Sustainability DisclosureInformation Disclosure Based on TCFD Recommendations

The MORESCO Group considers the impact of climate change on its business and vice versa to be one of its important management issues. The Group has established its "MORESCO Group Sustainability Policy" and regards itself as a specialist in the boundary areas as defined in its management philosophy. We will actively promote sustainability initiatives in order to be better trusted by our stakeholders through business operations while both "realization of a sustainable society" and "enhancing corporate value the in the medium-to-long term". We will also make further contributions to solving social and environmental issues. As part of this, the Group expressed its endorsement of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and strengthened its climate change initiatives and information disclosure. Going forward, we will continue to enhance information disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), respond to risks and opportunities such as climate change appropriately and in a timely manner, and aim to realize a sustainable society and promote corporate value in the medium-to-long term.

Ⅰ. Governance

In order to operate its business based on both the principles of "realization of a sustainable society" and "enhancing corporate value the in the medium-to-long term", the Group formed a "Sustainability Committee" in April 2022. In addition, we have also established the "Corporate Sustainability Department", a dedicated department to oversee the Group's sustainability promotion activities. Chaired by the President and Representative Director, The Sustainability Committee consists of executive directors, the full-time audit and supervisory committee member, executive officers, and other members. The committee meets once every three months to discuss a wide range of risks and opportunities, including climate change and other social and environmental issues related to sustainability, and reflects them in business strategies and policies in a timely manner.
The Board of Directors deliberates and makes decisions on business strategies, investment plans, BCPs, etc. from the perspective of comprehensive compliance and risk management, following the Basic Sustainable Policy and relevant material issues including climate change.

MORESCO group Corporate Governance Structure figure

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Ⅱ. Strategy (Risk and Opportunity Analysis)

The Group manufactures and sells chemical and petroleum products to be used as raw materials and fuels (including fossil fuels) and recognizes that climate change is an extremely important issue that brings both risks and opportunities.

1. Major climate-change-related risks and opportunities MORESCO faces (scenario analysis)

Regarding climate change, various scenarios can be considered depending on trends in global warming countermeasures taken by major countries. Assuming two typical scenarios, (1) Transition Risk Scenario (1.5°C or lower scenario) and (2) Physical Risk Scenario (4.0°C scenario), the Group examined risks and opportunities for our core businesses including specialty lubricants, synthetic lubricants, raw materials, hot melts, and other new businesses, primarily for the period until the 2030s.

(1) Transition Risk Scenario (1.5°C or lower scenario)

Prescriptive scenarios for achieving zero greenhouse gas emissions at a global scale by 2050
In principle, policies, energy and industrial structure, resource prices, etc. are based on the "NZE2050 -Scenario" defined in the IEA's "World Energy Outlook 2021", and average temperature and other assumptions related to climate change are based on the "SSP1-1.9 Scenario" defined in the "IPCC Sixth Assessment Report".

(2) Physical Risk Scenario (4.0°C scenario)

Scenario in which effective policies to address climate change issues are not implemented, incorporating the withdrawal of currently announced policies and targets for greenhouse gas reduction.
In principle, policies, energy and industrial structure, resource prices, etc. are based on the "STEPS Scenario" defined in the IEA "World Energy Outlook 2021", and average temperature and other assumptions related to climate change are based on the "SSP5-8.5 Scenario" defined in the "The Sixth IPCC Assessment Report".

In identifying and selecting risks and opportunities, the Corporate Sustainability Department took the lead in conducting study sessions at each business division based on the results of awareness surveys conducted at major business divisions and making decisions based on the opinions of external experts.
The main conclusions of the study are as follows.

risk

	Expected Events	Expected Time to Become Evident	Material Risks	Countermeasures
1.5℃ Scenario	Rising carbon prices	Medium term	Increased costs in response to carbon neutrality policies Decline in price competitiveness of fossil-fuel-derived products	Promotion of energy conservation by improving productivity, and utilization of renewable energy Utilization of non-petrochemical materials
	Soaring raw material and fuel prices and procurement difficulties	Short-to-medium term	Soaring prices of non-fossil-fuel raw materials and procurement difficulties Decline in cost competitiveness due to soaring raw material and fuel prices	Utilization of recycled and reused materials Promotion of Global Procurement and Green Procurement
	Changes in the competitive environment	Short-to-medium term	Enforcement of new environmental legislation and strengthened enforcement of existing legislation both in Japan and overseas Development of products with high added-value, etc. by competitors	Enhancing management departments to respond to SDGs and the environment Development and sales of high value-added products
	Changes in customer behavior	Short term	Increased customer demands for environmental measures Fundamental changes in the competitive environment and industrial structure	Research and development of environmentally friendly products Search for new needs, develop new technologies
	Responding to the circular economy	Short-to-medium term	Strengthened legislation related to resource recycling and waste management and treatment both in Japan and overseas Impact of stringent legislation on sales regulations and customers' product selection behavior	Development and sales of environmentally friendly products Utilization of recycled and reused materials
	Changes in Investors' and Financial Institutions' Awareness	Short term	Possible investment withdrawal by investors and financial institutions and deterioration of loan conditions Damage to the brand image of companies with high carbon emissions	Proactive and continuous disclosure of SDGs and initiatives to reduce environmental impact
4.0℃ Scenario	Rising average temperature	Short-to-long term	Difficulties to maintain production conditions at facilities, and unstable operations. Deterioration of working environment and decline in productivity due to rising average temperature	Development of product and packaging forms resistant to temperature rise Improvement of production and working environment through automation
	Intensification of extreme weather	Short-to-long term	Increased risks to the life and property of employees Supply chain disruption due to damages to suppliers and logistics networks	Dispersion of inventories and production bases Strengthening the supply chain network
	Rising Sea level	Short-to-long term	Risk of damage to production sites due to storm surges, etc. Suspension of factory manufacturing functions due to submersion	Flood Damage Countermeasures at Production Bases Dispersion of inventories and production bases
	Water Resources, Resource Recycling, Wastewater and Waste Management	Short-to-medium term	Strengthened legislation on resource recycling and waste management and treatment Higher wastewater treatment costs due to stricter factory wastewater regulations	Development of alternative raw materials, utilization of recycled and reused materials Reduction of waste liquid volume

opportunity

	Expected Events	Expected Time to Become Evident	Material Opportunities	Countermeasures
1.5℃ Scenario	Rising carbon prices	Midium term	Possibility of promoting substitution to energy-saving product groups Growing demand for products manufactured using renewable energy	Development of recycled oil and products with high added-value Promotion of energy conservation and utilization of renewable energy
	Soaring raw material and fuel prices and procurement difficulties	Short-to-medium term	Lower relative prices of chemically synthesized and non-petroleum-base oils Increaseed competitiveness of factories close to demand areas and companies and factories with excellent BCP compliance	Raising utilization ratio of biomass and recycled raw materials Stable procurement through diversification of raw material sources
	Changes in the competitive environment	Short-to-medium term	Increasing importance of collaborative systems to address climate change risks Growing demand for high value-added products	Strengthening Partnerships Development and sales of environmentally friendly products and strengthening price competitiveness
	Changes in customer behavior	Short term	Increased demand for products with lower environmental impact and products utilizing production processes to reduce GHG emissions Growing demand for HEV vehicles in emerging countries and CASE-related products	Research and development of environmentally friendly products Search for new needs, develop new technologies
	Responding to the circular economy	Short-to-medium term	Growing needs for lubricant recycling, extending service life, etc.	Development and sales of environmentally friendly products Utilization of recycled and reused materials
	Changes in Investors' and Financial Institutions' Awareness	Short term	Adoption of ESG-related stock indices, increasing shareholding by long-term investors and improving reputation	Proactive and continuous disclosure of SDGs and initiatives to reduce environmental impact
4.0℃ Scenario	Average temperature rise	Short-to-long term	Growing demand for products with excellent heat resistance	Product development to meet new demands
	Intensifyiing extreme weathers	Short-to-long term	Stable operational supply improves customer satisfaction and trust from customers and investors	Dispersion of inventories and production bases Strengthening the supply chain network
	Rising Sea level	Short-to-long term	Improving reliability by building factories and supply systems resistant to disasters such as floods	Hazard analysis and formulation of disaster response BCP
	Water Resources, Resource Recycling, Wastewater and Waste Management	Short-to-medium term	Expanding customer bases by recycling products and using recycled materials Establishing a circular economy through collaboration with industrial waste suppliers	Development of alternative raw materials, utilization of recycled and reused materials Strengthening partnerships with industrial waste suppliers

2. Financial Impact

In the Transition Risk scenario, the financial impact is expected to be particularly significant in the upstream supply chain due to rising crude oil prices caused by carbon pricing (introduction of a carbon tax) and other factors and rising base oil purchase prices in accordance. Under certain assumptions, our base oil procurement price may increase by 75~100% in 2030 compared to the average for the past 5 years. At present, the rise in raw material prices can be passed on to almost all products. However, the emergence of alternative products may become a major threat even for them in the medium term.
In addition, in the automotive field accounting for 40% of our sales, the ratio of battery-electric vehicles may expand at a faster pace and wider range than we expected amid the acceleration of global carbon neutrality policies, and investment expenditures may increase in response.

In the Physical Risk Scenario, financial impacts associated with operation disruptions at major plants and logistics networks are expected to be significant, due to storm surges caused by large typhoons (acute risk) and sea level rise due to temperature rise (chronic risk). The Ako Plant has formulated a BCP in anticipation of a potential tsunami of up to 3 meters in the event of Nankai Megathrust Earthquake. We believe that storm surges and rising sea levels will cause damage of the same scale and require similar countermeasures. The Chiba Plant is expected to suffer the same level of damage, specifically the impact on production, transportation, and lifelines, potentially forcing the plant to shut down for 2-4 weeks.

3. Measures to address risks and opportunities

For risks and opportunities that are considered to be of relatively high importance, the Group has reconsidered relevant countermeasures. Going forward, we will continue to prioritize urgent risks and opportunities, further expand our countermeasures, and strive to identify all risks and opportunities including climate change in a timely manner.

Ⅲ. Risk Management

In order to respond to various risks inherent in and related to management issues, the Group has formed the "Compliance and Risk Management Committee" and the "Sustainability Committee" to enhance its risk management.

With regard to risks and opportunities related to sustainability issues, the Sustainability Committee has identified seven important issues (materiality) based on interviews with internal and external stakeholders and discussions with Business Divisions and related departments. We recognize that "reducing environmental impact (including climate change)" is one of the most important materiality items related to our business activities. When it comes to risks and opportunities related to climate change, the Corporate Sustainability Department plays a central role in conducting study sessions at each Business Division and the Life Science R&D Department based on respective awareness surveys and identifying important risks and opportunities. The identified risks and opportunities are then reported to the Sustainability Committee to deliberate and form response policies, measures, and targets accordingly. The contents of the deliberations are reported to the Board of Directors and final decisions will be made under their supervision.
In addition, risks related to management strategies and other management decisions are analyzed and discussed by relevant departments after receiving advice from external experts as necessary.

* Details of the Group's Materiality and the Process of Identifying Them

Ⅳ. Metrics and Targets

1. Indicators and targets for assessing climate-related risks and opportunities

The Group has identified "achieving the reduction of environmental impact" as one of its seven materiality items. As one of the specific initiatives, we are promoting the "reduction of CO2 emissions, waste materials, and wastewater from the production processes". Regarding greenhouse gas emissions, another important risk related to environmental impact, we are promoting quantitative measurements and target setting of below categories based on the standards of the GHG Protocol: (1) direct emissions from the use of heavy oil, gas, and other fuels in our manufacturing processes and business activities (Scope 1), (2) indirect emissions from the purchase of electricity and heat energy from other companies (Scope 2), (3) indirect emissions other than those defined in Scope 1 and Scope 2 (emissions from the supply chains related to the Group's activities)

2. Greenhouse Gas Emission Reduction Targets and Results

(1) Reduction targets
We have set a target of 46% reduction in total greenhouse gas emissions under Scope 1 and Scope 2 (compared to FY2013) by the end of FY2030, (Target 1) and are aiming for carbon neutrality including Scope 3 by FY2050 (Target 2).

(2) Results
As of FY2022, our actual greenhouse gas emissions (total of Scopes 1 and 2) were 7,302 t-CO2e. Compared to the baseline figure of 11,035 t-CO2e in FY2013, we achieved a reduction of 34% by FY2022 through measures such as improving the efficiency of energy use and thorough repair and maintenance of energy-related equipment.

Item	Boundary	Goal 1	Goal 2	FY2022 Results
Greenhouse gas emissions Scope 1+2 *1	MORESCO domestic group companies consolidated	46% reduction by FY2030 (compared to FY2013)	Aim for carbon neutrality by FY2050, including Scope 3	34% reduction
Greenhouse gas emissions Scope 3 *2	MORESCO domestic group companies consolidated	Currently being calculated due to changes to the emissions intensity database.	Currently being calculated due to changes to the emissions intensity database.	Currently being calculated due to changes to the emissions intensity database.

*1 Scope 1: Direct emissions from the use of fuel oil, gas, and other fuels in manufacturing processes and business activities. / Scope 2: Indirect emissions due to purchase of electricity and heat from other companies, etc.
*2 Scope 3: Emissions by other companies related to business activities that occur in the supply chain, such as raw material procurement, logistics, sales, and disposal, other than Scope 1 and Scope 2.