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Risks and Opportunities

Material issues

Since FY2015, Toshiba Group has set three high priority responsibilities (Materiality). In reference to opinions from stakeholders as well as assessment reviews by third-party organizations and including self-evaluations conducted based on the international guidance standard ISO 26000 which concerns the social responsibilities of organizations, we evaluated these responsibilities in terms of material issues for both Toshiba Group and its stakeholders, and identified the following three high priority responsibilities. One of them is "Environmental Management," and among various environmental issues, we have chosen the following three items having both risks and opportunities with relatively high priority responsibilities: "Climate change mitigation and adaptation," "Sustainable resource use," and "Prevention of pollution."

Significance of Environment-related Items in Toshiba Group's High Priority Responsibilities

[Image] Significance of Environment-related Items in Toshiba Group's High Priority Responsibilities

For details about Toshiba Group's identifying material issues, visit our CSR website (http://www.toshiba.co.jp/csr/en/csr_management/materiality/index.htm).

We consider "Climate change mitigation and adaptation" to have significant impacts on business activities due to the magnitude and scale of their influence. According to IPCC*, to achieve a figure below the climate target of 2°C, the accumulated CO2 emissions must be below 800 GtC. It was also pointed out that if the current level of emissions continues, the accumulated emissions will exceed the acceptable limit within 20 to 30 years. It is also anticipated that unusual weather will occur more frequently so there will be greater corresponding fluctuations in weather patterns. Our efforts for significantly reducing GHG emissions toward achieving a decarbonized society involve making a drastic change in our efforts for significantly reducing GHG emissions in our social system while still feeling very uncertain of what steps to take, which also holds true for the rapid surfacing of impacts from rising temperatures and climate change. It is absolutely essential that we recognize the risks and opportunities involved in such a drastic change and incorporate them into our future corporate management.

"Sustainable resource use" is associated with risks, such as introduction of laws and regulations regarding resource efficiency as well as energy efficiency, resource price hikes, and procurement. While reducing costs by improving resource efficiency, we will lower our dependency on resources through reuse and recycling.

In regard to "Prevention of pollution," we will ensure that chemicals contained in products are managed with the aim of minimizing the risk from the chemical substance. Since various related laws and regulations are being fully implemented on a global basis, we will prevent the risk of business suspensions due to delays in compliance by ensuring information transmission along the supply chain. Meanwhile, we have developed a simplified screening technology for the four phthalates since we consider that compliance with laws and regulations to be introduced also represents a business opportunity.

With the aim of achieving Environmental Vision 2050, Toshiba Group's environmental management will continue to take initiatives mainly for these high priority responsibilities.

*
Intergovernmental Panel on Climate Change

Climate Change Risks and Opportunities

As described above, climate change risks and opportunities are important management issues and multiple KPIs are included in the action plan for 2020 (the Sixth Environmental Action Plan) as responses to climate change. For greenhouse gas management, we set KPIs in terms of both Business processes and Products and services by taking into account that in addition to compliance with policies such as carbon tax and energy-saving regulations, companies' commitment to climate change will affect their environmental brands and even selection of their products and services by customers.

Greenhouse gas management by business processes is effective in reducing transition risks in the course of future enhancement of regulations (for example, future introduction or enhancement of a carbon tax system). In addition, we consider increasing our competitiveness by improving productivity while reducing transition risks, and also boosting our reputation by promoting GHG reduction activities that exceed the industry level as representing opportunities for us.

For products and services, the enhancement of energy-saving regulations poses risks. However, we have been monitoring and evaluating global trends of environmental laws and regulations by using industrial associations and external services, and also developing human resources that specialize in this area. In addition, since we have set CO2 emission reductions from both the demand and supply sides as numerical targets so that opportunities such as expanding energy-saving markets and increasing energy demand in regions can be optimized, we will expand the renewal energy business and increase our offerings of products and services having high energy efficiency.

Furthermore, under the Sixth Environmental Action Plan, we also included "Improvement of information disclosure" in light of risks and opportunities associated with reputation. We will continue to work on these KPIs, whose progress is managed at meetings of the Corporate Environmental Management Committee held once semi-annually in light of external trends. Note that a structural reform of our business has been underway since last fiscal year, and the target values for the above KPIs for FY2019 onward will be reviewed in order according to the new business portfolio.

Toshiba Group has also been comprehensively assessing risks and opportunities on a mid- to long-term basis in line with recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD). Toshiba Group has four business domains, namely energy, electronic devices, digital solutions, and social infrastructure as the core, so each business has different risk drivers. For this reason, Toshiba Group companies individually identify risks and opportunities in light of their business situations. We assess the following items according to the risk items defined by the TCFD: introduction or enhancement of a carbon tax system (policy and regulation risks), replacement of technologies (technology risk), lawsuits on climate change (legal), further emphasis on energy-saving performance (market risk), damage to environment brands (reputation risk), and business suspensions due to flooding, etc. and an increase in fuel and lighting expenses (physical risk). We assess the probability of each of these risk items on a 10-point scale, further assess the extent of their impacts on a 5-point scale, and list the risk measures as well. As for opportunities, Toshiba Group companies evaluate their own businesses from the viewpoint of both areas that are driven as a result of transition to a decarbonized society and further market expansion, and we will update these opportunities as necessary while reflecting the latest external trends in them.

The risk that has the largest financial impact is business suspension. As represented by a backlash against coal fired power generation, it is also true that this is a risk largely dependent on the policy trends in the country or the entire region, and transcends the management decisions of a single business entity. For such a risk, we have a business structure covering the entire energy mix and also have established a system for providing the best energy solution matching the customer's requirements in the process of transition to a decarbonized society. In addition, we will continue to work on reducing CO2 emissions through a 700°C ultra supercritical power generation system (Advanced-USC) that reduces environmental impacts through improved efficiency, a supercritical CO2 cycle power generation system that can generate power and separate and collect CO2 at the same time, and technology to separate and collect CO2 from plants that emit CO2.

On the other hand, since our core operation is a social infrastructure business, we believe it is our mission to implement low carbon and decarbonized systems in our society as quickly as possible and to accelerate the transition to a decarbonized society. We believe that pursuing that mission will lead to great business opportunities. Low carbonization of mobility area and buildings and facilities, distributed energy systems, and high efficiency manufacturing are domains where we can increase available opportunities by taking advantage of our strengths.

Although there are no physical risks that have yet surfaced, in the event of a large-scale disaster such as flooding and typhoons at the production and sales sites of Toshiba Group, the operation of such production sites may be suspended due to damage to production facilities, suspension of procurement of raw materials and parts, and paralyzed distribution and sales functions. We formulate a business continuity plan (BCP) for each business and production site and work with multiple suppliers to deal with such risks.

On the other hand, needs for adaptation to climate change are expected to further increase, and so we believe that expansion of disaster prevention solutions including weather radars and rainwater drainage systems in preparation for urban floods, and global development of air conditioner sales as a heat stroke countermeasure will help expand our business.

Overview of Environmental Impacts

We are proceeding to quantify the environmental impacts at each stage of the product life cycle — from materials procurement, manufacturing, transportation to customer use, collection and recycling. This data was collected from 389 Toshiba Group companies (actual results for FY2017). We carry out overall assessments on the environmental impacts of input resources/energy and emission of greenhouse gas and chemicals using the Life-cycle Impact assessment Method based on Endpoint modeling (LIME) and express it in terms of economic value. This makes it easy to compare the impact on sales, grasp improvements in environmental efficiency, and even recognize the impact as the magnitude of environmental risk.

[Image] Overview of Environmental Impacts

During the material procurement stage, Toshiba Group will make efforts to reduce environmental impacts mainly through reducing product resource consumption, increasing recycled material use, resource recycling, and promoting green procurement. Under the Sixth Environmental Action Plan, we set an "Increased amount of resources saved," "Increased amount of recycled resources (recycled plastics) used," and "Reduction of specified chemical substances contained in products" as KPIs.

During the manufacturing stage, in addition to legal compliance, continued process improvement is required so that the overall environmental impacts can be reduced. We set "Reduction of total greenhouse gas emissions," "Improvement of total energy-derived CO2 emissions per unit activity," "Reduction of waste volumes," "Improvement of the total volume of waste generated per unit production," "Improvement of the amount of water received per unit production," and "Reduction of the total amount of chemicals discharged per unit production" as KPIs under the Sixth Environmental Action Plan with the aim of reducing total environmental impacts.

In FY2017, Toshiba Group used about 54 TJ's worth of renewable energy. This amount corresponds to a reduction of 2,887 t-CO2. We will continue striving to use more renewable energy to achieve decarbonization during the manufacturing stage.

During the transportation stage, in addition to taking various energy and CO2 reduction measures including improving load factors, applying modal shifts to a wider range of products, and shortening the transport distance by restructuring distribution centers, we are continuously taking 3Rs initiatives for packaging materials.

We realized that environmental impacts are most significant during the use of products and services in the product life cycle. Under the Sixth Environmental Action Plan, we set "Reductions in CO2 emissions by eco-products" as a KPI and are making efforts to increase products and services that can reduce their environmental impacts on society as a whole. Since we can contribute to help achieve a low carbon society from both the energy supply side and the energy consumption side, we also set two KPIs, for the supply side and the consumption side.

During the collection and recycling of products stage, we are working to collect and recycle end-of-life products, such as industrial air conditioners, MFPs, and POS on a global basis.

Achieving an overview of environmental impacts is absolutely essential for the planning of goals and measures to take. We also set "Improvement of information disclosure" as an item for which to promote activity under the Sixth Environmental Action Plan, with a goal of better reporting. We will continue making progress by expanding the target items for data collection and strive to improve the accuracy of the data.

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