Disclosure Based on TCFD Recommendations

In May 2022, we expressed our support for the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to promote understanding and disclosure of the impact of climate change on our business activities.





We have adopted ESG management, which is designed to solve social issues through business, and have identified Materiality issues, which include climate change and global warming countermeasures and nature conservation and environmental impact reduction.

Based on the TCFD's recommendations, the following discloses the AEON delight Group's "Governance", "Strategy", "Risk Management", and "Indicators and Targets" for climate change.

In addition, as a member of the AEON Group, we will support initiatives to reduce total GHG emissions from stores to zero in accordance with the AEON Decarbonization Vision. After reviewing both the opportunities and risks surrounding our Group associated with climate change, we believe that the opportunities for our business activities outweigh the risks. This is based on the premise that we continue to appropriately manage risk and strengthen our existing crisis response capabilities against disasters and other incidents, as well as the decarbonization support services we provide to our customers, including facility energy conservation. We will continue to extensively analyze the risks and opportunities that climate change poses to our business, confirm the direction of our own initiatives, and reflect them in our management strategies, thereby improving the resilience to climate change for our Group and our customers. Furthermore, we will proactively disclose information regarding our efforts to address climate change in order to help create a decarbonized society and ensure our sustainable growth as a company.

Governance

In April 2022, we established the Sustainability Committee as a company- wide promotion body for ESG management, and have been promoting discussions on how to resolve social issues and create a sustainable society through our business activities. The committee is chaired by the President and convenes at least twice a year, calling together the executive officer in charge of ESG, the executive officers in charge of related operations, and other relevant affiliates.

The Sustainability Committee determines the highest priority issues based on the Basic Policies for Sustainability and Materiality (key issues), formulates related policies, targets, and key measures, and manages their progress. For priority issues, we established subcommittees headed by an executive officer to ensure effective implementation of initiatives. The results of these activities are reported annually to the Board of Directors.


Promotion structure chart centered on the Sustainability Committee

Strategy

Selection of scenario

The Group has selected the "less than 1.5℃/ 2℃ scenario," in which the impacts on the transitional side become apparent, and the "4℃ scenario," in which the impacts on the physical side become apparent, as published by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA). For the time frame, we selected 2030 for the medium term and 2050 for the long term.
In conducting the scenario analysis, in order to ascertain the impact on the entire AEON delight Group, the analysis covered all domestic businesses (excluding certain support businesses), which comprise approximately 90% of the Group's sales.

Deliberation process

Significant risks/opportunities and their impact

As a result of the scenario analysis, while there are various risks and opportunities, such as transition risks and physical risks assumed with climate change, we identified the following as important risks and opportunities for our Group.

Transition risk

Area of impact Risk/Opportunity Overall
Evaluation
Timeframe
Sourcing Risk Increase in raw material prices due to introduction of carbon tax Small Medium-term
Direct
operation
Risk Introduction, rise, and expansion of the scope of carbon tax Small Medium-term
Increase in electricity and fuel costs Small Medium-term
Products &
Services
Opportunity Capture demand for environmentally friendly products and services Medium Short-term
Reduction of cost burden for customers by providing services related to energy conservation (renewable energy, energy saving, LEDs, sensors, cooling systems, etc.) Medium Short-term

Physical risk

Area of
impact
Risk/Opportunity Overall
Evaluation
Timeframe
Sourcing Risk Increase in procurement costs due to supply chain disruptions Medium Medium-term
Direct
operation
Opportunity Expansion of demand for support to strengthen disaster prevention response and early recovery measures in anticipation of more severe natural disasters Medium
to large
Medium-term
Risk Operational impact (reduction or shutdown of distribution center functions), inability to operate stores, inventory loss from damaged and discarded merchandise Medium Medium-term
Decrease in earnings due to work restrictions, operational impact, employee injuries and illnesses, and difficulty in recruiting human resources due to the increased number of extremely hot days Medium Medium
Products &
Services
Opportunity Expansion of demand for cleaning and disinfection services in response to increased risk of infectious diseases due to global warming Small Medium-term

* For transition risk, "SDS" (IEA WEO2020, less than 2℃ scenario), "NZE" (IEA Net Zero by 2050, 1.5℃ scenario), SSP1-1.9, SSP1-2.6 (IPCC AR6, less than 2℃ scenario) (equivalent to RCP2. 6 of AR5) are referenced for less than 1.5℃/ 2℃ scenarios. For physical risk, SSP2-7.0 (IPCC AR6, 4℃ scenario) (equivalent to RCP8. 5 of AR5) as 4℃ scenario. 6), and for physical risks, SSP2-7.0 (IPCC AR6, 4℃ scenario) (equivalent to RCP8.5 of AR5) and STEPS (IEA, 4℃ scenario) are referenced for 4℃ scenarios.

Introduction of carbon tax and increased costs

In order to achieve carbon neutrality by 2050, a carbon tax is expected to be introduced in Japan, the AEON delight Group's primary base of operations. Based on our calculations, we assume that even if a carbon tax is introduced, the additional cost will be limited to less than 1% of the Group's net income. We will continue our efforts to conserve energy in order to reduce the impact on our business.

Increase in renewable energy procurement costs

In order to achieve the AEON Decarbonization Vision 2050, the AEON delight Group may switch the procuring electricity to renewable energy sources. Even if we replace 100% of our electricity with renewable energy, the additional cost is expected to be limited to less than 1% of our Group's net income.

Growing demand for decarbonization and services for energy saving

The AEON delight Group provides a variety of services that help combat global warming, including installation of energy-saving equipment, energy-saving operations of various facilities, fluorocarbon management services based on the Fluorocarbons Emission Control Law, and proposing environmentally friendly materials.

Going forward, we will provide solutions to fully support our customers' decarbonization efforts by adding renewable energy procurement support and other services to these solutions.

Proposing energy reduction in facilities

We propose energy-saving air conditioning equipment and large-scale facilities, including LED lighting, which can significantly reduce electricity consumption, in addition to introducing BEMS (Building and Energy Management System) , an energy management system that monitors, controls, and visualizes electricity consumption in buildings and other structures.

Implementing an open network system

We propose the introduction of an open network system that networks the various equipment in a facility and enables centralized management in real time. This system allows customers to operate their facilities efficiently by making full use of remote operations and also contributes to energy saving in the facilities.

Providing fluorocarbons management services

We provide simple and periodic inspections for Class 1 Specified Products*, as well as administrative services on behalf of customers based on the Act on Rational Use and Appropriate Management of Fluorocarbons, which requires maintenance and the creation of a database. We also actively propose to our customers the introduction of fluorocarbon-free refrigerated showcases, which are more energy-efficient and have a very low GWP (Global Warming Potential).

* Class 1 Specified Products: Refers to products such as commercial air conditioners and commercial refrigeration and freezing equipment in which chlorofluorocarbons are used.

Developing renewable energy-related businesses

We provide electricity services to commercial facilities, office buildings, medical institutions, and other special high-voltage and high-voltage electricity using facilities, supplying electricity at reasonable prices and with the same quality and stability as in the past. At the same time, we are working together with our customers to prevent global warming by offering "CO2 emission reduction plans" combined with non-fossil fuel energy certificates* and "100% renewable energy plans" such as solar power, wind power, and biomass.

In addition, we are developing solar power generation businesses at Kikugawa Ishiyama Solar Ltd. and Kikugawa-Horinouchiya Solar Co., Ltd. (in Kikugawa City, Shizuoka Prefecture), both of which are equity method affiliates.

* Non-fossil fuel energy certificates: Certificates of the environmental value provided by electricity generated from renewable energy sources that do not emit CO2.

Occurrence of major disasters caused by climate change

Following the occurrence of a major or wide-area disaster, including natural disasters caused by climate change, the AEON delight Group has supported its customers' crisis management by setting up a disaster response headquarters immediately after the disaster, utilizing its nationwide network of service bases and its own internal and external networks to restore damaged facilities, dispatch support personnel, coordinate with relevant government agencies (fire departments, police departments, water authorities, etc.), and procure disaster response materials, equipment, and supplies. The AD Solution Center (Osaka City, Osaka Prefecture and Komaki City, Aichi Prefecture), a disaster prevention center that plays a central role in responding to disasters, constantly collects and analyzes disaster information and remotely monitors managed facilities for abnormalities in order to prepare for risks caused by disasters. From August 2021, we further strengthened our disaster resilience by assigning our head office in Chiyoda-ku, Tokyo with backup functions for the AD Solution Center. In addition to our own business continuity plan (BCP), we will continue to work on the development of disaster prevention and mitigation systems, including BCPs for our customers.

Examples of Past Support Activities

Earthquake off the coast of Fukushima Prefecture (February 13, 2021)
Hokkaido Eastern Iburi Earthquake (September 6, 2018)
July 2018 Torrential Rain (June 28 to July 8, 2018)

Operational Impact

The AEON delight Group has distribution centers located across Japan. Although the risk of river flooding may increase due to more severe extreme weather events in the future, which may cause flooding risk to some distribution centers, we estimate that the amount of damage, such as inventory losses, will be minor. In addition, measures are in place to deliver replacement goods from other distribution centers in the event that a distribution center is shut down due to a power outage or disaster.

Advancement of scenario analysis going forward

Through scenario analysis, we have reaffirmed the magnitude of the risks and opportunities that climate change presents to our business. The risks are not necessarily enormous, and we confirmed that we have already taken measures to address certain key risks.

At the same time, we have confirmed that the AEON delight Group's climate change countermeasures and crisis management contribute to risk avoidance and to improving climate change risk resilience not only for ourselves but for our customers as well. We will continue to strengthen our decarbonization services and crisis management to help reduce climate change risks in society.

Risk management

Company-wide risk management process

The AEON delight Group implements risk management in response to important risks based on the AEON delight Group Basic Regulations for Risk Management. The Risk Management Committee selects key risks based on a risk assessment, and each appointed key risk owner is responsible for implementing and monitoring risk mitigation measures. The Risk Management Committee receives reports from key risk owners, evaluates and analyzes them, and reports to the Board of Directors.

Sustainability-related risks

The AEON delight Group views climate change risks under the TCFD and risks under the materiality issues as sustainability-related risks. The Sustainability Committee evaluates, analyzes, and responds to these sustainability-related risks.

Indicators and targets

AEON Decarbonization Vision

Based on the AEON Decarbonization Vision, the AEON Group is promoting initiatives to reduce the total amount of greenhouse gas emissions from its stores to zero by conserving and creating energy, using a three-pronged approach from the perspective of “stores”, "products and logistics," and “hand in hand with customers". The AEON delight Group will also contribute to the decarbonization of society by promoting energy conservation at customer facilities and other measures to combat global warming, as well as through selling environmentally friendly products.

Materiality-based targets

In FY2021, AEON delight Group identified 12 materialities as priority issues to be addressed, and set our 2030 targets for each of them. We also set targets for environmental materialities of "climate change/global warming countermeasures and nature conservation and environmental impact reduction".

Expand environmentally-friendly business
2030 Targets FY2021 results FY2022 results
- 10% of sales from GHG emission reduction related services* 2.5%  3.7%
- Zero gasoline and diesel vehicles, including hybrid vehicles, for business (consolidated Of 822 total vehicles,
591 gasoline/diesel vehicles,
230 hybrid 230 vehicles,
1 electric vehicle 
Of 752 total vehicles,
467 gasoline/diesel vehicles,
284 hybrid vehicles,
1 electric vehicle
- 50% of sales in the materials business from environmentally friendly products 14.9%  18.0%
- 50% recycling rate (bottle-to-bottle) in vending machine business 15%  7.6%

* Includes installation of energy management systems, freon management, installation of EV chargers, installation of energy-saving equipment (lighting, air conditioning, refrigeration cases), installation of water-based floor coding agents, etc.