Support for the TCFD recommendations

In February 2022, TOK announced that it will pursue carbon neutrality by 2050. TOK shifted 100% of purchased electricity to renewable energy sources at all key sites in Japan and otherwise promoted investment in decarbonization and carbon neutrality. Through TCFD-based scenario analysis, TOK also promoted measures for quantifying the financial impact of response to risks and opportunities associated with climate change.

Governance

Under the top-down approach led by the president and chief executive officer, coupled with control by the director of the environment, the Group promotes measures to achieve carbon neutrality in 2050. At the Council of Directors, which was newly established in 2022, the department heads, executive officers, and directors broadly discuss ESG requirements that include countering climate change. The respective executive officers take the leadership in initiatives for decarbonization and other sustainability issues. These activities are monitored by the Board of Directors and updated in consideration of immediate climate change issues and changes in risks and opportunities.

Risk management

Under the governance structure above and the risk management structure centering around the Risk Management Committee, which comprises the president and the general managers, TOK will ensure the PDCA cycle of each activity countering climate change and maintain continuous risk management with the president and chief executive officer as the chief risk management officer

Strategies (scenario analysis)

TOK promoted scenario analysis on average temperature increases by the end of the 21st century by referring to the 1.5-degree scenario and the 4-degree scenario presented by the Intergovernmental Panel on Climate Change (IPCC) and then sorted the risks and opportunities for the overall group business, including the quantitative analysis of opportunities. Both in the 1.5-degree scenario and in the 4-degree scenario, the TOK Group re-recognized through the process above that it would be reasonably possible to enhance corporate value on a medium- to long-term basis by taking abundant business opportunities in the miniaturization and multilayer stacking of semiconductors and in the demand for power semiconductors, as well as by adequately responding to the anticipated physical risks and strengthening resilience.

Indicators and targets

TOK formulated the long-term environmental targets in 2020 to reduce energy-related CO2 emissions (per base unit) by 15 points from the 2019 level by 2030. The Group introduced a cloud computing system for the efficient and rapid collection, centralized management, and streamlined data analysis of environment-related data in FY 2022/12. In the scenario analysis mentioned above, TOK estimated the financial impact assuming the introduction of internal carbon pricing and the implementation of emission rights trading. In the coming years, the company will disclose the data at an appropriate time, while strengthening linkage with medium- to long-term performance objectives and the progress and outlook thereof.

Response to climate-related risks and opportunities (scenario analysis)

Risk type	Category	Risks on TOK business	Time period*	Key initiatives (countermeasures against risks)
Transition risks Mainly assuming the 1.5-degree scenario	Policy and regulatory risks	Increase in costs from carbon pricing (introduction of carbon tax and expansion of emission rights trading)	Medium term to long term	● Curb cost increases by accelerating the reduction of CO2 emissions per base unit through shifts to more energy-efficient manufacturing equipment and increased use of renewable energy ● TOK shifted 100% of purchased electricity to renewable energy sources at all key sites in Japan in February 2023. If a carbon tax is introduced in Japan in the coming years, imposing ¥10,000 per ton, the payment of the tax will be reduced through this shift by ¥10,000 x 20,000 tons, equaling ¥200 million ● TOK completed the estimation of the financial impact assuming the future introduction of internal carbon pricing and implementation of emissions right trading
Transition risks Mainly assuming the 1.5-degree scenario	Policy and regulatory risks	Increase in costs for responding to more stringent policies and regulations to reduce CO2 emissions in Japan and other countries where TOK has manufacturing sites	Short term to long term	● Take the necessary action without delay through careful information collection and negotiations with governmental agencies in each country, thereby coping with climate change as a member of local communities
Physical risks Mainly assuming the 4-degree scenario	Acute risks	Damage to facilities from the increase in natural disasters	Short term to long term	● Take continuous precautions for water risks that have become apparent in the inundation of the TOK Technology and Innovation Center（TTIC） as our R&D hub by a typhoon in 2019
	Acute risks	Damage to facilities from the increase in natural disasters	Short term to long term	● Emphasize BCP and resilience to natural disasters in the capital investment plan under the TOK Medium-Term Plan 2024 toward TOK Vision 2030
	Chronic risks	Increase in costs for process temperature control and product temperature control due to global warming	Short term to long term	● Develop more efficient and cost-effective means and methods for the control of process temperatures and product temperatures
	Chronic risks	Increase in water stress due to global warming and difficulty in acquiring water resources	Medium term to long term	● Implement continuous measures in Japan and overseas to minimize water consumption in production activities and to maintain and improve effluent quality

Opportunities	Time period＊	Key initiatives (how to grasp opportunities)
Further miniaturization of semiconductors Assuming both 1.5-degree scenario and 4-degree scenario	Short term to long term	● Stable supply, sales increase, development, and maintenance of the largest global market share for EUV photoresists for line widths 7 to 3 nm ● Expected reduction in semiconductor power consumption through the provision of EUV photoresists for line widths 7 to 2 nm (estimate for 2030): ▲ 105 TWh (equivalent to 0.3% of estimated global power consumption in 2030)*2
Expansion of the power semiconductor market Assuming both 1.5-degree scenario and 4-degree scenario	Short term to long term	● Maintain the largest global market shares for g/i-Line photoresists ● Stably supply and increase sales of g-Line and i-Line photoresists for power semiconductors
Increase in the need for the development of next-generation power semiconductors with lower power consumption Assuming both 1.5-degree scenario and 4-degree scenario	Medium term to long term	● Strengthen advantage in g-Line and i-Line photoresists for silicon carbide (SiC) power semiconductors as the emerging market and further strengthen the development and marketing thereof ● Gear up the development and marketing of g-Line and i-Line photoresists for gallium nitride (GaN) gallium oxide (Ga2O3) power semiconductors ➞ See pages 10–11 and 54–57 ● Expected reduction in power in solar/wind power generation, EVs, and data centers, through the provision of g-Line and i-Line photoresists for SiC, GaN, and other next-generation power semiconductors (estimate for 2030): ▲ 155 TWh (equivalent to 0.4% of estimated global power consumption in 2030)*3
Increase in demand for energy recycling systems Assuming both 1.5-degree scenario and 4-degree scenario	Medium term to long term	● Accelerate measures for development, sales, and shift to internal activities of chemical looping energy recycling system