Response to TCFD Recommendations

Based on our management philosophy of “contributing to healthcare through the development and marketing of leading-edge, superior medical devices,” we will identify materiality issues from a long-term perspective, fulfill our corporate social responsibility (CSR) through ESG activities, and pursue sustainable growth while contributing to the SDGs (Sustainable Development Goals).

In March 2022, we expressed our support for the TCFD* recommendations and joined the TCFD Consortium*, a group of companies and financial institutions that support the TCFD. We will take climate change seriously, deepen our understanding of the opportunities and risks that affect our business, and proactively disclose our efforts to address climate change. The TCFD recommendation recommends disclosing information on climate change in the areas of 1. Governance, 2. Strategy, 3. Risk management, and 4. Indicators and targets. We will analyze scenarios, assess risks and opportunities associated with climate change, and disclose information in line with the four recommended disclosure items in accordance with the TCFD recommendations.

*1 TCFD: Task Force on Climate-related Financial Disclosures (TCFD)
Task Force on Climate-related Financial Disclosures. A task force established by the Financial Stability Board (FSB).
The task force was established by the Financial Stability Board (FSB) with the objective of understanding and disclosing the financial implications of the risks and opportunities posed by climate change.
The company publishes recommendations on
TCFD website:https://www.fsb-tcfd.org/

*2 TCFD Consortium
A forum for discussing effective information disclosure by companies and efforts to link the displayed information to appropriate investment decisions by financial institutions, etc.
Established in 2019, the TCFD will be promoted by companies and financial institutions that support the TCFD’s propositions.
570 organizations are participating as of March 25, 2022.
TCFD Consortium website:https://tcfd-consortium.jp

1.Governance

Our Board of Directors believes that addressing sustainability issues (e.g., consideration of climate change and other global environmental issues, respect for human rights, fair and appropriate treatment of employees and their health and working environment, fair and appropriate transactions with suppliers, and risk management for natural disasters) will not only reduce our business risks but also provide us with profit opportunities. We recognize that this is an important materiality, and we are responsible for addressing it. The Sustainability Committee* discusses and evaluates our response to the TCFD and reports to the Board of Directors twice a year, and the Board of Directors approves, supervises, and provides guidance based on the Committee’s report.

※Sustainability Committee
The committee is chaired by the President and Chief Executive Officer and consists of executive officers, the head of the Sustainability Promotion Office, and a person appointed by the chairperson.

Sustainability Management Structure

2.Strategy

① Scenario analysis

We use a scenario analysis approach to identify climate change-related risks and opportunities, both transitional and physical. In the scenario analysis, we used “scenarios” published by the International Energy Agency (IEA) and other organizations to examine how our business would be affected. The scenario analysis conducted this time covered the entire value chain from import, development, manufacturing to sales of products and services in Japan (on a non-consolidated basis), and considered and examined the impacts as of 2030, using two scenarios: a 4°C scenario and a 1.5°C scenario. We will continue to improve the accuracy of our scenario analysis by expanding it to include overseas (affiliated companies) and conducting it on an ongoing basis. The results of our deliberations will be reported to the Board of Directors to enhance our resilience to an uncertain future.

【 4°C Scenario 】
Temperature rise exceeds 4°C and
climate change
If the impact becomes apparent
【 1.5°C Scenario 】
Temperature rise is kept below 1.5°C, and
If the entire world transitions to
a low-carbon society
Scenario Analysis As global warming progresses and average temperatures rise due to only limited implementation of policies and regulations that promote low carbon emissions, our working environment is expected to deteriorate due to heat stress.
We are also aware that the spread of infectious diseases associated with rising temperatures may lead to a decrease in our product sales as surgeries for acute diseases are prioritized and chronic disease surgeries for joint replacement and spinal fusion are postponed or cancelled.
The world is expected to transform into a more disciplined society as economic activity increases with decarburization and low carbon in mind. In line with this, the introduction of a carbon tax created by tighter regulations and the market’s growing environmental consciousness will require the use of environmentally friendly materials aimed at a recycling-oriented society, and the cost of dealing with these issues is expected to be amplified.
The Company intends to contribute to a recycling-oriented society by promptly obtaining information from the government that promotes decarburization, strengthening investments in energy conservation and renewable energy, and implementing measures that are consistent with the sustainable orientation of customers and other stakeholders.
② Risks and opportunities associated with climate change

Scope of coverage: Domestic only (on the Company’s non-consolidated basis)
Time: Short-term (within 1 year), medium-term (over 1 year to 3 years), and long-term (over 3 years)
Impact: Small (within 0.5 billion yen), Medium (over 0.5 billion yen to 0.2 billion yen), Large (over 0.2 billion yen)

Classification Contents Period Degree of
Influence
Response Policy
Risk Transition Policy Regulation

Risk of increased energy and procurement costs due to the introduction of a carbon tax

Medium-term Small

Continuous improvement of energy efficiency

Introduction of renewable energy

Compliance with relevant laws and regulations

Proactive disclosure of environmental data

Proactive disclosure of environmental data

Reinforcement of BCP (Business Continuity Plan) measures

Periodic review of risks and opportunities

Risk of incurring capital investment costs due to replacement of equipment, etc.,
in accordance with stricter GHG reduction regulations

Short term
~Long-term
Small
Reputation

Risk of impact on stock price due to delay in disclosing information on climate change response

Short-term
~Medium-term
Small
Physics Acute

Risk of distribution delays and opportunity losses due to damage to buildings, facilities,
and inventory, shutdowns, and supply chain disruptions caused by natural disasters

Short-term Big
Chronic

Risk of sales decrease due to decline or stagnation in the functioning of
the healthcare system as a result of an increase in infectious diseases caused by rising temperatures.

Medium-term
~Long-term
Big
Opportunity Resource Efficiency

Cost savings through improved energy efficiency

Short term
~Long-term
Small
Reputation

Enhance corporate value through proactive information disclosure

Short term
~Medium-term
Small
Products and Services

Increased demand through product center satelliteization (shorter logistics lead times)

Short term
~Long-term
Small

Provision of products, medical tools, etc. that contribute to reducing environmental impact, etc.

Long-term Big
Resilience

Stabilization of product supply through decentralized storage of inventory

Short term
~Long-term
Small

3.Risk Management

We manage key management risks by promoting the activities of the Risk Management Committee in accordance with the Risk Management Regulations. Climate change risk is also positioned as a management priority risk, and risk analysis is conducted. The Sustainability Committee works with the Risk Management Committee and Compliance Committee, which are subordinate organizations, to identify sustainability-related risks and deliberate appropriate responses, and reports to the Board of Directors twice a year. The Board of Directors receives reports from the Sustainability Committee on the status of risk management and responses, and provides supervision and guidance.

4.Indicators and Targets

We have set our climate change index as greenhouse gas (GHG) emissions, and based on the FY2020 Scope 1 and 2 GHG emissions, we have set our domestic reduction target for FY2030 at 30% below the FY2020 level, with the goal of achieving “zero GHG emissions” in FY2050. The company will be responsible for the following.

(Domestic)Scope 1.2 GHG emissions: t-CO₂

We aim to achieve zero GHG emissions by 2050 by systematically implementing initiatives to reduce GHG emissions, including the promotion of energy conservation at all of our domestic bases, procurement of electricity derived from renewable energy sources, and the phased introduction of electric vehicles.

(Domestic)Scope 1.2.3 Actual GHG emissions: t-CO₂

Scope1 Scope2 Scope3 Total Amount
2020 (Base year) 1,111 210 7,440 8,761

(Domestic) Scope3

(*1) Scope 3: Results by category: t-CO₂
①Products and Services Purchased 2,439 32.8%
②Capital Goods 2,432 32.7%
③Fuel and energy related activities 299 4.0%
④Transportation and Delivery (upstream) 1,355 18.2%
⑤Waste from Operations (Upstream) 8 0.1%
⑥Business Trip 798 10.7%
⑦Employer Commute 42 0.6%
⑧Leased Assets (Upstream) ※2
⑨Transportation, Delivery (Downstream) 65 0.9%
⑩Processing of Sold Products ※2
⑪Use of Products Sold ※2
⑫Disposal of Sold Products 1 0.0%
⑬Leased Assets (Downstream) ※2
⑭Franchise ※2
⑮Investment ※2
Total Amount 7,440 100.0%

(※2)Columns ⑧⑩⑪⑬⑭⑮ are not calculated because there are no streets.

(Note) Each description based on the TCFD framework is information for Japan (on a non-consolidated basis) only. We will promptly disclose information on a consolidated basis, including overseas (affiliated companies), as soon as we are ready to do so.

Product Portfolio Management

Evaluation of Introduced Products (Medical Device Business)

In order to realize the optimal allocation of management resources, a product portfolio framework consisting of two axes, product growth potential and return on capital, is defined. The growth potential and earning power (free cash flow generation) of each introduced product is comprehensively evaluated, taking into account the social responsibility of the medical business, and management decisions such as growth acceleration and identification of non-focused products are made appropriately and promptly.

Investment Promotion

The product group that plays a central role in our company. Since they are driving growth and earning power, this is an area where we will continue to invest to maintain growth and further increase earning power.

Regrowth Building Areas

Mainly mature product groups. This is an area where stable earnings are maintained, although significant growth is not expected, so the company will maintain stable earning power thorough cost reductions and other measures.

Training Areas

Mainly newly introduced product lines. This is an area where earning power is still low, but growth potential is high in the early stages of sales, so the earning power will be increased through measures and investments.

Discernment Area

Low-growth and low-profit product groups. While change is required, it is also necessary to assess whether or not to withdraw from the market (Discontinue sales).