Information disclosure based on TCFD recommendations
—Toward carbon neutrality—

• Basic approach
• Information disclosure and support of TCFD recommendations
• Roadmap to carbon neutrality by 2050
• Specific initiatives
• CO₂ emissions in the supply chain

Basic approach

Aichi Steel emits CO₂ both directly and indirectly through the manufacturing processes of its various products, such as heating of steel materials, and melting of steel scrap, which is the raw material of its main product, specialty steel. For this reason, our response to climate change is a serious management issue from the perspectives of risks and opportunities. In September 2021, we made a commitment to take on the challenge of carbon neutrality by 2050, so we are accelerating initiatives for decarbonization.
As a resource-recycling company that uses steel scrap as a raw material in manufacturing, we will utilize our strengths, which have contributed to sustainable manufacturing through materials and parts, to help realize a decarbonized society. To this end, we will also continue to develop and provide products and services that contribute to reduced CO₂ emissions across the entire supply chain.

Information disclosure and support of TCFD recommendations

In December 2021, Aichi Steel declared its support of recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We are analyzing various scenarios based on the impacts, and associated risks and opportunities, that climate change may have on our business, and we are considering how to reflect the results in management strategy to achieve sustainable growth. We detail our climate-related initiatives here in line with the framework (governance, strategy, risk management, and metrics and targets) recommended by the TCFD.

Governance

We have identified climate change as a priority issue (materiality) for management, so we are setting KPIs and working to accomplish our targets. As the organization responsible for considering important business management-related matters, the Top Management Meeting discusses and considers response policies, business strategies, and the status of initiatives related to risks and opportunities that can severely impact business management, such as climate change. The Board of Directors performs its supervisory function by receiving subsequent reports and considering matters that are particularly important.
We have also established an Environmental Working Group to execute strategies, set targets, and manage progress related to climate change. It comprises six subcommittees, each with clear areas of responsibility, to conduct efficient and targeted activities.

FY2022 achievements

1. Board of Directors
   • Revision of CO₂ emission reduction targets (discussion)
   • Disclosures based on TCFD recommendations (reporting)
   • Carbon neutral trends and Aichi Steel progress (discussion of special topics)
2. Top Management Meeting
   • Consideration of adoption of solar power generation (Seki Plant and Gifu Plant)
   • Disclosures based on TCFD recommendations (discussion)
   • GX League endorsement and participation
   • Actual CO₂ emissions (monthly)

Risk management

We follow the process below to identify, evaluate, and supervise all risks. We also discuss and report climate change-related risks in the Environmental Working Group and Top Management Meeting to clarify impacts and our responses.

Strategies

While referencing reports of the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC), we developed two scenarios (1.5°C scenario and 4°C scenario) of what society would look like in 2030 assuming a global average temperature rise of 1.5°C and 4°C by the end of this century (compared to pre-industrial levels), and analyzed the risks and opportunities.

Analysis results by scenario

1. 1.5°C
   While risks include expansion of CASE applications in the automotive industry where our major customers are, and demands for decarbonization in the steel industry, we are confident that addressing climate change will lead to the creation of new business opportunities.
2. 4°C
   We reconfirmed the potential for natural disaster risks, which are increasing on a yearly basis, to impact our company and the rest of the supply chain. We will continue efforts to adapt to natural disasters, revise our business continuity plan (BCP), strengthen the supply chain by enhancing information gathering, and improve communication.

Main risks and opportunities, and response policies (excerpt)

Metrics and targets

We set ourselves a target to reduce CO₂ emissions from our corporate activities by fiscal 2030, but we have now lifted that 35% target to 50% (compared to fiscal 2013). We have been actively implementing initiatives for this purpose, including thorough promotion of energy savings in our production processes and adoption of non-fossil energy sources, such as solar power generation. With the appearance and increasingly serious nature of climate change risks, and an urgent need to shift to a decarbonized society, we considered more active efforts to achieve carbon neutrality and decided to raise our target as a result.

Roadmap to carbon neutrality by 2050

Aichi Steel has formulated and is systematically implementing a roadmap for achieving its targets. We also created plant-specific roadmaps, and we are systematically conducting activities focused on (1) deepening and pursuing energy savings, (2) utilizing renewable energy, and (3) developing and adopting decarbonization technologies.

Specific initiatives

Use of renewable energy

The large amounts of electricity used in Aichi Steel's specialty steel manufacturing processes have made it essential for the company to shift to electricity derived from renewable energy. Therefore, in addition to thorough efforts to conserve energy and improve efficiency, we are actively promoting adoption of such electricity. In fiscal 2022, five of our seven plants (Seki Plant, Gifu Plant, Higashiura Plant, Electronic Components Plant, and Kariya Plant) effectively achieved carbon neutrality through the purchase of FIT non-fossil certificates with tracking^*1 and adoption of carbon neutral city gas^*2. In fiscal 2023, we also plan to start operating in-house solar power generation facilities at two of our plants (Seki Plant and Gifu Plant). Going forward, we will continue expanding use of renewable energy.

• Certificates of the environmentally friendly value of electricity generated by non-fossil power sources (power sources that generate electricity without using fossil fuels such as coal and oil), which are subject to the FIT program established to promote the spread of renewable energy
• City gas produced using carbon neutral LNG, in which CO₂ generated in the processes from mining to the combustion of natural gas is offset by CO₂ credits (carbon offsetting)

Toward hydrogen adoption

We have already begun working toward use of hydrogen, which carries many hopes as a next-generation clean energy that does not emit CO₂ during combustion. We have traditionally used city gas as a burner fuel in the industrial furnaces we use in the heat treatment process of steel materials. However, in fiscal 2022, we started using burners that can operate on hydrogen as well. Going forward, we will conduct verification trials to determine things like the impact of hydrogen combustion on steel materials, and work to achieve practical application of this technology.

Supply chains that ensure stability of supply must be developed to expand the use of hydrogen, and we are helping to achieve this goal through participation in the Chubu Region Hydrogen Utilization Council. This organization was launched as Japan's first initiative that brings together private sector companies to create cross-regional demand and supply chains for hydrogen. As a member of the council, we aim to reduce our CO₂ emissions by converting our plants to hydrogen from city gas and other energy sources. Consequently, we are considering use of at least 1,000 tons of hydrogen in fiscal 2030. Going forward, we will contribute toward realizing a decarbonized society by continuing to take on the challenge of shifting to various clean energies.

Supply chain initiatives

To realize a decarbonized society, it is essential that the entire value chain participate, not just Aichi Steel. For this reason, we are working in collaboration with suppliers and logistics operators to reduce CO₂ emissions. Two logistics issues that we have traditionally faced are how to improve truck loading rates and reduce the number of trips required. To address these issues, we have been asking for the cooperation of all suppliers while aggregating logistics across distribution channels through visualization of routes with low loading rates. As a result, we have succeeded in reducing annual logistics-related CO₂ emissions by 31% year-on-year. In recognition of this activity, Aichi Steel and Group company Aichi Steel Logistics Co., Ltd. received a Special Award under the Excellent Green Logistics Commendation Program operated by the FY2021 Green Logistics Partnership Conference. In light of workstyle reform law that the logistics industry is facing, known as the "2024 Problem," we will continue to work towards ongoing improvements in this area.

Collaboration with society

• The GX League is a forum for companies actively working on Green Transformation (GX), providing opportunities for discussion around transformation of the entire economic and social systems, and for practical implementation to create new markets. It was established by the Ministry of Economy, Trade and Industry in March 2022.
• A consultative working group of companies that have endorsed the GX League.
  It is working to formulate recommendations about common rules for value creation in green products and low-carbon products

CO₂ emissions in the supply chain

Actual CO₂ emissions by Scope

Figures in the above table are rounded to the nearest thousand tons, with "0" representing "less than 500 tons."

<Scope of calculations>

Scope1 and 2: Aichi Steel alone; Scope 3: Aichi Steel alone in relevant categories

<Scope 1 and 2 calculation method>

Calculations are based on the Act on Promotion of Global Warming Countermeasures, Act on Rationalizing Energy Use, and Standard Calorific Value and Carbon Emission Factors by Energy Source (Agency for Natural Resources and Energy), and emissions coefficients from contracted power companies for each fiscal year

<Scope 3 emissions intensity>

According to the "Database on Emissions Unit Values for Accounting of Greenhouse Gas Emissions, etc., by Organizations Throughout the Supply Chain" (Ver. 3.2, March 2022) from the Ministry of the Environment; and the "IDEA LCI Database" (Ver. 2.3) created by the Advanced LCA Research Group at the Research Institute of Science for Safety and Sustainability of the National Institute of Advanced Industrial Science and Technology (AIST), and Sustainable Management Promotion Organization (SuMPO)