Disclosures based on the TCFD recommendations

Santen has established the "Santen Vision for the Earth 2050" (hereinafter, environmental vision) as its environmental vision toward 2050, and is actively committed to implementing measures against climate change and reducing the environmental load of its business activities. In addition, in June 2022, the Company declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (hereinafter, TCFD). Since we have conducted scenario analysis and assessed risks and opportunities to measure the financial impact of climate change on us, we will disclose related information appropriately in line with the TCFD recommendations.

Governance

  1. The board's oversight of climate-related risks and opportunities.
  2. Management's role in assessing and managing climate-related risks and opportunities.

Issues of ESG Materiality including climate change are reported to and discussed by the CSR Committee, which is chaired by the President and CEO and usually meets twice a year. Important discussion contents and decisions are proposed as "Reports & Deliberations" to the Board of Directors.

Since we launched an interdivisional TCFD project in 2021, we have held discussions on the identification of climate-related risks and opportunities, assessment of financial impacts and measures to address to them. After consultation was sought from CSR committee regarding discussion contents, they were proposed as "Reports & Deliberations" to the Board of Directors.

After the risks are identified, the department in charge of risk management and the division responsible for addressing the risks hold discussions to devise a policy and specific measures in response to the risks. To address the identified opportunities, we monitor and assess changes in the external and internal environments and incorporate the monitoring and assessment results in our business strategy according to necessity.

We have also included ESG metrics in our evaluation methods used to determine the level of compensation for executives in order to promote and enhance our environmental efforts, including efforts to combat climate change issues.

Strategy

  1. The climate-related risks and opportunities the organizations has identified over the short, medium, and long term.
  2. The impact of climate-related risks and opportunities on the organization's business, strategy, and financial planning.
  3. The resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2℃ or lower scenario.

As a result of analysis and assessment under a 1.5℃ scenario and a 4℃ scenario,(*1) we have identified climate-related risks and opportunities and their financial impacts, and have devised measures to address them as follows.

Climate-related risks and opportunities and financial impacts

Scenario Risks / opportunities Change in external environment (from present to around 2050) Risks / opportunities for Santen Financial impacts(*2) Method of assessing impacts
1.5℃ scenario Transition risks Accelerated shift to low-carbon energy Experiencing an increase in investments in and the cost of shifting to low-carbon energy Major Calculating conservatively in consideration of a certain level of technological uncertainties
Imposition of the obligation to shift to bioplastic and biomass plastic and related regulations Experiencing an increase in the cost of procuring container and packaging materials Minor Assessing the impacts by calculating the cost increase on the supposition of an ambitious sales growth rate
Sharp rise in ingredient prices due to a decreased supply of plant-based ingredients Experiencing an increase in the cost of procuring plant-based ingredients Minor Judging the price rise risk not to be high because plant-based ingredients, which account for a large part of the ingredient procurement costs, do not rely on particular animals or plants and can be procured easily
4℃ scenario Physical risks Floods and droughts due to changes in rainfall patterns Delaying or suspending product supply due to floods or restrictions on water use, which will cause difficulty in plant or laboratory operations Minor Judging in consideration of water usage in production processes and other factors based on whether or not rivers exist near each plant or laboratory and the result of the assessment of drought risks at each location using Aqueduct(*3), which is water risk assessment tools
Opportunities Increase in the number of myopia patients due to more frequent indoor activities in extreme weather events Contributing to treating an increasing number of myopia patients by increasing the production and supply of new myopia and other drugs Financial impacts are hard to identify at the present.
  • Assessing the impact of climate change on eye diseases referring to published research
  • Judging that it is hard to calculate the monetary value of the impact because it is difficult to determine what part of the increase in the number of myopia patients(*4) is accounted for by climate change
Increase in the number and activity of allergens, such as pollen, and pathogenic organisms due to climate change Contributing to treating allergies and infectious diseases of the eyes by increasing the production and supply of existing drugs, such as allergy and infectious disease treatments Financial impacts are hard to identify at the present.
  • Assessing the impact of climate change on eye diseases referring to published research
  • Judging that it is hard to calculate the monetary value of the impact because it is difficult to determine what part of the increase in the number of eye allergy and infectious disease patients, which is predicted to occur due to a rise in the average temperature, will be accounted for by climate change
  1. 1.5℃ scenario: Scenario postulating the maximum climate-related transition risks for Santen, constructed using the very low emissions scenario SSP1-1.9 in the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report (AR6), the International Energy Agency (IEA)'s Net Zero Emissions by 2050 Scenario (NZE), and other information
    4℃ scenario: Scenario postulating the maximum climate-related physical risks for Santen, constructed using the high greenhouse gas emissions scenario RCP8.5 in the IPCC's Fifth Assessment Report (AR5) and other information
  2. Financial impacts: Judged by how much the impacts on profits or costs would be worth annually or by the total amount of investments. "Major" impacts are worth 3.0 billion yen or more, while "minor" impacts are worth less than 3.0 billion yen.
  3. Aqueduct: Water risk assessment tools made open to public use by the World Resources Institute (WRI)
  4. The increase in the number of myopia patients: An article [Ophthalmology, 123; 1036-1042, 2016] estimates that the number of myopia patients will increase to approximately 5.0 billion by 2050, around 3 times higher than the figure for 2000.

Details about climate-related risks and resilience

We have judged that only the risk entailed by the accelerated shift to low-carbon energy will have a major financial impact. However, for Santen, there is also the risk of plastics such as eye drops which are the core of Santen's business, and water which is indispensable for the production of eye drops. Below are the details of the risks and the countermeasures considered.

Accelerated shift to low-carbon energy

The production of eye drops and other products involves the use of steam. Amid the accelerated shift to low-carbon energy, we are planning to introduce hydrogen boilers and hydrogen fuel storage facilities to replace fossil fuel used to fuel the boilers with a low-carbon energy source. We have estimated the financial impacts on the supposition that hydrogen boilers and hydrogen fuel storage facilities will be installed at the following Santen's production sites: the Noto Plant, the Shiga Product Supply Center (both in Japan), and the Suzhou Plant (in China). Despite many uncertainties, including fluctuations in fuel prices toward 2050, technological issues, and the need to ensure a necessary area of land, we have conservatively calculated that the related financial impacts will be worth 3.0 billion yen or more, which we have judged as "major" impacts.

To reduce the risk, we will consider minimizing the investment amount by utilizing novel technologies and other means. Through this fuel shift, we also aim to achieve zero greenhouse gas emissions as envisioned in our environmental vision, in order to decarbonize our products and services and contribute to a sustainable society and business.

Imposition of the obligation to shift to bioplastic and biomass plastic and related regulations

Santen uses plastic as a material of eye drop containers and a wrapping and packaging material for various products. If regulations are imposed on the use of current fossil-based plastic or if the obligation to use bioplastic and biomass plastic is imposed on us, procurement costs will increase because the unit prices of bioplastic and biomass plastic containers and packages are higher than those of conventional plastic containers and packages.

We have assessed the related financial impacts by estimating the cost increase on the supposition of a more ambitious sales growth rate than the current forecast of sales growth rate. We estimate that the impacts will be worth less than 3.0 billion yen, which we have judged as "minor."

We have already launched an initiative to achieve the target of replacing 60% of conventional plastic eye drop containers with biomass plastic containers by 2030 to realize our environmental vision. By the end of FY2021, we had started replacing the containers of five eye drop products with biomass plastic containers, and three of five products replacement had been completed. We are also striving to achieve the target of reducing the use of plastic as a wrapping and packaging material by 15% from the 2019 level by 2030.

Floods and droughts due to changes in rainfall patterns

The production of eye drops necessitates the use of water. If climate change causes changes in rainfall patterns or radical changes in weather patterns, floods and droughts will occur more often. Such a weather event is predicted to damage plants physically or lead to restrictions on the use of industrial water and consequently make it difficult for plants to operate, resulting in the suspension or delay of product supply and a resulting decrease in sales and profits. Therefore, we have assessed the risks of our plants and laboratories being affected by floods and droughts.

We have judged flood risks to be low because there are no rivers that could flood the areas near our plants.

Regarding drought, the degree of drought risks at each factory and laboratory specified by Aqueduct, and the opportunity loss (impact on sales) in the event of current and future water usage and water intake restrictions at the site are taken into consideration. As a result, we have determined that the relevant financial impacts of climate change will be minor on our production facilities in the Noto Plant, the Shiga Product Supply Center (both in Japan), the Suzhou Plant (in China) and Advanced Vision Science (in the U.S.), and research facilities in Nara Research and Development Center (in Japan) and Santen S.A.S. (in France).

Risk Management

  1. The organization's process for identifying and assessing climate-related risks.
  2. The organization's process for managing climate-related risks.
  3. How process for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management.

Santen conducts scenario analysis and identifies climate-related risks and opportunities to monitor and assess the impacts of climate change on its business. The identified risks and opportunities are regularly reported to the CSR Committee for discussions. To address a risk that has proven serious based on the results of Company-wide risk assessment, the department in charge of risk management under the leadership of the Chief Risk Officer selects a department to be responsible for addressing the risk by implementing measures to prevent the realization of the risk, formulating a business continuity plan, confirming that the business continuity plan is capable of functioning effectively in the event of an emergency, and reviewing the plan as needed.

Metrics and Targets

  1. The metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
  2. Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
  3. The targets used by the organization to manage climate-related risks and opportunities and performance against targets.

Santen has established the "Santen Vision for the Earth 2050" as its environmental vision toward 2050. The Company has also set environmental targets for 2030, including a CO2 emission reduction target, and is promoting activities to achieve the targets. As a measure to combat climate change, we have set a target of reducing Scope 1 and Scope 2 emissions by 50% on a CO2 -ton basis from the 2019 level by 2030, and a target of reducing Scope 3 Category 1 emissions (non-consolidated) by 15% on a CO2-ton basis from the 2019 level by 2030. The Science Based Targets initiative (SBTi) has approved the former target as a 1.5℃ target and the latter as a 2℃ target.