing consumption and improving efficiency (including recycling), pass on price increases | |
| Monitor fluctuations in suppliers’ prices due to changes at mines caused by regulations on materials extraction, including metals | ||||||
| Pursue customer satisfaction concerning quality by investigating the impact of changes at mines on quality | ||||||
| Plant damage due to rising sea level | Long-term | Large | (+4℃ 2050) Nagoya Plant, which is located in a flood zone, is inundated or much of the neighborhood is under water* Plant relocation cost: ¥1.63 billion *Assumption of a 0.3 meter sea level rise from 2023 to 2050 |
Strengthening information gathering and flood countermeasures | ||
| Increased impact on employee health due to heat stroke, infectious diseases, etc. | Short- to long-term | Medium | ― | Improve working environments using cutting edge air conditioning | ||
| Opportunities | Technological | Revenue growth through an increase in opportunities to capture new customers driven by the need of customers to adapt to climate change | Short- to long-term | Medium | Revenue increase in environmental energy-related businesses: ¥1.94 billion (an increase of 101% of fiscal 2023) | Develop and market coating technology tailored to customers’ GHG emissions reduction efforts (alternative fuels such as hydrogen, ammonia, and biomass, recycling facilities, etc.) |
| Develop and market coating technology tailored to efforts to promote and streamline natural energy power generation (wind power, hydropower, geothermal power, storage batteries, etc.) | ||||||
| If raw materials producers switch to renewable energy, showcase our ability to supply customers with coatings that generate zero Scope 3 GHG emissions | ||||||
| Reputational | Increase in potential orders by encouraging understanding of how coating technology connects to energy saving and GHG emission reductions | Short- to long-term | Large | Revenue increase from repair and revitalization-related businesses: ¥4.16 billion (an increase of 58% of fiscal 2023) | Actively showcase our position as the leading company for thermal spray coating | |
| Short-term: Within the
next five years Medium-term: To 2030 Long-term: To 2050 |
Risk management
We have positioned climate change risk as a serious business risk, and it is incorporated into the management of each division. The Sustainability Committee also monitors risk management on a cross-divisional basis. The Board of Directors receives reports on matters such as the results of this monitoring and then deliberates and decides upon company-wide response measures.
The Sustainability Committee meets twice yearly to discuss the progress of KPIs for converting to renewable energy and reducing and improving the efficiency of electricity consumption and to reevaluate risks related to climate change.
Metrics and targets
The Company has set specific indicators and targets related to climate change. The indicators and targets are reviewed by the Sustainability Committee, which is chaired by the president, which then reports them to the Board of Directors for deliberation by the directors and others for final approval. The indicators and targets are considered as important management indicators and are the basis for long-term climate change measures.
Electricity accounts for 85.84% (CO2 equivalent) of the energy consumed by the Company and the vast majority of our CO2 emissions.
In October 2021, the Japanese government approved a revision of the Plan for Global Warming Countermeasures that sets target of reducing greenhouse gas emissions by 46% in fiscal 2030 compared to fiscal 2013. Based on this plan, we have set a target for fiscal 2030 Scope 1 and 2 greenhouse gas emissions to be below 54% of the level of fiscal 2013, representing a 46% decrease. We have also set a medium-term target to reduce non-consolidated GHG emission to under 54% by fiscal 2025.
We are also working to increase the waste recycling rate to 40% by fiscal 2025 as a countermeasure for the soaring cost of processing materials due to rising demand for metals and a declining extraction volume.
We are preparing to meet increasing opportunities to secure orders for our coatings by advancing our technological development and engaging in public relations to communicate how our coating technologies help conserve energy and reduce GHG emissions. We have also set targets for fiscal 2050 for order volume in the environmental field, encompassing environmental energy equipment and repaired and refurbished products.
| Countermeasure | KPI | Fiscal 2025 goal | Fiscal 2023 achievement | Fiscal 2022 achievement | Fiscal 2021 achievement |
|---|---|---|---|---|---|
| Convert to renewable energy, improve efficiency, and reduce electricity consumption | GHG emissions (non-consolidated, Scope 1 and 2) | 7,900 t-CO2 (Less than 54% of fiscal 2013 emissions) |
7,819 t-CO2 | 6,990 t-CO2 | 17,450 t-CO2 |
| Improve efficiency and reduce consumption (including recycling) of materials | Waste recycling rate | 40% | 48.6% | 33.1% | 30.7% |
| Advance development of our coating technologies and engage in public relations to communicate how our coatings contribute to client efforts to reduce GHG emissions, conserve energy, and promote the adoption and efficiency of natural energy power generation. | Financial value of orders received in environmental field (1) Environmental and energy equipment (2) Repaired and refurbished products |
(1) 2,000 million yen (2) 8,500 million yen Total: 10,500 million yen |
(1) 1,913 million yen (2) 7,229 million yen Total: 9,143 million yen |
(1) 1,326 million yen (2) 6,401 million yen Total: 7,727 million yen |
(1) 891 million yen (2) 6,117 million yen Total: 7,008 million yen |