Governance

• Governance
• Strategy
• Risk Management
• Indicators and Targets

(1) Climate Change-Related Governance

Role of the board of directors and oversight structure

In the OMRON Corporate Governance Policies, we clearly state that the board of directors determines and discloses sustainability policies, material Issues, and targets, including efforts to address climate change risks based on the TCFD and other frameworks.

The Executive Council and the Sustainability Committee meet regularly to discuss, decide, manage progress, and monitor climate change-related risks identified through scenario analysis for each business in conjunction with SF2030 in line with our TFCD declaration and medium-term management plan, business opportunities, targets, and specific measures, considering corrective measures as necessary. The board of directors regularly receives reports on the details discussed and decided by the Executive Council, discussing and overseeing matters reported.

The Company used greenhouse gas emissions reduction indicators and third-party assessments of sustainability indicators including evaluation of climate change response (Dow Jones Sustainability Indices) as part of medium- and long-term performance-linked compensation (stock-based compensation) for internal directors and executive officers covering fiscal 2021 through 2024.

Strategy

• Governance
• Strategy
• Risk Management
• Indicators and Targets

(2) Strategy on Climate Change

Short-term, medium-term, and long-term climate-related risks, opportunities, and responses

Under our long-term vision SF2030 and our medium-term management plan, we identified carbon neutrality and reducing our environmental impact as sustainability-related materialities, viewing climate change from the two aspects of opportunity and risk to put our corporate social responsibility into practice and build further on our competitive advantage.

To prevent the serious impacts of climate change on ecosystems and human society from spreading, we engage in measures to reduce greenhouse gas emissions throughout our entire supply chain. We accomplish this goal through efforts that include the following five measures: (1) Products and services that contribute to decarbonization, (2) Evolved business models that combine products and services, (3) Co-creation with our partners, (4) Improved energy efficiencies, and (5) Expanded use of renewable energy.

In this context, the OMRON Group analyzed risks and opportunities under two scenarios published by the Intergovernmental Panel on Climate Change and International Energy Agency (average global temperature rise of 4℃ or more; and average global temperatures held to 2℃ or lower as provided in the Paris Agreement (portions to 1.5℃ or less). In this way, we reaffirmed that a response from OMRON is necessary to solve the climate change problem. In the field of industrial automation, specifically, OMRON endeavors to evolve innovative-Automation! to create manufacturing sites that support a sustainable future in coexistence with the global environment and job satisfaction for workers. We aim for automation that increases productivity and energy efficiency. In terms of social solutions, we have contributed to the spread of solar power and storage batteries. In the future we will use advanced energy control technology to eliminate instability in power generation and contribute to the further spread of renewable energy. In the field of device and module solutions, we speed the development and market introduction of Electronic and Mechanical Components Business components in response to growing interest in improved environmental performance and carbon footprint reductions. The OMRON Group has various other points of contact with society, and we are dedicated to achieving carbon-neutral societies in many social aspects.

In fiscal 2022, the OMRON Group became the first Japanese manufacturer to join EP100 and committed to doubling our energy productivity—or the ratio of sales per gigawatt-hour (GWh)—at all production sites in our Industrial Automation Business and Healthcare Business by 2040 compared to 2016. Our Matsuzaka Plant is a Japanese production center for blood pressure monitors and thermometers. Here, the Industrial Automation Business and the Healthcare Business are working together to create a system to double production while reducing energy consumption. We contribute to the decarbonization of the manufacturing industry and society by providing the expertise gained through our efforts within our company and to the rest of the world.

Companywide sales targets and progress in contributing to carbon neutrality through our businesses

Our medium-term management plan through 2024 includes a companywide sales target (Green Revenue) of 130 billion yen in businesses that contribute to carbon neutrality. In fiscal 2022, the first year of the plan, we accelerated efforts to become carbon neutral and achieved 109.2 billion yen (105% of plan).

• *We analyzed physical risks using hazard maps and AQUEDUCT for 15 major production centers, mainly in Japan and China. Although it is clear that two centers would be exposed to risk in the event of a once-in-a-century disaster, the annual impact, taking into account the replication period, is extremely small for both the 1.5/2°C and 4°C scenarios. Therefore, we rated the impact as small.

Assumed period: Period covered by SF2030 (through fiscal 2030)

Adopted Scenarios:

• 4°C Scenario : IPCC/RCP8.5, IEA/STEPS
• 1.5/2°C scenario: IPCC/RCP2.6, IEA/SDS (portions of IEA/NZE)

Time Horizon:
Short-term: less than 3 years; Medium-term: 3 to 10 years, Long-term; 10 to 30 years

Scenario analysis targets: Existing business

Definition of business and financial impact (large, medium, and small)

<Impact on risk: Positive or negative impact on operating income>

• Large = We expect ongoing regulations, policies, etc. on climate change at our customers, markets, etc., to have an impact in the future, resulting in an estimated impact on operating income (single-year) of 10 billion yen or more.
• Medium = A movement against climate change is already ongoing among our customers, markets, etc. We expect ongoing impacts to continue. However, we expect responses to change over the medium to long term, depending on whether consumers are accepting and on judgments related to return on investment. As a result, we expect the impact on operating income (single-year) to be between 3 billion yen and 10 billion yen.
• Small = A movement against climate change is already ongoing among our customers, markets, etc. However, we expect the medium- to long-term impact to be limited. As a result, we estimate the impact on our operating income (single-year) to be less than 3 billion yen.

Physical Risk Adaptation Plan

We have established OMRON Carbon Zero, a target for reducing greenhouse gas emissions by 2050 based on the SBTs.

With regard to water risk as well, assuming 2030, we are identifying locations that are exposed to water risk at all of our global locations (including existing and new businesses) through WRI AQUEDUCT recognized by CDP Water as assessment criteria and water risk analysis services provided by risk management consulting firms.

The four sites with high levels of water risk include those in China (Dalian and Shanghai), Brazil (Jundiai), and Italy (Frosinone). Water intake in these areas in fiscal 2022 totaled 212 thousand m³, which counts for 20% of the total water intake of OMRON group. OMRON is voluntarily take initiatives to protect the water resources to be prepared to continue business without any guidance or order to cut the intake and to improve the quality of drainage by governments. We are also systematically implementing the following measures and more for sites with high levels of physical risks, such as water risk.

1. Installation of generators
2. Subscription to logistic and property insurance
3. Ad-hoc review of disaster prevention manuals
4. Minimizing impact on product manufacturing (review of manufacturing processes)

Risk Management

• Governance
• Strategy
• Risk Management
• Indicators and Targets

(3) Risk Management Related to Climate Change

Process to evaluate, identify, and manage risks related to climate change

The OMRON Group conducts scenario analysis for each business to identify transition risks and physical risks due to climate change impacts. We then visualize the timing of emergence and degree of impact on business and finances for each scenario for the identified risks associated with climate change. Based on our assessments, we identified the risks associated with climate change that are important to our company, incorporating these results into companywide risk management as integrated business risk. Materialities related to the formulation of response measures are reported to the board of directors.

In fiscal 2022, we reevaluated the results of the fiscal 2021 scenario analysis for the Industrial Automation Business, Healthcare Business, and Devices & Module Solutions Business, re-performing scenario analysis for the Social Systems, Solutions and Service Business. We reviewed our risk assessment for physical risk at our main manufacturing centers in each business.

Integration into Enterprise-wide risk management

Given the importance of building a system to manage risks on an Enterprise-wide basis, the OMRON Group has been working on integrated risk management under a common group framework. We identify and assess climate change risk as an important risk for the group. We monitor efforts here by aligning risks with scenario analysis.

Indicators and Targets

• Governance
• Strategy
• Risk Management
• Indicators and Targets

(4) Climate Change Indicators and Targets

Indicators related to climate change risks and opportunities

The OMRON Group has established indicators for Scope 1, 2, and 3^*1 greenhouse gas emissions and for renewable energy as a percentage of electricity used in our business activities. We use these indicators to manage risks and business opportunities.

Greenhouse Gas Emissions Targets and Results (Scope 1, 2, and 3)

The OMRON Group views the creation of sustainable societies in terms of the environment as our commitment to improve lives and contribute to a better society under the OMRON Principles. In July 2018, we established OMRON Carbon Zero, aiming to eliminate Scope 1 and 2 greenhouse gas emissions by 2050.

In March 2022, OMRON evolved efforts to achieve carbon-neutral societies, changing our reduction scenario for Scope 1 and 2 from a 2°C scenario to a more aggressive 1.5°C scenario. We set a new target under Scope 3 Category 11 of an 18% reduction by fiscal 2030 (compared to fiscal 2016). These targets have been approved by the SBT Initiative^*2.

OMRON will continue to improve energy efficiency toward achieving these targets. By utilizing J-Credits^*3 derived from renewable energy and self-consignment^*4 provided by our own Energy Solutions Business, OMRON aims to achieve carbon zero^*5 for Scope 2 emissions across all domestic facilities by fiscal 2024.

• *1Scope 1 and 2: Greenhouse gases emitted directly or indirectly from the company's own operations.
  Scope3 Category 11: Scope 3 emissions are greenhouse gas emissions from the company’s own supply chain. Of these emissions, Category 11 is associated with the use of products and services manufactured or sold.
• *2Science Based Targets Initiative (SBTi): An international initiative that encourages medium- and long- term greenhouse gas reduction targets based on scientific evidence
• *3J-Credits: A system in which the government certifies environmental value (i.e., the effect of avoiding CO₂ emissions).
• *4Self-consignment: A power supply system that allows businesses that have own their own power generation facilities to transmit and supply and use power generated by those facilities to their factories and offices in remote areas via the power grids of general transmission and distribution companies.
• *5The system covers greenhouse gas (Scope 2) emissions from the use of electricity by the company at 13 production sites and 63 non-production sites (headquarters, R&D, and sales).
• *6Greenhouse gas emissions (Scope 1 and 2) for fiscal 2021 will be disclosed on the OMRON corporate website. These results will be subject to a limited level of assurance by the third-party assurance firm Bureau Veritas Japan. These limited assurance engagements are in accordance with the International Standards on Assurance Engagements (ISAE) 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information of the International Auditing and Assurance Standards Board (IAASB).
• *7GHG reductions in fiscal 2022 were much higher than the target due to energy conservation and energy creation efforts in excess of plan. The impact of Malaysia's decarbonization policy and lockdowns in Shanghai, China, also contributed to these results.
• *8In the future, set targets as soon as the accuracy of achievement feasibility increases