The Morinaga Milk Group is advancing its own initiatives for climate change. First, as a preliminary step toward disclosure with respect to TCFD, we established the TCFD Working Group under the CSR Committee in 2020 to evaluate the impacts of climate change on our business activities, carrying out scenario analyses on business risks. The results made it clear that climate change risk would have a significant impact on our business activities. In response, we expressed our support for TCFD in March 2021 and the TCFD Working Group reported its findings to our CSR Committee the following month. Following discussions by the Sustainability Committee (as the CSR Committee was renamed in June 2021) in October 2021, we upgraded the TCFD Working Group to the Climate Change Provision Subcommittee and improved our governance system.

The Climate Change Provision Subcommittee proposes to management climate change response strategies that strongly tie into overall Morinaga Milk business strategy. These strategies are then brought back to each department to be strongly reflected in their own strategies. As Subcommittee members are also responsible for the promotion of ISO 14001 environmental management system at headquarters, they set environmental action targets for their own departments while giving sufficient consideration to the climate change response strategies and risk management of the company as a whole. Initiatives for progress toward environmental action goals in departments will be enhanced through PDCA and our ISO 14001 environmental management system.

Record of activities

December 2019	Decision by the CSR Committee to establish TCFD Working Group
March 2020	Implementation of scenario analyses within TCFD Working Group (through November)
April 2021	Report on scenario analyses results to CSR Committee
October 2021	Decision by the Sustainability Committee to establish Climate Change Provision Subcommittee
January 2022	Examination of content of TCFD disclosure by the Climate Change Provision Subcommittee (through March)
April 2022	Determination of content of TCFD disclosure by the Sustainability Committee
April 2023	Determination of update of TCFD disclosure by Sustainability Comittee

The TCFD Working Group, established in 2020, conducted medium- to long-term scenario analyses for the years 2030 to 2050, examining the impacts of climate change on society and on our Group.

To address the social issues caused by climate change in particular, we formulated the following strategies for taking action through our business activities.

Scenario Analyses of Global temperature rise by 4°C by 2100

Significant adverse impacts on society and human activities appear under temperature rise (Physical risk).
Regulations to curb temperature rise are not so stringent relative to those under the scenario of global temperature rise by 1.5°C by 2100 (Transition risk).

Impacts on and changes in society and human activities

Health issues: Hydration and Nutrition

Heavy perspiration due to temperature rise increases the need for fluid intake. Heat distress as well increases the need for taking nutrition above that from normal daily meals. We hope to address health issues by supplying existing products, including beverages, frozen desserts, jelly pouches, and healthcare products for which we expect demand to grow.

Health issues: Infectious disease

Concern exists over the spread of infectious diseases due to temperature rise. Several of our proprietary materials, including Bifidobacterium longum BB536 and Lactoferrin, are anticipated to interact with our immune systems. We hope to contribute by supplying products with consideration for such health issues. We continue fundamental research to collect the evidence of the functions of our own raw materials.

Scenario Analyses of Global temperature rise by 1.5°C by 2100

Regulations are tightened on carbon dioxide and greenhouse gas emissions, particularly in developed countries, to limit temperature rise to within 1.5°C at the end of the century (Transition risk).
While negative impacts on society and human activities exist due to the temperature rise, these are more limited than under the scenario of global temperature rise by 4°C by 2100 (Physical risk).

Impacts on and changes in society and human activities

Physical risks associated with temperature rise

Changes in consumer behavior as consumers become aware of climate change issues.

Changes in consumer behavior: Room-temperature long-life products with low greenhouse gas emissions

Morinaga Milk Group has room-temperature long-life products that can be distributed and stored at room temperatures, manufactured under sterile conditions through our proprietary Long-Life Production Methods. These products help reduce Scope 3 greenhouse gas emissions (Category 9: downstream transportation and distribution) compared to chilled products in the same category.

As low-greenhouse-gas-emission lifestyles attract attention, we expect that our proprietary room-temperature long-life products will become differentiated in the market by not requiring refrigerated distribution and storage. They also feature long shelf life and can be purchased and stored in bulk, which is expected to reduce emissions of greenhouse gases from movement associated with shopping.

For tofu, sales of refrigerated product were required by law. However, the standards have been revised and in 2019 we released tofu with long storage life (216 days) under room-temperature. By selling such room-temperature long-life products, we can respond to the changes in consumer behavior.

The Climate Change Provision Subcommittee and the Sustainability Committee regularly review evaluations and consider responses to climate change risk. The TCFD Working Group, established under the CSR Committee in 2020 (which was renamed "Sustainability Committee" in June 2021), conducted medium- to long-term scenario analyses for the years 2030 to 2050, examining the impacts and risks of climate change.

To address company-wide operational risks, we established a Risk Management Subcommittee under the Internal Control Committee and regularly conduct identification and review of risks. We further summarize risk factors and countermeasures for each risk, and monitor implemented countermeasures. The Sustainability Promotion Department, which serves as the managing secretariat of the Sustainability Committee, regularly reports to the Risk Management Subcommittee on measures to address sustainability issues, particularly environmental issues, and on the status of these efforts.

The Climate Change Provision Subcommittee has taken up examination of the content of climate change risks examined by the TCFD Working Group, and has formulated response strategies as follows.

Scenario Analyses of Global temperature rise by 4°C by 2100

Significant adverse impacts on society and human activities appear under temperature rise (Physical risk).
Regulations to curb temperature rise are not so stringent relative to those under the scenario of global temperature rise by 1.5°C by 2100 (Transition risk).

Risks envisioned for business activities

Climate disasters

Climate disasters are envisioned as acute physical risks. As a guideline for scale of damage, we investigated the damage caused by heavy rains in Western Japan in 2018 and confirmed cost losses despite the maintenance of product supplies. No damage occurred to production equipment at plants.

In preparation for such disasters, we establish business continuity plans (BCPs), such as BCP manuals. We will enact necessary equipment measures at all sites.

Raw material procurement: Domestic raw milk

Under the scenario of global temperature rise by 4°C by 2100, significant impacts on dairy and agricultural production are expected in the world. As with the decrease in dairy farmers and the decrease in the number of dairy cows raised, concern exists over a medium- to long-term decline in domestic production of milk due to temperature rise. As production volume decreases in the areas of Honshu, Shikoku and Kyushu, the transported volume of raw milk from Hokkaido to these areas, currently under wide-area adjustment, will increase, creating expectations of increased distribution costs and impacts on procurement prices along with the risk of inability to meet consumer demand for milk if the gap widens.

To prevent this outcome, we will continue to reduce greenhouse gas emissions throughout the supply chain.

Domestically produced milk is the key raw material for our products. Greenhouse gases generated from dairy cow farming account for about 1% of greenhouse gases generated in Japan, yielding concerns over impacts on the global environment. As a member of the dairy industry, we have declared our intent to reduce greenhouse gases at dairy production sites, and will make use of our unique technologies to do so.

Raw material procurement: Overseas dairy ingredients

We procure dairy ingredients from overseas as well. Global production of dairy ingredients is expected to decline due to climate change. At MILEI in Germany, our Group produces dairy ingredients including lactose, Lactoferrin, and some milk proteins, which we intend to utilize to ensure stability of dairy ingredients. In 2021, MILEI increased its production capacity for the functional material Lactoferrin. We hope to utilize this for measures to address health issues.

Raw material procurement: Coffee beans

Coffee plants prefer a cool, rainy climate, and are cultivated in highlands at low latitudes. Their cultivable area is expected to undergo significant contraction due to climate change. By using coffee beans that have been certified for sustainable agriculture, we indirectly support producers as we continue our efforts to secure stable raw materials. Climate change can also affect most agricultural products, so we continue sustainable procurement for palm oil products and paper packaging materials.

Scenario Analyses of Global temperature rise by 1.5°C by 2100

Regulations are tightened on carbon dioxide and greenhouse gas emissions, particularly in developed countries, to limit temperature rise to within 1.5°C at the end of the century (Transition risk).
While negative impacts on society and human activities exist due to the temperature rise, these are more limited than under the scenario of global temperature rise by 4°C by 2100 (Physical risk).

Risks envisioned for business activities

Carbon taxes

The scenario of global temperature rise by 1.5°C by 2100 envisions the introduction of carbon taxes in Japan and other countries, as a financial resource to support industries, such as renewable energies, and as a means to regulate of the use of fossil energy to reduce greenhouse gas emissions throughout the country.

According to the estimates by the International Energy Agency (WEO2022; Net Zero Emission), the rate of carbon taxes is expected to remain at $140/ton-CO₂ or higher in developed countries, including Japan, from 2030. (The current Japanese tax rate is ¥289/ton-CO₂) This is expected to exert a significant impact on operating costs, but we will continue to work toward KPIs for the reduction of CO₂ emissions originating from energy use at manufacturing plants.

We will also work to reduce greenhouse gas emissions throughout the supply chain (Scope 3).