What is TNFD?
In June 2021, the Taskforce on Nature-related Financial Disclosure (TNFD) was established. This is an international organization that establishes a framework for private companies and financial institutions to appropriately assess and disclose risks and opportunities related to natural capital and biodiversity, including air, water, minerals, soil, plants and animals. The TNFD was conceived at the 2019 World Economic Forum Annual Meeting in Davos as a follow-up framework to the Taskforce on Climate-related Financial Disclosures (TCFD). It aims to establish a disclosure framework for nature-related risks in order to transition to a“ nature-positive” society, where the flow of financial funds is directed toward halting and restoring the loss of natural ecosystems.
Our economic activities depend on benefits (ecosystem services) obtained from natural capital such as air, water, minerals, soil, plants and animals. For example, we obtain a variety of benefits from physically supplying water, metals, and other substances, from forests mitigating wind or flood damage, and from microorganisms cleaning water quality. To continue receiving such benefits, it is essential to maintain a balance between a variety of biological organisms (biodiversity). Therefore, understanding the relationship between business activities and the dependence and impact on natural capital, including biodiversity, and then reducing negative impacts on nature while increasing positive impacts is important from the perspective of corporate sustainability.
The Shimadzu Group has identified “contribution to the conservation of biodiversity” as a key issue (materiality) for Shimadzu Group environmental management. Therefore, we implement measures and disclose information in accordance with recommendations of the TNFD in order to assess and manage nature-related risks and opportunities and to improve the resilience of the Shimadzu Group. This fiscal year, we assessed the entire value chain (upstream, direct operations, and downstream) based on the LEAP approach. Next fiscal year, we plan to conduct a more detailed survey of dependence and impacts based on information about upstream and downstream locations.
Governance
The Shimadzu Group deliberates on nature-related risks and opportunities, as well as measures to resolve management issues, at the Environmental Meeting (chaired by the President and which meets twice a year), a subcommittee focused solely on environmental issues. Discussions are reported to and discussed by the Executive Committee, which oversees the execution of these deliberations.
Risk and Impact Management
At the Environmental Meeting, the Global Environmental Management Department is the main organization involved in identifying and assessing nature-related risks and opportunities that could impact Shimadzu Group businesses, strategies, and f inances, from the perspective of two materialities, which are how nature might impact business activities (i.e., dependence) and how business activities might impact nature (i.e., impacts). Specifically, risks and opportunities were identified and classified in terms of the local operation level, the product/service level, and the corporate level. To identify risks and opportunities at the local operation level, the dependencies and impacts on nature due to business activities and the risks and opportunities generated by those dependencies/impacts were assessed for the entire value chain. The nature-related dependencies and impacts were organized using ENCORE*1 and assessed based on Shimadzu business characteristics. To identify risks and opportunities at the products and services level, macroenvironmental changes were predicted for TNFD-recommended scenarios. The impact levels of identified risks and opportunities were assessed qualitatively. The impact level is defined as the magnitude of financial effects if the risk/opportunity is realized. In addition to assessing risk/opportunities in terms of impact level, the TNFD also recommends using likelihood of occurrence. However, likelihood of occurrence is expected to be evaluated based on information about upstream and downstream locations. The impact levels of identified risks and opportunities were assessed qualitatively. The impact level is defined as the magnitude of financial effects if the risk/opportunity is realized. In addition to assessing risk/opportunities in terms of impact level, the TNFD also recommends using likelihood of occurrence. However, likelihood of occurrence is expected to be evaluated based on information about upstream and downstream locations.
- *1: This tool is used to visualize the dependence of the economy on nature, the pro bability of such impacts, and how business risks are generated in response to environmental changes.
Strategy
Dependence/Impact
A heat map that visualizes the results from assessing the relationship between the Shimadzu Group and nature-related dependence/impact is shown to the right. The impact heat map showed that in addition to the impact on nature due to direct operations, such as water pollution, there are also large impacts on the upstream portion of the value chain. For primary procurement sources, Shimadzu has established Green Procurement Standards and Shimadzu Group CSR Procurement Guidelines in order to reduce environmental impacts.
In addition, workshops were conducted for suppliers that had not implemented measures for protecting biodiversity. Engagement activities are implemented for suppliers to ensure business activities are performed in an environmentally friendly manner, including for upstream natural capital.
Table: Heat Map of Dependence
Table: Heat Map of Impact
Risks
Shimadzu business activity risks with a potentially high financial impact level are listed in the table below. Internal regulations mandate that all new products must have a lower environmental impact, on life cycle basis, than the previous model. Therefore, Shimadzu implements measures to reduce the environmental impact of new products, such as by reducing the size, increasing the service life, or reducing the amount of packaging materials. For some products, petroleum-based plastics are substituted with sustainable materials*2 or substitutes are considered for chemical substances that are highly harmful to the environment.We will review the Environmental Design Guidelines in order to make improvements that enable product designers and developers to constantly be mindful of environmental considerations and incorporate them in designs.
We will also strive to reduce water usage for business activities, such as by using water-saving fixtures. In addition, we are trying to reduce flooding risks by implementing measures to maintain and restore the floodmitigating functions of areas around manufacturing plants. For example, at the Shimadzu Forest area within the Sanjo Works property, we are improving the soil’s ability to retain water by expanding green spaces.
- *2: Resin materials derived from bio or recycled sources
Table: Business Activity Risks with a Potentially High Financial Impact Level
Opportunities
Shimadzu business activity opportunities with a potentially high financial impact level are indicated below. Shimadzu sells environmental analyzers used for applications such as monitoring the impact on nature of water pollution, soil pollution, air pollution, or other factors. Specifically, this includes online total nitrogen and total phosphorus analyzers that can measure total nitrogen and phosphorus levels in effluent water, atomic absorption spectrophotometers that can analyze the metals in soil, gas chromatograph mass spectrometer systems and high-performance liquid chromatographs that can analyze PM2.5 particulates, and Fourier transform infrared spectrophotometer plastic analysis systems that can analyze microplastics. If stricter nature-related regulations or environmental impact reduction plans are required in the future, presumably it would increase demand for analytical instruments that are a key product of Shimadzu. We will continue monitoring regulatory trends for chemical substances that might be subject to new regulations and efforts to establish new measurement methods in cooperation with NEDO (New Energy and Industrial Technology Development Organization) and the EPA (U.S. Environmental Protection Agency).
Table: Opportunities with a Potentially High Financial Impact Level in Business Activities
Water Pollution-Related Risks/Opportunities
The impact heat map showed that direct operations by Shimadzu Corporation have a relatively large impact, such as due to water pollution.
In FY2022, under the theme of water pollution, Shimadzu identified naturerelated risks and opportunities for its direct (manufacturing steps) and downstream (usage of products sold) operations.
Voluntary control standards that are stricter than required by law or regulation have been specified at the directly operated manufacturing sites of Sanjo Works, Seta Works, and Hadano Works and at the development sites of the Keihanna Technology Research Laboratory and Shimadzu Tokyo Innovation Plaza, where water quality is regularly measured and the total organic carbon (TOC) contained in effluent water is monitored using an online TOC analyzer developed by Shimadzu. Total organic carbon (TOC) refers to the total quantity of carbon contained in organic matter in water. The TOC value is used as a representative water quality index that indicates how dirty water is. Effluent water from Shimadzu’s main sites is discharged into a public sewer system for treatment at a sewage treatment plant.
However, some public water bodies where treated sewage is discharged do not meet environmental standards for environmental water*3 quality. Therefore, to achieve Nature-Positive conditions in the future, costs for compliance with stricter effluent water standards may increase, but the risk assessment assumes the financial impact of such increases to be limited.
On the other hand, considering that Shimadzu water quality analyzers are used to analyze water effluent discharged from wastewater treatment plants and factories, demand for these products is expected to increase as effluent regulations are tightened.
- *3: Environmental water refers to river water, lake water, seawater, groundwater, etc.
Table: Main Risks/Opportunities for Shimadzu Businesses
- * Timeframe: Approximate timing of impact on Shimadzu’s business. Short-term: Within 3 years; Medium-term: Within 3 to 10 years; Long-term: Over 10 years
Measurement Index and Target
Shimadzu quantitatively determines the concentration of pollutants in effluent water, the quantity of water used, the quantity of hazardous and nonhazardous waste substances discharged, the recycle rates, and other values as naturerelated index values. In particular, effluent water is monitored continuously so that corrective measures can be implemented quickly if any of the index values exceed voluntary control standards that are stricter than required by laws or regulations.
Thus Shimadzu is committed to precisely determining and mitigating any impacts of water pollution.
In addition, the Shimadzu medium-term management plan specifies a target of reducing water usage by 5% as a percent of consolidated net sales in FY2020. This target was achieved in FY2023 by reducing usage by 6%. In an effort to achieve sustainable resource usage, we specified a target of maintaining a recycling rate of 99.6% or higher at all manufacturing and development locations in Japan.
The actual recycling rate in FY2023 was 99.7%, which achieved the target. Furthermore, compared to our target of using sustainable materials in 10 products by FY2025, we used them in three products in FY2023. In the future as well, we will continue to specify and monitor targets based on TNFD recommendations.