Possible climate change impacts to business activities include rules and regulations on carbon dioxide(CO2) emissions in accordance with the international framework for reducing greenhouse gas emissions, physical effects such as a rise in average temperature, occurrences of drought and floods, changes in disease structure, and health impacts. Having defined one of the goals of the EHS Management Policy (FY2021-FY2025) as “Realize a sustainable society by taking a leading role in addressing environmental issues such as climate change, resource recycling, water risk and biodiversity.” the Daiichi Sankyo Group will actively take measures to mitigate and adapt to climate change, address water risks, and tackle other issues.
Climate Change Risks
The Daiichi Sankyo Group recognizes environmental issues such as global warming or extreme weather which have impacts on our work and life. Under the Daiichi Sankyo Group Corporate Conduct Charter and the Daiichi Sankyo Group EHS Policy, we are promoting environmental management and practicing responsible corporate activities to mitigate climate change and other environmental challenges. We expressed our support for the recommendations of the TCFD*1 in May 2019, and disclosed information such as governance and results of scenario analysis in accordance with the TCFD disclosure framework in 2020. In addition, we will disclose information in accordance with the TCFD recommendations revised in October 2021, and aim to further strengthen our climate change-related governance and business strategies to proactively respond to climate change, which is a global issue.
- *1The Task Force on Climate-Related Financial Disclosures (TCFD): A task force set up in December 2015 by the Financial Stability Board (FSB), an international organization joined by central banks and financial regulators of major countries.
Information disclosure based on the recommendations of the TCFD
Governance
We have established the EHS Management Committee in an effort to protect the environment and ensure the health and safety of employees while achieving the uniform management. The committee is chaired by the Chief Executive Officer of EHS Management, and consists of relevant division heads (including Directors) and presidents of the group companies. The EHS Management Committee discusses and reports on policies, target setting, and activities related to global EHS management twice a year, and matters to be discussed and reported are submitted to the Board of Directors, which supervises the Committee activities. In FY2022, the committee discussed promoting business partner engagement in reducing Scope 3 emissions and the introduction of internal carbon pricing.
Corporate Governance
Environmental Management Promotion System
Risk management
The EHS Management Committee plays an important role in determining the risks and opportunities presented by climate change to our business, assessing and managing the financial impact, and enhancing our resilience. We strive to identify and address risks that may require changing our business activities, such as those related to climate change and water. Any significant risk concerns are reported to the Board of Directors and integrated into our overall risk management. In addition, the committee discusses and decides on mid-term and short-term targets and implementation plans for our transition toward carbon neutrality over the long term.
Risk
Opportunity
〈 Source 〉1.5°C Scenario : IEA WEO 2021 SDS, IEA NZE 2050 / 4°C Scenario : IPCC RCP8.5
Strategy
As the impact of various environmental factors increases, we will need to realize a sustainable society if we are to continue our corporate activities. Particularly for pharmaceuticals, which are life-related products, disruption of the supply chain due to worsening weather-related disasters and a decline in the supply capacity of pharmaceuticals are major risks, both from business and social perspectives. Accordingly, we believe it is important to reduce the environmental impact of our business and promote decarbonization, while working together with our business partners to promote decarbonization throughout our supply chain to achieve carbon neutrality and reduce our physical impact
Scenario analysis
Our cross-departmental task team, which we formed in FY2021, considered risks and opportunities for our business beyond 2030. The team uses net-zero scenarios published by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) to identify both transition and physical risks and opportunities for the entire value chain, and the risks and opportunities identified were deliberated and evaluated by the EHS Management Committee in FY2022. Specifically, we identified risks and opportunities in terms of procurement, direct operations, and demand for goods and services, and we classified them into six categories. We selected the 1.5°C scenario, where decarbonization is achieved, and the 4°C scenario, where decarbonization is not achieved, as we determined that it is important to assume and prepare in advance for extreme cases with regard to both the physical and transition risks. We categorized the potential impact and resilience of our business with regard to each risk in terms of frequency of occurrence, business impact, and investor interest and conducted a comprehensive evaluation of the risks and opportunities through to 2030 and 2050.
Results of scenario analysis and Daiichi Sankyo’s resilience
- *The degree of impact is evaluated based on a scale of: Negligible (below 0.1 billion yen); Minor (between 0.1 to 5.0 billion yen); Medium (between 5.0 to 10.0 billion yen); Major (between 10.0 to 30.0 billion yen).
- *Business risks are comprehensively assessed based on the degree of impact and frequency of occurrence.
We understand that the risks of direct transition to our Company’s business activities are limited. However, in the future, we believe that the risks in the supply chain will include carbon taxes and rising costs for transition measures. As for physical risks, there are concerns for stable supply due to intensification of weather-related disasters. Based on the results of this analysis, for transition risks, in addition to promoting energy conservation measures currently being implemented, we will create opportunities to reduce costs by using renewable energy, introducing decarbonization technologies, and collaborating with business partners to avoid the burden including carbon taxes. As for physical risks, we will work to avoid damage to the Group and aim for sustainable enhancement of corporate value by deepening the BCP, including flood control measures, implementing preventive measures to enhance supply chain stability, ensuring diversity, supporting measures, and securing alternative measures. The EHS Management Committee and the Board of Directors monitor the progress in the Group as a whole with regard to important risk measures evaluated and identified through the scenario analysis.
Indicator and Target
We have set KPIs and environmental targets in the 5-Year Business Plan as indicators and targets for evaluating and managing potential business impacts and climate-related risks and opportunities for each value chain. Based on the progress of the 5-Year Business Plan, we reviewed KPIs related to climate change in FY2021. As a result, we raised Scope 1 and Scope 2 targets to the global target level of 1.5°C, and for Scope 3, we also updated our setting of CO2 emissions reduction target we seek from our suppliers to 1.5°C level for the supplier engagement target.
CO2 emission
Unit: t-CO2
- *From FY2022, we have been switching to renewable energy sources for the power used in our domestic sites, dramatically reducing Scope 2 CO2 emissions.
In addition, we have adopted for our Directors medium-term performance-based share compensation according to the degree of achievement of goals of ESG indicators, including climate change.
Executive Compensation
With regards to internal carbon pricing, we are considering changing the system for verifying the cost-effectiveness from the format of a virtual carbon price (taking into account running costs, power consumption, CO2 emissions, carbon tax, etc., for facilities that are expected to have a significant energy saving effect for group companies in Japan) to a new system in anticipation of the introduction of the domestic carbon credit market.
Listed on CDP’s Climate Change A List 2022
In December 2022, we were placed on the A List, the highest rating, of the international environmental NGO CDP*1 for the third consecutive year in recognition of our leadership with respect to transparency and performance in climate change-related corporate sustainability.
With the growing social demand for carbon neutrality, we revised the target to a more ambitious one in June 2022. Specifically, we established targets to reduce CO₂ emissions by 42% in FY2025 and 63% in FY2030 compared to FY2015 emissions, leading to our CO2 emission reduction target being certified as a “1.5°C target” by the SBTi in June 2023. To achieve these targets, we switched the electricity used at our head office building and all of our plants and research centers in Japan to electricity from renewable energy sources in FY2022. For FY2030, we aim to achieve a renewable electricity utilization rate of 100% as set forth in RE100*2 as soon as possible. Furthermore, to enhance the sustainability of the entire supply chain, we established a target of having at least 70% of our business partners set a 1.5°C level target by 2025, and in FY2022 we joined the CDP Supply Chain Program of CDP, an international environmental non-profit organization. Through this program, we will promote initiatives to reduce CO₂ emissions with our business partners. We submitted a commitment letter to the SBTi declaring its goals for reducing GHG emissions, including net-zero standard
- *1 International initiative that brings together companies committed to 100% renewable energy. It is run by The Climate Group, an international environmental NGO, and CDP, an NPO that supports companies in disclosing their climate change measures
Joining the RE100
In July 2021 we joined the international initiative RE100, which aims to achieve 100% renewable energy for power consumed in business activities. Based on our purpose " Contribute to the enrichment of quality of life around the world" and our mission " Create innovative pharmaceuticals addressing diverse medical needs," we are committed to continuously providing value to society and our stakeholders through our business activities, while simultaneously promoting the growth and development of our Group. In our 5-Year Business Plan we have defined one of the materiality areas related to the foundation of our business as “Promoting Environmental Management,” and will take on a wide range of challenges to reduce the environmental impact across the entire value chain in order to achieve the plan’s goals of realizing a decarbonized society, circular economy, and society in harmony with nature.
Water Risks
The Daiichi Sankyo Group considers the ability to utilize adequate freshwater at all operating sites and throughout the value chain to be extremely important for promoting and continuing our business.
Water risks include physical, regulatory, reputation and other risks, which are an increasing concern throughout the world. At the Group, we ascertain the status of risks with the potential to impact our business at plants and research facilities.
Specifically, we carry out comprehensive risk evaluations based on the results of analyses of local water risks using the World Wide Fund for Nature (WWF)-DEG Water Risk Filter and the survey results on water risks emanating from plants and research facilities.
These evaluations indicate that operating sites with the highest water risks among our Group are one plant in China and one in Brazil (Table 1). Water withdrawal restrictions and other strengthened regulations are considered to be major risk factors. At present, these plants account for less than 5% of Group revenue. We are paying attention to regulatory trends and optimizing water usage. Specific measures include using recycled water for sprinklers at the plant in China and using rainwater for sanitary water and other daily usage at the plant in Brazil.
In Japan, surveys are conducted in an effort to understand impacts on business where physical, regulatory and reputational risks are a factor, such as the deterioration of water quality, water shortages, regulation of wastewater quality/volume, and the efficient use of water, with analyses and evaluations conducted on the basis of these results (Table 2). At plants in Japan, we are implementing measures that include reducing the utilization of industrial water. In addition, we have implemented countermeasures to deal with the increasing severity of climate disasters in recent years. Specifically in FY2022 we developed a flood risk assessment and countermeasures manual and formulated a plan to mitigate flooding of facilities at the Shinagawa R&D Center and Kasai R&D Center. Furthermore, we recognize the risk of flooding to be extremely low for Daiichi Sankyo Chemical Pharma’s Onahama Plant and our Daiichi Sankyo Biotech’s Kitamoto Site, and we have completed flood risk countermeasures in all research facilities and plants in Japan.
Furthermore, our water usage and wastewater drainage are assured by a third party.
Status of Operating Sites in Areas with High Water Risks (Table 1)
Water Risk Factors and Main Impacts (Table 2)
| Water shortages |
Reduction in research and production activities when water supply is stopped or restricted |
| Water quality deterioration |
Impact on manufacturing water (increases in water purification costs, etc.)
|
Floods/storm surges/heavy rain:
flooding of facilities due to river flood |
Shutdown of operations due to flooding
Plant shutdown or decline in sales due to the inability to produce or ship |
| Mandating water efficiency, recycling, etc. |
Increased cost of equipment installation, etc., due to mandatory use of reclaimed water |
| Wastewater quality/volume enhanced regulations |
Cost increases due to rising sewerage fees and stricter wastewater quality regulations result in higher equipment installation costs |
| Drought |
Damage of agricultural products used as raw materials |
Changes in water supply season/
passage of time |
Impact on operational stability due to changes |
Appropriate Use of Water Resources
Water is an important resource which is essential for pharmaceutical production, and we recognize that it is one ecosystem service that should be used sustainably. In addition to understanding the risks and challenges associated with water consumption and the status of water resources in countries and regions where our operation sites are located, we also implement measures including consuming water reasonably and efficiently, promoting reuse with purification equipment, and reducing the amount of water used.
The 5-Year Business Plan targets a 10% reduction in water consumed per unit of net sales from that in FY2020 (86.1 m3/billion yen) by FY2025.
The water consumed per unit of net sales in FY2022 was 64.6m3/billion yen (down 25.0% from FY2020); while the total volume of water used by the entire Group was 8.261 million m3 (down 0.3% from FY2020).
Furthermore, water intake by the Group did not have significant impact on water sources.
Water consumed (Withdrawal) and Wastewater Discharged (Entire Group)
