Climate Change Countermeasures

Initiatives Related to the TCFD Recommendations

In April 2022, the Nidec Group announced its support for the TCFD recommendations. Through scenario analysis, we will grasp the possible financial impact of climate-related risks and opportunities and incorporate them into our management strategies. By doing so, we will further enhance our efforts to realize a carbon-free society.

Governance

Supervisory System

The NIDEC Group supervises the execution of sustainability-related operations and reports to the Board of Directors’ Meeting at the Sustainability Committee, which is held once a quarter. This committee is chaired by an outside member of the Board of Directors and consists of two internal directors and three outside members of the Board of Directors.

Business execution system

At the NIDEC Group’s Sustainability Promotion Meeting, the status of business execution related to material issues (materiality) including the environment is confirmed, and the sustainability activity policy and important matters are deliberated and resolved. This meeting is chaired by the president and consists of members of the Executive Management Meeting. In addition, the Environmental Management Subcommittee and the Climate Change Subcommittee have been established under the Sustainability Promotion Meeting to promote environmental initiatives across the NIDEC Group.

Sustainability promotion system

Sustainability Committee agenda in FY2023

Reflecting ESG targets in performance-linked compensation for directors

From 2024, a performance-linked coefficient will be incorporated into the performance-linked share-based remuneration for directors (excluding the Founder and Chairman of the Board, outside members of the Board of Directors, and directors who are members of the Audit, etc. Committee) in accordance with the degree of achievement of performance targets in a single fiscal year, etc. The degree of achievement of ESG targets will be determined based on the ESG rating or score of the Company by MSCI, FTSE, and CDP, and will be reflected in the performance-linked coefficient.

Evaluation indicators and weights for performance-linked coefficients

Strategy

A total of 143 executives and managers from the business areas that account for more than 95% of our consolidated sales (Small precision motors, Automotive products, Appliance, Commercial & Industrial Products, Machinery) conducted scenario analysis according to the following procedure to identify climate change risks and opportunities with a significant impact on our business, and to consider countermeasures.
The results of the scenario analysis were reported to the general managers of each business division, the Sustainability Promotion Meeting, and the Sustainability Committee.

Steps of scenario analysis

Specific examples of countermeasures

Geographical distribution of production plants

Nidec has a group network covering over 300 companies in more than 40 countries around the world and aims to reduce geopolitical risks and climate-related physical risks by geographically distributing its operation sites.

Reduction of size and weight, and resource saving by employing the “light, thin, short, and small” technology

Nidec manufactures socially and environmentally conscious products by making motors smaller and lighter and resource-saving. The first-generation model (Gen.1) of our EV traction motor system (E-Axle) achieved an overwhelming miniaturization of the motor by employing “light, thin, short, and small” technology and the oil cooling structure we had cultivated in the small precision motor business. The second generation (Gen.2) E-Axle, which began mass production in September 2022, achieved a 19% reduction in weight compared to Gen.1 thanks to the use of smaller magnetic circuits and inverters, based on the high-space-factor wire-winding technology, and also a substantial reduction in the amount of minerals used. In addition, the newly developed two-way oil-circulation system has improved the cooling capability, making it possible to use magnets that require significantly less amounts of dysprosium (Dy), terbium (Tb), and other kinds of heavy rare earth. Moving forward, we are planning to develop motors that do not use heavy rare earth or magnets.

Climate-related risks and opportunities with significant business impacts, and their countermeasures

Impacts of climate-related risks and opportunities				Countermeasures	Small precision motors	Automotive products	Appliance, Commercial & Industrial Products		Machinery
Impacts of climate-related risks and opportunities				Countermeasures	SPMS	AMEC	ACIM	MOEN	NMAB
Transition risks	Policies and legal regulations	Introduction of carbon taxes	Increase in production costs and decline in price competitiveness due to carbon taxes	Reduction of Scope 1 emissions through actions such as switching to LED lighting, introduction of energysaving equipment, replacement with low-carbon fuels, and optimization of manufacturing processes Reduction of Scope 2 emissions by introduction of renewable energy	〇	〇	〇	〇
			Increase in costs for introducing renewable energy * If measures are taken against carbon taxes	Introduction of renewable energy at low cost through long-term contracts such as corporate PPA		〇	〇
			Increase in procurement costs of crude oil and fossil fuel-derived electric power	Introduction of renewable energy Switching to LED lighting and introducing energy-saving equipment				〇	〇
			Increase in procurement costs due to carbon taxes imposed on raw materials	Use of low-carbon materials (including recycled raw materials) Reduction of size and weight, and resource saving by employing the “light, thin, short, and small” technology Introduction of multi-sourcing for procurement Reduction of supply chain greenhouse gas (Scope 3) emissions		〇		〇
		Tightening of regulations for fuel efficiency and ZEVs	Impairment of manufacturing facilities for internal combustion engine-related products	Adoption of highly versatile design that allows conversion to other models Conversion of manufacturing equipment to other products		〇
			Intensifying competition and price destruction due to an increase in newcomers	Development of products with high technological and price competitiveness Gaining economies of scale due to the market share expansion Protect and utilize intellectual properties	〇	〇			〇
			Intensifying competition for raw materials due to the expansion of the EV market	Miniaturization and weight reduction through lightweight, compact, and resource-saving technology Strengthening research and development to utilize alternative materials Implementation of vertical M&A Building a supply chain with high supply capacity Long-term contracts with suppliers				〇	〇
		Introduction of regulations related to rare earths	Difficulty in procuring rare earth elements and increased procurement costs	Development of products without heavy rare earth elements or magnets. Building a supply chain with high supply capacity	〇			〇
	Technologies	Impact on R&D capabilities	Risk of delay in new product development	Development of elemental technology in collaboration with research institutes	〇
		Failure in investment in new technologies	Loss of business opportunities if the environmental performance required by customers cannot be satisfied	Joint development with customers Reduction of size and weight, and resource saving by employing the “light, thin, short, and small” technology		〇
		Transition to low-carbon technology	Increased costs associated with switching to low-carbon raw materials and low-carbon processes	Pursuit of the “light, thin, short, and small” technology Promoting initiatives that involve suppliers			〇
	Market	Changes in customer behavior	Growing demand from customers to promote the use of renewable energy, and the suspension of transactions due to the failure to achieve carbon neutrality as planned	Reduction of Scope 1 emissions through the use of LED lighting, the introduction of energy-saving equipment, the replacement of fuels with low-carbon fuels, and the optimization of manufacturing processes Reduction of Scope 2 emissions through the introduction of renewable energy Promotion of environmental initiatives through collaboration with customers Promotion of sustainability management Appropriate information disclosure and strengthening of dialogue with stakeholders	〇		〇	〇
	Market	Rise in raw material costs, difficulty in obtaining raw materials	Difficulty in obtaining rare minerals, steel materials, and other non-ferrous metals, such as high-end aluminum and copper, rising procurement costs	Use of recycled raw materials Reduction of size and weight, and resource saving by employing the “light, thin, short, and small” technology Development of products that do not use heavy rare earths or magnets Building a supply chain with high supply capacity		〇		〇
	Reputation	Changes in investor evaluations	Increased costs of compliance due to stricter ESG evaluation criteria and expansion of fields requiring disclosure Difficulty in raising funds due to investors and financial institutions deeming information disclosure to be insufficient Decline in credit rating	Appropriate information disclosure and strengthening of dialogue with stakeholders	〇			〇
Physical risks	Acute	Impact of floods, submergence, torrential rain or typhoons	Suspension of factory operation Damage to fixed assets and stocks Outage of infrastructure networks such as electricity and water supply Incurrence of costs for production and transportation of other factories Disruption of supply chain Increase in insurance fees	Geographical distribution of production plants Introduction of multi-sourcing for procurement Implementation of BCP (business continuity plan)	〇	〇		〇	〇
Physical risks	Chronic	Impact of droughts, water shortage, and changes in the precipitation pattern	Difficulty in stably securing water, shortage of factory water due to water intake restrictions Increase in costs due to rising water prices Factory shutdowns due to tight electricity supply, constraints on raw material production and procurement capacity, increase in material purchasing costs Deterioration of water quality due to changes in precipitation and temperature patterns	Geographical distribution of production plants Optimization of manufacturing processes to reduce water usage Improving water reuse and recycling rates		〇		〇
Opportunities	Products/ services	Expansion of the market for products that contribute to decarbonization	Increase in demand for automotive products (E-Axle, EPS motors, brake motors, electric oil pump motors, etc.) due to the expansion of the electric vehicle market Increased demand for energy-saving products (brushless DC motors, refrigerator compressors, water-cooling modules for data centers, HDD motors, high-efficiency motors for industrial use, machine tools with high energy-saving performance, environmentally friendly reduction gears, etc.) Increased demand for renewable energy-related products (BESS, smart microgrid solutions, wind power and hydroelectric power generation-related products, small-scale generators, machine tools for manufacturing wind power and gas turbine cases, etc.) Increased demand for products (can making press machines) that contribute to solving the plastic problem	Strengthening the development of related products Reduction of size and weight, and resource saving by employing the “light, thin, short, and small” technology	〇	〇	〇	〇	〇
	Products/ services	Market expansion for products that counteract temperature differences	Increased demand for related products (such as air conditioner motors and air conditioner fans) due to the expansion of the market for air conditioning-related products Increase in demand for machine tools and press machines that can adapt to temperature changes		〇				〇
	Market	Expansion of EV market	Increased demand for related products (E-Axle, electric power steering motors, brake motors, electric oil pump motors, in-wheel motors for e-Bike drive, etc.) due to the expansion of the electric car and e-Bike markets Increased demand for high-precision machine tools		〇	〇			〇
		Progress of electrification	Expansion of motor demand accompanying the progress of electrification					〇
		Entry into new markets with new products	Expansion of new markets such as electric propulsion ships and electric aircraft				〇
	Resilience	Strengthening the supply chain	Achieving disaster-resistant manufacturing through BCP	Building a highly resilient supply chain					〇

Quantitative evaluation of business impact

Risk	Financial impact	Calculation method
Introduction of a carbon tax	12.4 billion yen	The carbon price is based on the IEA’s “World Energy Outlook 2022” forecast of 140 USD/t-CO₂ for developed countries in FY2030. CO₂ emissions (Scope 1 and 2) are calculated based on our 2030 target of 610,000 t-CO₂.
Flood damage	42.2 billion yen	Using the “Aqueduct” water risk analysis tool provided by the World Resources Institute, we assessed the impact of a disaster affecting all 38 locations assessed as having a high risk of flooding. We calculated the impact of damage to fixed assets and inventory, as well as the opportunity loss due to the suspension of operations, using the “Guide to Assessing Physical Risks in the TCFD Recommendations” published by the Ministry of Land, Infrastructure, Transport and Tourism.

From now on, we will work to improve the quality of our business impact assessments, and promote initiatives to effectively reduce climate change risks.

Risk management

We established a framework in which risk surveys are conducted for each of the levels illustrated below and the survey results are shared and mutually used.

With risk managers in place at each of our global locations, we are working to detect and respond appropriately to factors that could hinder business continuity. We are focusing on comprehensively understanding and mitigating climate change risks through measures that focus on compliance with increasingly strict climate change-related laws and regulations, adapting to changing market trends, and strengthening communication with customers, investors, and other stakeholders, while also conducting BCP simulation training at our bases in Japan and overseas, assuming the occurrence of risks such as floods and droughts.

Indicators and targets

As one of the major axes of The medium-term strategic goal Vision 2025 and ESG materiality measures, the NIDEC Group aims to achieve net zero CO₂ emissions by fiscal 2040. In fiscal 2023, we underwent third-party verification of our CO₂ emissions and formulated CO₂ reduction targets for fiscal 2030 in line with the guidelines This target was recognized as a scientificallybased target for achieving the “1.5°C target” in the Paris Agreement, and we have obtained SBT certification.

Scope 1 and 2 emissions reduction targets

Scope 3 emissions reduction target

In addition, we have identified “contributing to a sustainable global environment” as one of our materiality issues, and have set the following targets.