Disclosure Based on TCFD Recommendations

Responses to TCFD recommendations

The SUGI Pharmacy Group endorsed the recommendations in the TCFD’s final report in December 2021. From now on, we will disclose information in accordance with the framework recommended by the TCFD (governance, strategy, risk management, and metrics and targets) and promote initiatives on climate change issues to contribute to the realization of a sustainable society.
Responses to TCFD recommendations

"The SUGI Pharmacy Group endorsed the recommendations in the TCFD’s final report in December 2021. From now on, we will disclose information in accordance with the framework recommended by the TCFD (governance, strategy, risk management, and metrics and targets) and promote initiatives on climate change issues to contribute to the realization of a sustainable society."

Governance and risk management

Responding to climate-related risks and opportunities is one of the key ESG issues we should tackle with concerted group-wide efforts. Based on this recognition, we have established a Sustainability Committee (which meets at least twice a year) as an advisory body to the Representative Director & President for the purpose of promoting sustainability management, including the deliberation and determination of basic policies and necessary matters relating to such responses.
The Sustainability Committee holds meetings attended by directors in charge of the main divisions and conducts the planning of measures to address climate-related issues, management of progress toward targets, materiality assessment of risks, priority setting, and the determination of response measures to be taken before making reports and recommendations to the Representative Director & President. We have also established a Risk Committee within the Sustainability Committee as a body to manage relevant risks and execute tasks in accordance with the instructions of the Sustainability Committee. The Sustainability Committee is supervised by the Board of Directors, which receives reports and issues instructions as necessary on important matters deliberated by the Committee to ensure that its decisions are free from errors.

Strategy

Scenario analysis

We have assessed risks and opportunities that may have an impact on the Group in reference to, among others, the 1.5℃ and 4℃ scenarios identified in the IPCC’s Fifth Assessment Report, the IEA WEO NZE scenario, etc., after collecting various parameters based on future forecasts.

  • CO2 emissions (t-CO2) under the assumption of no positive action and when targets are met
    Item 2030
    CO2 emissions under the assumption of no positive action 225,689
    Emissions when 50% reductionin CO2 emissions
    per store from FY 2014 has been achieved
    141,890

    * An emission factor of 0.000433 (t-CO2/kWh; national average factor for FY 2022) was used.
    * A net increase of 100 per year in the number of stores is assumed.
    * Electric power consumption at most recently opened stores was used. Electric power consumption is higher at these stores.)

  • Scope of analysis

    Business: Drugstore business in Japan
    Scope: Stores, procurement, logistics, and consumer behavior
    Period: Present through 2030

    Adopted scenarios
    • IEA WEO2022 NZE (1.5℃)
    • IPCC 5th Assessment Report, etc.

Assessment results

  • 1.5℃ scenario

    We expect that various transition risks will increase. In this scenario, we expect that countermeasures against climate-related issues will be strengthened and decarbonization will progress. As a result, we expect increases in expenditure due to the introduction and higher rates of carbon taxes and the widespread use of renewable energy.

  • 4℃ scenario

    "We expect that physical risks, such as extreme weather, will increase. We expect damage to store operations due to the frequency and intensification of natural disasters caused by climate change. As a result, we expect increases in expenditure for repairs and decreases in sales due to temporary store closures. "

  • Common scenario (1.5℃ and 4℃)

    "We expect that changes in consumer preferences and behavior will be influenced by temperature rises. If we are unable to develop and display products that meet customer needs or effectively market services that meet customer needs, opportunity losses may arise. On the other hand, we could take advantage of increases in opportunities if we can capture such needs."

Assessment of risks and opportunities

Category Assessment
Assessment in the world of +1.5℃ Assessment in the world of +4℃
Transition risks and opportunities Policies and regulations Carbon pricing Risk:
Expenditure will increase following the introduction of carbon pricing.
Risk:
The impact of carbon pricing will be limited.
Risk:
Expenditure will increase due to increases in production and procurement costs of products and services throughout the supply chain
Control of CFCs Risk:
Expenditure will increase due to the introduction of CFC-free equipment at stores.
Risk:
The impact of carbon pricing will be limited.
Technology Logistics efficiency/td> Opportunity:
Expenditure will decrease as a result of more efficient logistics
Market Electricity prices Risk:
Expenditure will increase due to rises in electricity prices.
Reputation Customer preferences Risk:
Sales will decrease due to a delay in the provision of eco-friendly productsand services.Opportunity: Sales will increase as we develop private brand products that meetthe needs for sustainable consumption

Opportunity:
Sales will increase as we develop private brand products that meet the needs for sustainable consumption.
Opportunity:
Sales will increase as we develop private brand products that meet the needs for sustainable consumption.
EV charging Opportunity:
The frequency of visits to stores will increase as we enhance the charging environment.
Opportunity:
Sales will increase as we develop private brand products that meet the needs for sustainable consumption.
Physical risks and opportunities Acute Drastic increases in extreme weather Risk:
Sales will decrease to a limited extent due to temporary store closures and lower customer traffic.
Risk:
Sales will decrease significantly due to increases in temporary store closures and lower customer traffic caused by physical damage to stores.
Risk:
Expenditure will increase as insurance premiums increase in response to increases in natural disasters.
Opportunity:
Sales of disaster prevention and stockpiling-related products will increase.
Opportunity:
Sales of disaster prevention and stockpiling-related products will increase.

Risk:
店舗被災による修繕支出増加
Technology Average temperature Risk:
AC-related expenditure will increase as the temperature rises.
Risk:
AC-related expenditure will increase as the temperature rises.
Market Production and procurement Risk:
Risk: Expenditure will increase as purchase costs increase due to lower production of raw materials.

Excerpt from business impact assessment based on scenario analysis Trial calculation of expenditure arising from transition risk (carbon taxes)

Trial calculation of the impact when 50% reduction in CO2 emission from FY 2014 is achieved in FY 2030. The amount of carbon taxes in 2030 is expected to be approximately 2.7 billion yen.

Item Business impact
Amount of carbon taxes in FY 2030 Approx. 2.7 billion yen

* In reference to IEA WEO2022 NZE (1.5℃) P465 Table B.2, the amount of carbon taxes in FY 2030 was set at 140 dollars/t-CO2.
* The trial calculation is based on the USD/JPY exchange rate as of March 1, 2023

Future initiatives

The Group will implement the following measures to be able to create a sustainable society not only for society but also for the Group itself.

  • Response measures toward the realization of adecarbonized society

    Energy saving measures

    • Daily operational improvements and enlightenment for power saving
    • Introduction and replacement of energy saving equipment
    • Introduction of energy management systems

    Energy creation measures

    • Installation of solar power generation panels owned by the Company
    • Installation of on-site and off-site solar power generation panels on a PPA basis

    Other measures to reduce CO2 emissions

    • Purchase of non-fossil certificates and green power certificates
    • Purchase of CO2-free menu services from electric power companies
    • Use of EVs as company cars
  • Response measures toward the realization of a recycling-based society
    • Repair and reuse of foldable containers and transportation and delivery equipment
    • Reuse of furniture, fixtures and equipment following store renovation or closure
    • Monitoring of any abnormal quantity of supplies or inventories at each store and providing guidance
    • Development of private brand products with eco-friendly packaging
    • Promotion of the “temaedori” (taking from the one in front) campaign to prevent food waste
    • Reducing waste by sharing information with our business partners
    • Charging for plastic bags

Metrics and targets

CO2 emission per store reduction targets
FY 2030 50% reductionfrom FY 2014
FY 2050 Net zero
  • CO2 emissions Scope 1 and 2
    year FY 2014 FY 2015 FY 2016 FY 2017
    No. of stores 947 996 1,048 1,105
    Emissions (t-CO2) 112,773 123,377 129,392 119,826
    Average per store (t-CO2) 119.1 123.9 123.5 108.4
    year FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
    No. of stores 1,190 1,283 1,391 1,483 1,565
    Emissions (t-CO2) 120,826 117,611 126,160 135,149 To be calculated
    Average per store (t-CO2) 101.5 91.7 90.7 91.1 To be calculated

    * A location-based emission factor (national average emission factor by electric power company) is used.
    * CO2 emissions based on the use of gasoline by company cars are calculated on a trial basis based on the pro rata allocation of FY 2020 results using the number of stores (in and before FY 2020).
    * CO2 emissions shown in the table above are Scope 1 and 2 emissions (emissions from the Group).
    * Calculation logics for tenant shops and some offices are currently under close examination.

  • CO2 emissions Scope 3
    2021年度 スコープ3内訳

    * Categories 9 through 15 are not applicable or items that have not been calculated.
    * Category 4 is an estimate calculated based on monthly data for a 12-month period.
    * Figures and calculation logics of all categories are currently under close examination.

  • Metrics to measure progress toward the realization of a decarbonized society
    • Ratio of reduction in CO2 emissions (Scope 1 and 2) per store
    • Ratio of reduction in CO2 emissions from our supply chain (Scope 3)
    • Percentage of renewable energy
  • Metrics to measure progress toward the realization of a recycling-based society
    • Ratio of eco-friendly private brand products
    • Ratio of eco-friendly private brand products
    • Volume of plastic bags used