Addressing Climate Change in Line with TCFD Recommendations

1. Disclosure of Information Related to Climate Change Response Implemented in Line with TCFD Recommendations

As part of its response to risks and opportunities related to climate change, the Net One Group is promoting information disclosures regarding governance, strategy, risk management, and metrics and targets, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
In addition to responding to the risks that climate change may pose to our business activities, we are discussing ways to acquire growth opportunities utilizing ICT and will continue to consider potential means for expanding our disclosure moving forward.

2. Governance

In December 2021, Net One Systems’ Board of Directors approved and announced the Group’s Sustainability Policy before later approving and announcing its Medium-Term Business Plan and materialities (key challenges) in April 2022. We regard environmental issues, including climate change, as important management issues and have accordingly designated “contribution to a decarbonized society” as one of our materialities.
With regard to this key challenge, the Net One Group maintains a policy of addressing climate change through the reduction of greenhouse gas emitted through its business activities and the lowering of environmental impact stemming from its operational processes. In April 2022, we established a Sustainability Committee to monitor the formulation of corresponding action plans and supervise the efforts of departments responsible for activities associated with these objectives.
The Sustainability Committee operates under the supervision of our president and CEO and is chaired by our senior vice president. We have ensured that the committee represents the entire Group by selecting its members from multiple relevant departments.
The Sustainability Committee meets once per month and regularly reports on its activities to the Management Committee. Meanwhile, the Management Committee deliberates and decides on fundamental or important matters related to company management in a proper and prompt manner, while the Board of Directors ensures sound governance by focusing on overall management and supervisory functions.

2.1. Governance Structure of the Net One Group

3. Risk Management

The Company defines risks as events that have a negative impact on the Company (including events that may have a negative impact). We analyze and evaluate various risks surrounding the Group, and carry out risk management activities to minimize losses for the Group by formulating, implementing, and promoting plans to deal with each risk.

3.1. Risk Management System

The Net One Group has appointed a chief risk management officer (CRO) to oversee its risk management activities. This CRO is responsible for risk identification and response, evaluations regarding the effectiveness of risk management activities, initiatives targeting continual improvement of risk management, and other risk management processes. In addition, we have established a Risk Management Committee, which serves as an advisory body to the Management Committee, informing the latter of risk management activities conducted throughout the Group. The Risk Management Committee discusses and decides upon important matters related to the evaluation and control of these risk management activities. Meanwhile, the Risk Management Department serves as a secretariat for the Risk Management Committee by supporting and facilitating its activities.
Risk information (data concerning risk details, risk analysis, risk response policies, and the implementations of these policies) must be understood at a companywide level and risk response policies likewise need to be reviewed at the same echelon. Accordingly, the Net One Group does not leave discussions or decisions regarding risk information to departments subject to the emergence of risk. Instead, we have established a system under which the CRO and Risk Management Committee, which bear ultimate responsibility for risk management, have centralized authority over all risk information.

3.2. Risk Assessment

The Net One Group identifies risks with potential impact on its business activities based on performance generated during the previous fiscal year and challenges it assumes it will encounter given its management strategy. We then evaluate these risks to determine their significance and decide upon the urgency of addressing them.
As illustrated through the diagram below, risks are assessed according to their impact and frequency, and each of these two metrics is scored as high, medium, or low. In principle, risks with both high impact and frequency are classified as “class A (most critical) risks.” Risks of lower impact and/or frequency are categorized as either “class B critical risks” or “class C general risks.” According to this system, we reach definitive conclusions regarding the severity of risks in need of attention.

Through these processes, the Group has concluded that disasters or other challenges resulting from climate change constitute a major risk due to their potential for significantly impeding business continuity.
We have developed a business continuity plan (BCP) in preparation for the possibility of operational stagnation caused by system shutdowns resulting from disasters or other unfavorable events. Additionally, we have constructed mechanisms through which we can continue to provide services in the event of a disaster while also ensuring the safety of all Group officers and employees.
To prevent disruptions or chaos caused by disasters and mitigate any potentially resulting damage, we have prepared an elementary BCP strategy and a diverse range of procedural manuals. Through these documents, we clarify our basic BCP policies, including those regarding the division of roles among officers and employees during emergencies or other management crises, initial response measures, information gathering and distribution, and the expeditious identification and implementation of appropriate countermeasures.
To further identify, assess, and manage potential risks that climate change could impose upon business activities of the Group, we plan to conduct scenario-based analyses during FY2022.

3.3. Risk Management Process

As illustrated by the diagram below, we review our risk management process each fiscal year through a plan-do-check-act (PDCA) cycle. In particular, our Risk Management Committee annually identifies, evaluates, and monitors risks with critical impact on the management of our corporate group, covering risks affecting all businesses, administrative divisions, and the management team.

4. Strategy

If the effects of climate change spread globally and cause extensive damage to our global environment, they could potentially disrupt entire economies and societies. We recognize that this scenario also represents a risk to the Net One Group’s business activities. At the same time, we believe that addressing the environmental challenges confronting various industries through the application of state-of-the-art ICT technology will generate business opportunities for the Group. Accordingly, the Net One Group remains committed to both achieving sustainable growth and facilitating the realization of a sustainable society.
In terms of specific initiatives, we will endeavor to curtail greenhouse gas emissions generated through our own business activities by developing and expanding green solutions that aid in the reduction of greenhouse gas volumes emitted by both our customers and society at large. Furthermore, we will strive to mitigate emissions stemming from our operational processes by stepping up our sale of services and products that consume less electricity.

We extensively evaluate a wide range of potential circumstances that may impact the Net One Group through, for example, physical risks that could emerge due to climate change moving forward, thereby pinpointing risks and opportunities that we judge as particularly significant. The Group assesses the financial impact each climate change-related risk and opportunity could inflict according to two scenarios. The first is a scenario under which progress achieved through climate change response and regulations holds warming to less than 2°C, thereby limiting most emergent risks to the category of transition risk. Meanwhile, the second scenario assumes both warming of at least 4°C and a greater severity of physical risk.
When obtaining the information necessary for these analyses, we referred to sources including the Aqueduct Water Risk Atlas (WRI) and a 2021 report published by the International Energy Agency (IEA).
Provided below is a summary detailing the projected business environments and corresponding degrees of business impact under each scenario.

4°C Scenario

With regard to our 4°C scenario, which could potentially occur if climate change is not addressed proactively on a societal level, we have identified the following operational environments, under which the magnitude of physical risks, such as large-scale disasters, would be more severe.

Society at large

Although diverse regulations, policies, and measures related to climate change have been implemented primarily in developed countries, they have been relatively ineffective and insufficient. Meanwhile, environmental regulations have not yet generated a significant impact on business activities. Furthermore, global temperatures will continue to rise, resulting in more frequent disasters and more extensive damage.

Environment surrounding the Net One Group

Entire supply chains may be exposed to disaster-related risks, and the Group faces the growing possibility of being forced to implement recovery measures in response to network communication breakdowns occurring at both its own operational bases and those of its customers. Consequently, demand for next-generation ICT solutions developed to facilitate BCP will grow moving forward.

< 2°C Scenario

Under our scenario assuming less than 2°C of warming, climate change response and regulations are progressing, and the general public is on the road toward establishing a low-carbon society. Given this scenario, we would project the following operational environments, which are characterized primarily by the emergence of transition risks.

Society at large

Society as a whole is actively addressing climate change, and policies including the introduction of greenhouse gas emission regulations and carbon taxes are being progressively implemented, forcing companies to bear response-related costs and procurement price hikes from their suppliers.
In addition, the shift toward renewable energy and innovative decarbonization technologies will change customer attitudes and raise demand for products and services that facilitate the achievement of a low-carbon society.

Environment surrounding the Net One Group

In tandem with growing interest regarding energy conservation and carbon neutrality, demand for ICT infrastructure that supports both corporate activities and solutions for environmental challenges (facilitation of green initiatives through the use of ICT systems, etc.) will continue to grow.
Furthermore, the use of refurbished products in ICT infrastructure will continue to accelerate due to increasingly efficient energy use and circular economy expansion.

Risks, opportunities, and impacts that climate change may impose upon the Net One Group

Risks and opportunities		Types	Influencing factors	Primary impacts affecting the Net One Group	Assumed timeframe	Degree of impact		Measures under review
						< 2°C Scenario	4°C scenario
Risk	Transition risk	Regulatory risk	Carbon taxes and emission trading systems	Growth in response-related costs caused by the introduction of carbon taxes and emission trading systems Increase in additional costs if emission reduction targets remain unfulfilled	Medium term	Low	―	Reduction of power consumption at technical centers Visualization of energy consumption
			Environmental regulation of products and services	Penalties incurred for selling network equipment or other products that use large amounts of electricity or generate strong environmental impact as environmental regulations toughen worldwide	Long term	Medium	―	Ongoing research regarding regulatory trends surrounding the environment and review of appropriate response measures
		Technological risk	Transition toward low-carbon technologies	General trend favoring environmental impact reduction could cause decline in our competitive advantage if our transition toward low-carbon technologies is delayed	Short to medium term	High	High	Develop and expand solutions and services that facilitate the reduction of greenhouse gas emissions Ongoing research into next-generation ICT technologies
		Market risk	Procurement price hikes implemented by vendors in response to production cost increases	Growth in prices paid for procurement, and accordingly costs thereby incurred, if climate change and environmental response efforts generate higher production costs for vendors	Medium term	High	―	Shift toward a business model focused on providing functional services
	Physical risk		Increase in severity and frequency of extreme weather events	Supply chain disruptions and impact on product delivery/distribution caused by flood damage and deterioration of logistic facilities	Long term	Medium	High	Business continuity plan (BCP) adjustments implemented via a PDCA cycle Periodic review of transportation and fire insurance policies maintained for key business locations
Opportunities		Resource efficiency	Supporting more efficient production and logistic processes	Growth in earning opportunities thanks to increased demand for integrated ICT infrastructure capable of supporting smart manufacturing	Short to medium term	Medium	Medium	Development and delivery of green solutions (operational streamlining, data utilization, etc.)
			Use of refurbished products	Expanded delivery of functional services and third-party maintenance services utilizing refurbished products from Net One Next, a Net One Group company Growth in opportunities for participation in infrastructure renewal projects achieved through longevity extension proposals involving the use of refurbished products	Short to medium term	High	High	Establishment of a circular economy-based business model supported centrally by Net One Next
		Products and services	Expansion in lineups of low-emission products and services	Revenue growth generated through proposals of power-saving products and services Expansion in business opportunities for reducing greenhouse gas emissions achieved through the application of virtualization and cloud-based technologies that facilitate the optimization of power consumption levels and the reduction of equipment use	Short to medium term	Medium	Medium	Developing and expanding green solutions capable of reducing power consumption and improving the power saving and efficiency of ICT systems
			Developing solutions addressing climate adaptation and resilience	Expansion in ICT infrastructure demand and service opportunities generated as workers increasingly stay home and work remotely due to disasters brought on by factors such as climate change and shifts in temperature	Long term	Medium	Medium	Development and delivery of solutions tailored to changes in customer digital transformation strategies and work styles
			Diversification of business activities	Rise in opportunities for promoting the achievement of a decarbonized society generated through a circular economy-based business model supported centrally by Net One Next	Medium to long term	Medium	Medium	Establishment of a circular economy-based business model supported centrally by Net One Next

Notes

1. Assumed timeframes—short term: 0 to 3 years; medium term: 3 to 10 years; long term: 10 to 30 years
2. Degrees of impact: low: < ¥1 billion; medium: ≥ ¥1 billion; high: ≥ ¥5 billion

Climate Change-Related Initiatives

Materialities (key challenges) identified by the Net One Group include “contribution to a decarbonized society.” Accordingly, the Group is addressing climate change by curtailing greenhouse gas emissions generated through its business activities and reducing the environmental impact of its business processes. In terms of operations, the Group has adopted the following initiatives to counter the effects of climate change.

Expansion of green solutions

The Net One Group facilitates the realization of a decarbonized society by developing and providing “green solutions” that contribute to the reduction of greenhouse gas emissions generated by both its customers and society at large. Moving forward, the Group will expand its lineup of green solutions by re-imagining existing solutions through the lens of decarbonization while exploring new business models via analyses of relevant markets and competitors. Specifically, we plan to examine and develop a diverse range of green solutions, including the creation of more efficient and power-saving ICT systems (Green of ICT); the use of ICT to minimize physical transport of people and goods, reduce electricity consumption, and improve operational efficiency (Green by ICT); and the achievement of an ICT circular economy through the extension of maintenance services and the expanded sale of refurbished ICT equipment.

Efforts targeting the reduction of both electricity consumption and CO2 emissions associated with technical centers

The Net One Group is committed to reducing emissions generated through its own business processes and supply chain while also mitigating the risks posed by climate change in general. In accordance with these aims, we are striving to reduce power consumption at our technical centers, where vendor products are assessed and verified. We analyze electricity consumption patterns across all of our technical centers by measuring the power consumption of equipment utilized in these centers and subsequently generating a dashboard displaying visual representations of daily and monthly electrical power consumption, CO2 emissions, and heatmaps (graphical depictions of power consumption through different shades of color) for individual racks. In addition, we have installed systems that shut down power automatically during nighttime hours (after 10:00 p.m.) to reduce CO2 emissions generated through unnecessary overnight equipment usage.

Efforts targeting the achievement of a circular economy through Net One Next

Net One Systems has been offering the NetOne “all in” Platform since 2017 as a service that allows customers to utilize functions they deem necessary on a subscription basis (pay-per-use) to help customers shift from ownership to use of ICT platforms. In 2019, we established Net One Next Co., Ltd. to handle refurbished ICT platform products and expand the use of this service.
Net One Next facilitates the stable, long-term use of ICT infrastructure, thereby reducing environmental burdens and supporting the achievement of a sustainable society. At the same time, Net One Next contributes to society at large through its circular economy-based business model. Moving forward, we aim to accelerate our application of this business model while keeping resources in circulation for use as long as possible. Through these efforts, we will reduce the generation of waste and other harmful materials, thus protecting the environment and generating profits. Net One Next is also a member of the Japan Partnership for Circular Economy (J4CE) and remains committed to implementing increasingly proactive initiatives targeting the realization of a circulation-oriented society.

5. Metrics and Targets

We have expanded our scope of measurement for greenhouse gas emissions and have implemented management for all emissions up to Scope 3 based on the recognition that it is important to engage in energy conservation efforts not only at the Company, but also throughout the entire supply chain in order to reduce climate change risks. Moving forward, based on the results of greenhouse gas emissions calculations, we will work actively to reduce greenhouse gas emissions through the use of renewable energy and in collaboration with our customers and business partners.

The table below summarizes the actual greenhouse gas emissions of the Net One Group.

Scope	Category	Source or type of emissions	FY2020 emissions (t-CO2)	FY2021 emissions (t-CO2)
1	-	Direct emissions	－	－
2	-	Indirect emissions from the generation of purchased energy (market standard)	5,293	5,356
3	1	Purchased goods and services	367,410	486,192
	2	Capital goods	6,269	6,480
	3	Fuel- and energy-related activities not included in Scope 1 or Scope 2	1,289	1,236
	4	Upstream transportation and distribution	163	163
	5	Waste generated in operations	20	41
	6	Business travel	711	817
	7	Employee commuting	372	169
	8	Upstream leased assets	－	－
	9	Downstream transportation and distribution	8	8
	10	Processing of sold products	－	－
	11	Use of sold products	84,152	74,334
	12	End-of-life treatment of sold products	23	20
	13	Downstream leased assets	－	－
	14	Franchises	－	－
	15	Investments	－	－
Total			465,709	574,816

Scope 1. Direct greenhouse gas emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles)
Scope 2. Indirect emissions associated with the purchase of electricity, steam, heat, or cooling
Scope 3. Indirect emissions (not included in Scope 1 or Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions

Note: Greenhouse gas emission data indicates emissions generated by the entire Net One Group.