Updated Scenario Analysis and Our Response to Climate Change-Related Risks and Opportunities

To assess risks and opportunities arising from climate change, we have conducted scenario analysis using the “below 1.5°C scenario” (Glasgow Climate Pact), and the “below 4°C scenario”, which assumes that global temperatures will continue to rise at their current pace. By doing so, we have verified the magnitude of climate change-related impact we expect to face in FY2030 and the countermeasures we must implement. The scenario analysis revealed that, in areas of government policy and legal regulation, we will be confronted by risks arising from the introduction of carbon taxes, carbon pricing and carbon-emission trading systems. On the other hand, it is expected that Denka will meet growing sales opportunities for its LEAF carbon agent and electronic materials for use in xEVs and other products, reflecting its diverse product and business portfolio. We will continue to strive to quantitatively assess the business risks and opportunities lying ahead and reflect the results in our management planning and business strategies based on appropriate courses of action in line with TCFD.

Identification of Climate Change-Related Risks and Opportunities and Subsequent Scenario Analysis
(Revised as of October 28th 2021)

Scenario	Category	Item	Expected impact	the business field	Impact on the business field	Countermeasures
1.5°C	Government policies and legal regulations	Introduction of carbon tax and emission trading system	Large	All divisions	・Growing costs associated with overall volume of CO2  emissions and/or emissions in excess of upper limits set by emissions quotas	・Shift of business portfolio ・Progress in energy-saving measures to reduce CO2  emissions and introduction of CCUS technologies
		Growing demand for plastic resource recycling (waste reduction)	Large	Polymer Solutions Electronic & Innovative Products Elastomer & Infrastructure Solutions	・Promotion of alternative materials for single-use plastic containers ・Deterioration in product properties and increased manufacturing costs due to the mandatory incorporation of biomass raw materials	・Promotion of resource recycling involving styrene-based resin by introduction of chemical recycling technologies, switchover to plastic products incorporating bio-polymers, improvement of physical properties, cost reduction
	Technology	Increased costs related to decarbonization and CCUS promotion	Large	Elastomer & Infrastructure Solutions (cement, special blends, calcium carbide, chloroprene)	・Increased manufacturing costs ・Promotion of alternative materials if no action is taken	・Examination of optimal CCUS facilities for each manufacturing plant
	Reputation	Growing demand for countermeasures against emission-intensive businesses	Large	Elastomer & Infrastructure Solutions (cement, calcium carbide, chloroprene)	・Rapid change in investment behavior	・Development and introduction of CCUS technologies and the construction of plants employing such technologies
	Resource efficiency	Realization of carbon recycling (waste reduction and product recovery/recycling)	Large	Elastomer & Infrastructure Solutions (cement, calcium carbide, chloroprene) Polymer Solutions (polystyrene, food packaging materials)	・Reduced manufacturing costs, improving the environment, enhanced corporate image, and reduced impact of carbon pricing	・Popularization of CO2-SUICOM eco-friendly concrete, the promotion of R&D into chemical synthesis technologies under industry-academia-government collaboration, capital investment
		Emergence of new technologies with advantages in terms of LCA	Medium	Electronic & Innovative Products (thermal materials, etc.)	・Growing demand for products designed to contribute to reduction in CO2  emissions throughout the course of their life cycles	・Expansion of production capacity in line with growing demand ・Reduction of CO2  emissions during product manufacturing
	Energy sources	Progress in transition to clean energy	Large	All divisions	・Growing use of renewable energy and hydrogen-fired energy	・Expansion of hydroelectric power generation capacity, the utilization of hydrogen-fired energy, and the planning of a hydrogen production process (electrolysis of water) fed by hydroelectric power
	Products/ services	Expansion of existing products and development of related parts in line with the increased use of EVs	Large	Electronics & Innovative Products (power control units installed in xEVs, ceramic substrates used as thermal materials in batteries, spherical alumina, thermal materials, acetylene black, etc.) Elastomer & Infrastructure Solutions (DENKA ALCEN , amorphous silica paper for thermal insulation and fire prevention for lithium ion batteries)	・Growth in product demand for EV-related components ・Determining feasibility for application, mass production, sales expansion ・Decrease in demand for internal combustion engine components	・Expansion of production capacity in line with growing demand ・Verification of performance requirements through user work, promotion of trial production through collaboration with other companies, and determination of business feasibility to meet these needs, including price ・Capital investment and new product development ・Development of products for new xEV applications
		Growing number of offshore wind farms	Small	Electronics & Innovative Products (silicon nitride) Elastomer (high-pressure cable)	・Increased demand for components used in wind power generation facilities	・Expansion of production capacity in line with growing demand and the development of new products with superior functions
		Development of renewable energy power supply systems	Medium	Electronics & Innovative Products (acetylene black) Elastomer (high-voltage cable)	・Increased demand for components for use in energy storage and the development of transmission networks	・Expansion of production capacity in line with growing demand and the development of new products with superior functions
4°C	Acute	Suspension of production facilities (equipment damage, supply chain disruption)	Medium	All divisions	・Loss of profit opportunities due to the suspension of production activities and the emergence of costs associated with the restoration of production facilities ・Stagnation in our production and sales activities due to facility damage incurred by raw material suppliers and product consumers	・Strengthening of facility maintenance measures due to the revision of the expected level of disaster damage and an assumption of a disaster of greater magnitude ・Diversification of supply chains
	Chronic	Decrease in operation of renewable energy power generation plants due to unstable weather patterns (less sunshine/sunlight, drought, hydroelectricity)	Medium	All divisions	・Increased cost due to reduced output of solar power plants and growing costs attributable to increase in energy purchasing in line with a decline in output from our hydroelectric power plants	・Promotion of energy-saving measures and diversification of energy sources
		Increase in operating costs of thermal power and chemical plants due to a decrease in cooling efficiency caused by rising temperatures	Small	Thermal power plants Elastomer & Infrastructure Solutions (fertilizer, chloroprene, caustic soda) Polymer Solutions (Poval, styrene monomer and functional resin)	・Decline in productivity	・Introduction of high-efficiency cooling equipment
	Products/ services	Growing number of heat stroke cases due to rising temperatures	Large	Life Innovation	・Growth in demand for diagnostic reagents and vaccines, including those for novel infectious diseases	・Development of new diagnostic reagents and vaccines
		Growing demand for infrastructure development in line with the increasing magnitude of natural disaster damage	Medium	Elastomer & Infrastructure Solutions	・Growth in demand for infrastructure-related products and services aimed at promoting disaster prevention measures and enhancing disaster resilience	・Expansion of production capacity in line with growing demand and the development of new products with superior functions