Initiatives to Address Climate Change

Lower the Overall Environmental Impact of Business Operations

Our beauteous global environment is the source of healthy lives for all of us. In addition, because many of the ingredients in cosmetics are obtained from nature, we benefit from the natural environment every day we do business. The KOSÉ Group is grateful for this benefit and therefore believes that it has a responsibility to reduce its environmental impact as much as possible to preserve nature—in other words, the global environment. We are now accelerating our initiatives to respond to the particularly pressing issue of climate change.

The KOSÉ Group conducted a material analysis of issues related to the social structure and environment in which it operates. As a result of the findings, we positioned addressing the environment and climate change as an essential management issue in our efforts to drive business growth while helping achieve a sustainable society under the Sustainability Strategy, which sets out the entire Group’s sustainability initiatives and targets up to 2030. In October 2020, we announced our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and joined the TCFD Consortium, an organization of Japanese companies and other institutions that support the TCFD recommendations.

Based on the TCFD recommendations, we will disclose information to stakeholders on the business risks and opportunities caused by climate change from the four perspectives of governance, strategy, risk management and indexes/goals. We will also continue to make Group-wide efforts to reduce CO₂ emissions.

Governance and Risk Management

The KOSÉ Group views issues related to sustainability as management issues and has established a system for promoting solutions to these issues. Specifically, the Sustainability Committee, chaired by the President & CEO, has been established to propose sustainability strategies to the Management Committee for approval and reporting to the Board of Directors. The Board of Directors is responsible for overseeing the company's overall sustainability promotion activities by reporting and deliberating on various important issues related to sustainability strategies. The President, who chairs the committee, is also responsible for assessing and monitoring risks and opportunities related to climate change issues. These issues are reported and discussed at the Board of Directors meeting at least once a year, and efforts are reviewed. In addition, based on the KOSÉ Group’s Sustainability Strategy, the Sustainability Promotion Committee has established subcommittees and projects for each individual theme to promote activities that are highly effective as cross-departmental initiatives.

For organizational risks related to climate change, the Risk Management and Compliance Committee, which oversees enterprise risk management, identifies and assesses risks at the corporate level. Among them we have made climate change an essential factor in our consideration of energy usage, CO₂ emissions, water consumption, and wastewater. We take into account physical risks caused by climate change in our business continuity plan. The Sustainability Committee and the Risk Management and Compliance Committee are monitoring climate change-related issues based on these frameworks.

Corporate Governance
Details of the Corporate Governance Sustainability Promotion System

Strategy (Scenario analysis)

The KOSÉ Group conducted scenario analysis to examine the transition risks and physical risks associated with climate change. In this analysis, we evaluate the financial impact of climate change under the scenarios of 1.5˚C/2˚C and 4˚C rise in average global temperatures and disclose information on corporate initiatives. We also use this information to study management strategies to realize the future of society and the earth.

In terms of scenario analyses, we identified risks and opportunities in procurement and demand for our products and services not just in the short term, but also with a medium- to-long-term view toward 2030 and beyond, based on the Sustainability Strategy. Furthermore, of these high-priority factors, we identify those with the greatest physical and transition impact and evaluate the potential impact of climate change on the KOSÉ Group. We also analyze the degree of financial impact of risks and opportunities.

In fiscal 2021 we also examined our countermeasures. For example, in terms of raw material procurement risk due to climate change, one approach to reducing risk is to engage with suppliers to promote research and development into low-cost raw materials. In addition, we deemed collaboration with other companies, in-licensing of advanced technology, and the promotion of new sales methods to be effective for developing and expanding products and services with reduced environmental impact. We believe we can reduce the risks and expand the opportunities that we have uncovered by promoting the KOSÉ Sustainability Strategy.

	1.5℃/2℃scenario	4°C scenario
Social change	Strengthening regulations for a decarbonized society Government: Introduction of low-carbon policies and regulations with effective implementation by enterprises Investors: Accelerating ESG investment and lending, urging companies to decarbonize Consumers: An increasingly environmentally-conscious lifestyle Suppliers: Progress in reducing carbon emissions at the request of society Distribution: Promoting the procurement of products that are sustainable as a social responsibility Technology: Advances in low-carbon solutions Natural environment: Although the severity of disasters advances, they are suppressed to a certain extent	Physical risks across the value chain make a greater impact Government: Limited introduction of low-carbon policies and regulations Investors: Concerned about disaster risk, urging companies to respond to BCP Consumers: Growing demand for products and services that adapt to climate change Distribution: Increased need for BCP response due to increased physical risk Technology: Advances in solutions for climate change adaptation Natural environment: Increased economic losses due to intensified natural disasters
Impact on business	Accelerating expectations from the society towards a decarbonized society for companies Government: Impact of introduction of regulations on business activities Investors: Corporate value depends on developments in decarbonization Consumers: Increasing demand for environmentally friendly products Suppliers: Decarbonization in cooperation with suppliers is essential for business Distribution: Sustainable procurement and manufacturing may be a condition for securing distribution networks Technology: Creation of time-based benefits associated with the introduction of low-carbon technologies Natural Environment: The possibility of certain disasters occurring at in-house sites	Increased need of a response to BCP and disaster resilience Government: Policy and regulatory impact on business may be limited Investors: Management’s response to BCP may affect corporate value Consumers: Providing value in response to changing living conditions is important for business Suppliers: BCP response also affects company management Distribution: improving disaster resilience in distribution networks is important Technology: Improving disaster resilience through the use of adaptive technology is important Natural environment: Increased likelihood of in-house disaster impact and decline in consumer QOL

1.5℃/2℃scenario

4°C scenario

Social change

Strengthening regulations for a decarbonized society

Government: Introduction of low-carbon policies and regulations with effective implementation by enterprises
Investors: Accelerating ESG investment and lending, urging companies to decarbonize
Consumers: An increasingly environmentally-conscious lifestyle
Suppliers: Progress in reducing carbon emissions at the request of society
Distribution: Promoting the procurement of products that are sustainable as a social responsibility
Technology: Advances in low-carbon solutions
Natural environment: Although the severity of disasters advances, they are suppressed to a certain extent

Physical risks across the value chain make a greater impact

Government: Limited introduction of low-carbon policies and regulations
Investors: Concerned about disaster risk, urging companies to respond to BCP
Consumers: Growing demand for products and services that adapt to climate change
Distribution: Increased need for BCP response due to increased physical risk
Technology: Advances in solutions for climate change adaptation
Natural environment: Increased economic losses due to intensified natural disasters

Impact on business

Accelerating expectations from the society towards a decarbonized society for companies

Government: Impact of introduction of regulations on business activities
Investors: Corporate value depends on developments in decarbonization
Consumers: Increasing demand for environmentally friendly products
Suppliers: Decarbonization in cooperation with suppliers is essential for business
Distribution: Sustainable procurement and manufacturing may be a condition for securing distribution networks
Technology: Creation of time-based benefits associated with the introduction of low-carbon technologies
Natural Environment: The possibility of certain disasters occurring at in-house sites

Increased need of a response to BCP and disaster resilience

Government: Policy and regulatory impact on business may be limited
Investors: Management’s response to BCP may affect corporate value
Consumers: Providing value in response to changing living conditions is important for business
Suppliers: BCP response also affects company management
Distribution: improving disaster resilience in distribution networks is important
Technology: Improving disaster resilience through the use of adaptive technology is important
Natural environment: Increased likelihood of in-house disaster impact and decline in consumer QOL

*See 1.5˚C/2˚C (SSP1-1.9 scenario) and 4°C (SSP5-8.5 scenario) of the SSP scenarios in the Sixth Assessment Report of the IPCC (Intergovernmental Panel on Climate Change). See also SDS and NZE2050 for 1.5˚C/2˚C scenarios.

The KOSÉ Group’s Risks and Opportunities

Analysis	Risks/Opportunities	Effect	Size of Impact on KOSÉ		Summary	Countermeasures
Analysis	Risks/Opportunities	Effect	1.5℃/ 2℃	4°C	Summary	Countermeasures
Transition Risks	Shift in consumer demand to environmentally friendly products; decline in reputation due to passive response	Decrease in sales	++	-	In the 1.5℃/2℃ scenario, a passive environmental response would lead to lower sales of our products as environmental awareness among consumers increases.	• Strengthen the development of environmentally friendly products such as those that are low-carbon, conserve water, reduce plastic or use sustainable materials • Consider and promote product development, sales methods, etc. that use advance technologies
	Stronger restrictions on greenhouse gas emissions; introduction of carbon pricing (affecting KOSÉ and suppliers)	Increase in costs	++	-	In the 1.5℃/2℃ scenario, the imposition of a carbon tax, including on suppliers, would lead to increases in our operating and procurement costs.	• Set medium-term emissions reduction targets and implement reduction measures based on SBT certification • Formulate capital investment plans related to environmental considerations (e.g., sequential replacement of energy-saving equipment)
	Substitution of plastic materials due to introduction of restrictions on plastics	Increase in costs	++	-	In the 1.5℃/2℃ scenario, stronger plastic regulations would make it necessary to procure biomass plastics and recycled plastics, leading to an increase in costs.	• Reduce plastics and adopt the use of sustainable materials • Develop regulation-compliant materials and investigate building a recycling system
	Production restrictions due to the introduction of restrictions on intake and drainage	Decrease in sales	＋	++	Water stress increases and the introduction of related water intake restrictions in the regions where we operate as a result of climate change, could lead to lost sales opportunities due to suspension of production operations. This impact would likely occur in the 1.5℃/2℃ scenario, but we assume it would be even more significant in the 4°C scenario.	• Achieve further water use efficiencies (e.g., conservation, consider introducing a water recycling system)
Physical Risks	Increase in raw material procurement risk due to climate change	Increase in costs	＋	++	If the global yields of palm oil and other raw materials used in our products and containers change as a result of rising temperatures, our procurement costs could also change.	• For possible raw materials cost increases, implement joint purchasing with the Group companies and other companies • Develop and procure alternative raw materials through supplier engagement
	Suspension of production or logistics operations due to damage from floods or other disasters	Decrease in sales	＋	++	If natural disasters such as flooding affect our production and logistics bases, sales of our products could decrease due to shutdowns.	• Strengthen our business continuity plan (BCP) response (Study how to respond to an environment expected to further deteriorate. Make use of solutions for adapting to climate change.)
	Damage to production facilities and supply chain disruptions caused by abnormal weather	Decrease in sales Increase in costs	＋	++	If the impact of global warming causes damage to any of our factories, costs such as repair and rebuilding expenses could arise. If the production and logistics bases of suppliers are similarly affected by natural disasters, there is a risk that the supply of our products could be interrupted.	• Strengthen our BCP response (Study how to respond to an environment expected to further deteriorate. Decentralize manufacturing.) • Establish a disaster-resilient supply chain system (e.g., robust BCPs at major suppliers, multiple procurement sources)
Opportunities	Increased demand for sunscreen and UV protection products due to increasing UV exposure	Increase in sales	＋	++	If UV exposure in daily life increases, the number of people who need UV protection products and the frequency of use could increase, resulting in increased sales of those products.	•Active development and positioning of UV care products, etc. •Strengthened appeal to consumers for habitual use of sunscreen products
	Increased demand for cooling products and makeup smudging prevention products due to rising temperatures	Increase in sales	＋	++	In cosmetics-related products such as skin lotion and foundation, if needs for products that provide a cooling sensation and prevent makeup from smudging increase along with rising temperatures, sales of those products could increase.	•Active development of products that provide a cooling sensation or prevent makeup from smudging
	Improvement of brand value due to reduction of the environmental footprint of our products	Increase in sales	++	-	As environmental awareness increases throughout society, our ability to achieve and publicize a reduction in our environmental footprint could have a positive effect in marketing.	• Respond to low-carbon product requirements, etc. (e.g., calculate carbon footprint of each product, develop products that save water at the time of use)
	Development and expansion of products and services with reduced environmental impact	Increase in sales	++	-	An increase in the perceived added value of providing low-carbon and non-plastic products and services could have a positive effect on revenue.	• Be a source of adaptable products (ethical consumption, etc.) • Promote product development and sales methods through alliances and the use advanced technologies (beauty partnerships) • Strengthen development of environmentally friendly products that are low-carbon, have less plastic, use sustainable materials, etc. • Establish sales methods that proactively incorporate the latest digital technologies
	Improved cost competitiveness from renewable energy and energy-saving equipment	Decrease in costs	＋	++	The purchase of renewable energy and the introduction of energy-saving equipment will lead to a reduction in the company's energy costs. Especially in the 1.5℃/2℃ scenario, the cost benefits of renewable energy procurement occur by reducing the price of renewable energy procurement while the price of electricity is higher than now.	• Procure renewable energy (various power-purchasing agreements, etc.). • Develop renewable energy with in-house power generation and consumption

Note:-：minimal impact　+：some impact　++：substantial impact

Specific Activities

KOSE Gunma Factory

At the Gunma Factory, one of our main production facilities, we switched all of the electricity we purchase to electricity from renewable energy sources from January 2021. Over a full year, this will be equivalent to approximately 23% of the amount of greenhouse gas emissions from energy and purchased electricity at all KOSÉ Group locations, using fiscal 2018 as the base year.
At KOSÉ SALES CO., LTD., we are promoting car sharing to reduce the number of sales vehicles used. We also conducted a fundamental review of sales operations, and are taking steps to achieve further reductions.
We are also making efforts to reduce the environmental impact of our products and advertisements.

Initiatives in Production
Initiatives in Advertising, Sales and Offices
Initiatives in Products

Indicators and Targets

Based on the results of the scenario analysis, the KOSÉ Group realized it was critical to set some bold targets for CO₂ emission reduction in its operations to contribute to keeping the rise in average atmospheric temperatures within 2°C. In the Sustainability Strategy, we have set the reduction of CO2 emissions as one of the themes to be addressed as a possible greenhouse gas emission by the KOSÉ Group.
The KOSÉ Group has set targets for reducing CO₂ emissions by 2030, including a 55% reduction in CO₂ emissions from energy and electricity used by the Group (Scope 1 and 2) (for SBT 1.5 °C Target Certification*1) and a 30% reduction in CO₂ emissions from the entire value chain (Scope 3) (for SBT Certification*2) (both compared to FY2018). We will also strengthen our efforts to address climate change by setting long-term targets of carbon neutrality under Scope1 and 2 in 2040 and Net Zero under Scope1, 2, and 3 in 2050. From its business activities to the entire value chain, the KOSÉ Group is actively working to reduce CO₂ emissions from a wide range of perspectives.

*1:Targets advocated by the Science Based Targets initiative (SBTi), which are consistent with the standards required by the Paris Agreement.Set based on scientific evidence to limit the increase in global average temperature to 1.5°C above pre-industrial levels.

*2:Certification by the international initiative “SBTi (Science Based Targets initiative)”

2030 Target	Reduce Scope 1 and 2 CO₂ emissions by 55% (compared to 2018)
2030 Target	Reduce Scope 3 CO₂ emissions by 30% (compared to 2018)
2040 Target	Achieve carbon neutrality (Scope 1 and 2)
2050 Target	Achieve net-zero emissions (Scope 1, 2, and 3)

The KOSÉ Group is now carrying out ambitious initiatives to curb CO₂ emissions with a broad perspective, from our own business activities to the entire value chain. We remain dedicated to taking effective action on climate change and a range of other social issues, and thereby help realize a healthy future for the Earth in which everyone can live with peace of mind.

Details of CO₂ emissions：Sustainability Data

For the Global Environment

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Environmental Indicators
Initiatives to Address Climate Change
Low-Carbon Transition Plan
Measures for Circular Economy
Commitment for Biodiversity
Efforts related to products
Efforts in manufacturing
Efforts at offices, logistics operations, and shops
Overall data on environmental impact