Sustainability | Environment | Risk ManagementTCFD/TNFD

Introduction

In May 2019, TDK expressed its support for the Task Force on Climate-related Financial Disclosures (TCFD), which recommends the analysis and disclosure of the financial impact of climate change on companies. Under the TDK Environmental Vision 2035, we aim to halve the CO₂ emission intensity across the entire value chain, from procurement to disposal, by 2035, and have been evaluating and disclosing the risks and opportunities posed by climate change to our business.
Furthermore, following the final recommendations of the Task Force on Nature-Related Financial Disclosures (TNFD) published in September 2023, we have begun to assess our dependencies, impacts, risks, and opportunities related to natural capital, including biodiversity, in accordance with the guidance.
TDK believes that evaluating and appropriately disclosing the risks and opportunities posed by climate change and natural capital to our business is essential for both our growth and the realization of a sustainable society, and we are steadily advancing our initiatives in this regard.

1. Governance

1.1 Governance structures

Board of Directors' Supervisory Responsibility

TDK's Board of Directors receives quarterly reports on the execution of sustainability-related activities, including climate change and natural capital, through the monitoring of non-financial goals' progress. They deliberate and make decisions on basic policies, medium- to long-term strategies, annual plans, and key indicators and targets.

Management's Executive Responsibility

At the management meetings, reports are received from the executive departments on the status of goal achievement and risks. The Executive Officer in charge of Sustainability oversees sustainability-related activities, including climate change and natural capital. The Sustainability Promotion Department holds the executive responsibility for implementing measures to address sustainability-related risks and conducting regular monitoring. They push forward activities in cooperation with relevant departments, including reporting on key KPIs, formulating medium- to long-term goals, and planning investments for sustainability-related activities, including climate change and natural capital. Matters deemed to have a significant impact on management are deliberated at management meetings, and when necessary, at the Board of Directors' meetings.

1.2 Stakeholder engagement

TDK has global business locations and utilizes various raw materials, energy, water, and other resources in the manufacturing processes of its core electronic devices. We strive to ensure that our business activities do not have negative impacts on nature and respect engagement with stakeholders, including indigenous peoples and local communities, who have deep connections with nature.

(Our policies for respecting human rights)

At TDK, our Corporate Ethical Standards state, "We respect human rights both domestically and internationally, comply with relevant laws, international rules and their spirit, and fulfill our social responsibility with a high sense of ethics towards the creation of a sustainable society." We require adherence to all human rights-related laws, including those prohibiting child labor and forced labor within our supply chain. The "TDK Group Human Rights Policy," established in 2016, respects and supports international human rights norms such as the International Bill of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the OECD Guidelines for Multinational Enterprises, and the Children's Rights and Business Principles. Additionally, we are committed to the framework of the "UN Guiding Principles on Business and Human Rights," endorsed by the United Nations in 2011, and we strive to correctly understand and address potential human rights issues across our entire supply chain.
TDK respects the human rights of all relevant stakeholders and expects all business partners to support these principles. We expect our suppliers to understand and comply with this policy.

(Identification and evaluation of human rights risks)

Through dialogue with experts, reporting from international human rights organizations, labor and corporate ethics risk assessments, and CSR self-assessments, we regularly scrutinize potential human rights risks and identify subjects that require consideration.

(Human rights due diligence)

At TDK, we determine and promote human rights due diligence processes in accordance with the procedures outlined in the "UN Guiding Principles on Business and Human Rights." Additionally, we enhance the effectiveness of our activities through dialogue with external experts and both internal and external stakeholders.

2. Strategy

In May 2024, TDK announced its long-term vision and new medium-term management plan, unveiling the long-term vision of "TDK Transformation. Accelerating transformation for a sustainable future." This vision demonstrates our commitment to accelerating technological advancement and societal transformation to contribute to a sustainable future. To achieve this long-term vision and enhance corporate value, we have identified the progression of solving social and environmental issues as key material issues.
Regarding climate change measures, we are promoting the effective use of energy and the expansion of renewable energy utilization at our production sites to achieve net-zero CO₂ emissions by 2050. Under the TDK Environmental Vision 2035, which aims to improve the CO₂ sales intensity from raw materials to product disposal by 50% from the baseline year of 2014, we have established activities and goals to manage our progress.

2.1 Climate change scenario analysis (TCFD)

To analyze the business risks and opportunities related to climate change issues and incorporate them into our strategy, we conducted scenario analysis based on the assumptions outlined below, following the "TCFD Scenario Analysis Practical Guide" published by the Ministry of the Environment.

・Preconditions
Assumed period: Fiscal 2031
Applicable scope: Entire TDK Group, upstream and downstream value chain
Adopted scenarios: 1.5℃ scenario (IEA-NZE), 4℃ scenario (the IEA’s Current Policies Scenario [CPS], Stated Policies Scenario [STEPS], and Representative Concentration Pathway [RCP] 6.0 scenario)
Types of risks covered: Current and emerging regulatory, technology, legal, market, reputational, acute and chronic physical risks.

2.2 Dependence and Impact Analysis on Nature (TNFD): Overview Analysis of the Value Chain

To understand the relationship between our business activities and nature through TDK's direct operations and upstream and downstream value chain, we analyzed dependencies and impacts by industrial sector using the natural risk assessment tool (ENCORE). The heatmaps of dependencies and impacts on nature are shown in Figure 1 and Figure 2, respectively.
For TDK, which operates in the electronic components sector, it was indicated that there is a moderate dependency on surface water and groundwater in direct operations, and a high impact on water quality and soil contamination. As we move upstream in the value chain, the overall impact on water use, ecosystem utilization, and pollution tends to be high. The farther upstream we go in the value chain, the greater the interaction with nature, leading to higher dependencies and impacts.

2.3 Dependence and Impact Analysis on Nature (TNFD): TDK Business Locations

For 82 TDK direct business locations, we analyzed spatial risk information for nature-related items using the WWF Risk Filter Tools (Biodiversity Risk Filter/Water Risk Filter). We assessed 34 items, including water scarcity, wildlife, ecosystems, protected areas, forests, pollution, and land use change, in relation to the location information of each site. Of the 34 items, 13 were deemed irrelevant, 10 had risk assessment scores ranging from Low to Middle, and 11 had risk assessment scores ranging from High to Very High. The proportion of sites evaluated as high risk is shown in Figure 3.

As for physical risks related to dependencies, items such as water (water scarcity, floods, water quality) and climate change (landslides, extreme heat, tropical cyclones) were identified at multiple locations. For physical risks related to impacts, pollution risk was recognized at all locations. Additionally, as transition risks, items related to biodiversity (protected/conservation areas, key biodiversity areas) were suggested to potentially impact several locations. Climate change-related items were also identified as risks by the TCFD.
Based on these analyses, we identified key nature-related issues and evaluated TDK's risks and opportunities.

2.4 Risks and opportunities (TCFD/TNFD)

2.1 The results of TCFD scenario analysis related to climate change, and 2.3 the risks and opportunities identified from key nature-related issues are shown in Table 1

(Transition risks)

Regarding climate change, under the 1.5°C scenario where decarbonization policies result in stricter regulations in various countries, we recognized the potential transition risks such as the introduction of carbon pricing and the increase in costs for renewable energy. The financial impact by 2030 is estimated to be 11.4 billion yen for carbon pricing and 15.5 billion yen for renewable energy. In the automotive market, which is one of TDK's focus markets, the shift towards electric vehicles (EVs) is expected to progress, presenting opportunities for increased sales of EV-related products as well as recognizing potential risks and opportunities related to batteries. On the other hand, under the 4°C scenario, we recognized the increased risk of floods due to more frequent extreme weather events.

(Physical risks)

Regarding climate change, we have identified the increased business risk due to the rise in flooding. The financial impact by 2030 is estimated to be 4.9 billion yen. We conducted scenario-based analysis using the WWF Risk Filter and Aqueduct by the World Resources Institute (WRI) to identify regions with high water stress across all TDK production sites. Based on this analysis, we implement measures each year that are tailored to the flood risk at each site, including promoting BCP (Business Continuity Planning) measures and establishing BCM (Business Continuity Management) systems. Water risk has also been identified as a nature-related risk.
As a nature-related risk, physical risk from pollution was identified. Pollution includes wastewater, solid waste, and emissions that can impact biodiversity. TDK has obtained ISO 14001 certification (an international standard for Environmental Management Systems) and complies with legal regulations. Moreover, for some items, we have established even stricter voluntary standards than the legal limits to reduce environmental impact and prevent issues before they occur. We will continue to work towards further risk reduction and natural restoration.

(Opportunities)

In terms of opportunities related to climate change, we have identified the expansion of new business opportunities and the promotion of new product development. The financial impact by 2030 is estimated to be 645 billion yen for sales growth due to increased demand for our products and services. We also estimate the cost of realizing these opportunities to be 95 billion yen.

Table 1. Risks and opportunities

*Time axes: Short term refers to less than one year, medium term refers to one year to less than three years, and long term refers to 3 to 20 years.

3. Risk and Impact Management

3.1 Identification of nature-related dependence, impacts, risks, and opportunities and assessment process (TNFD)

The identification and evaluation of dependencies, impacts, risks, and opportunities related to nature were conducted based on the TNFD's LEAP approach. For nature-related analysis and evaluation, we used the web tools recommended by the TNFD for each natural item (Table 2).

Table 2. Tools used for nature-related surveys

3.2 Climate change and nature-related risk management processes

At TDK, we have established the Enterprise Risk Management (ERM) Committee, chaired by an executive officer appointed by the President and CEO, to carry out company-wide risk management activities. The ERM Committee identifies company-wide risks in accordance with the "Risk Management Regulations." The long list of risks managed by the committee includes nature-related risks, and if these are assessed as significant through business risk analysis and evaluation, they are treated as management targets.
The Sustainability Promotion Department, which leads the TDK Group's sustainability activities, identifies risks and opportunities related to sustainability items, including climate change and natural capital, implements measures, and conducts monitoring.

3.3 Group-wide risk management process

Risk Management System

TDK, aiming for sustainable growth, implements company-wide Enterprise Risk Management (ERM) activities to promote and appropriately manage measures against factors (risks) that hinder the achievement of organizational goals. To consider and implement measures related to ERM activities and strengthen risk management, we have established an ERM Committee chaired by an executive officer appointed by the President and CEO.
The ERM Committee analyzes and evaluates company-wide risks, identifies risks requiring countermeasures, and assigns risk owners, executing departments, and relevant departments for each risk to ensure proper management. The risk owner departments establish the minimum required standards and rules for building the risk management system for their respective risks, consolidate and report the results of risk assessments. The executing departments build the necessary systems to manage their respective risks, plan and implement specific countermeasures, and monitor progress.
The ERM Committee's risk analysis, evaluation, and the status of countermeasures for significant risks are deliberated at management meetings and reported to the Board of Directors.

Implementation of Countermeasures

The ERM Committee communicates the countermeasures for each risk to the risk owner departments, executing departments, and relevant departments. The executing departments work closely with the relevant departments to implement or direct the countermeasures for the risks they are responsible for within the TDK Group companies. Based on the instructions from the executing departments, each TDK Group company implements the countermeasures for each risk.

Monitoring and Improvement

The executing departments regularly monitor the implementation status of countermeasures for their respective risks and verify whether these risks are adequately controlled. The risk owner departments verify that the executing departments are appropriately monitoring the implementation status of the countermeasures.
The ERM Committee, based on the monitoring results compiled by the executing departments, may recommend improvements to the risk owner departments or executing departments if deemed necessary.

4. Metrics and Targets

TCFD

Under the "TDK Environmental Vision 2035," TDK aims to "halve the CO₂ emission intensity from a lifecycle perspective by 2035." Based on this vision, we have established the "TDK Environmental and Safety Activities 2025" as our fundamental environmental plan through 2025, setting activity items and target values and managing progress. Additionally, we obtained SBT (Science-Based Targets) certification in June 2024.

Medium- to Long-Term Targets

Goals and Achievements in Fiscal 2024

TNFD

Among the core disclosure indicators guided by the TNFD, TDK discloses global environmental data on GHG emissions, waste emissions, and water usage. For core disclosure indicators that are not yet disclosed, we are preparing for disclosure by collecting data and conducting more detailed analyses.

For detailed data and the status of our initiatives, please refer to the linked information. Note that GHG emissions are verified by a third party.

At TDK, aiming for the realization of a sustainable future, we have set goals not only to reduce environmental impact during the manufacturing stages at our business sites and the usage stages of our products but also to regenerate and protect the global environment from a lifecycle perspective. For undisclosed targets, we will proceed with consideration based on the goal-setting guidance of TNFD v1.0 and SBTs for Nature.