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. Examples range from material supplies such as water, metals, etc., to pollination by bees, to benefits from tourism resources such as coral reefs. In particular, a state of balance among various living organisms is essential for stabilizing the quality and quantity of benefits produced by plants and animals. Therefore, reducing the impact on natural capital, including biodiversity, is important from the perspective of corporate sustainability.
The Shimadzu Group has identified“ contribution to biodiversity conservation” as a key issue (materiality) in the Shimadzu Group Sustainability Charter. In a society that is shifting to become“ nature-positive,” we are working on disclosure in line with the TNFD to assess and manage risks and opportunities in our business activities and to improve our resilience as a company.
The final version of the TNFD is scheduled for publication in September 2023, so the current effort is based on the guidance provided in beta version v 0.3. In working on TNFD, we reference the LEAP approach.*
- * The LEAP approach consists of Assessment Scoping, Locate (finding points of contact with nature), Evaluate (diagnosing dependencies and impacts), Assess (evaluating significant risks and opportunities), and Prepare (preparing to respond and report), in relation to business activities and nature. It is an effective method for identifying risks and opportunities considering critical areas, dependencies and impacts.
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
The Global Environmental Management Department is the main body that identifies individual nature-related risks that could affect the Shimadzu Group’s business, strategy, and finances. In making our assessment, we use the TNFD framework as a reference to assess the degree and timing of impacts to identify risks that are of high significance to the Shimadzu Group. The results of the identification and assessment are discussed and confirmed by the Environmental Meeting.
Strategy
1. Identification of Nature-Related Risks and Opportunities
This year, under the theme of water pollution, Shimadzu identified nature-related risks and opportunities for its direct (manufacturing steps) and downstream (usage of products sold) operations.
As for future trends related to water pollution, which is a prerequisite for the identification of risks and opportunities, the 2030 Target 7 of the Kunming-Montreal Global Biodiversity Framework calls for the reduction of pollution from excess nutrients, pesticides, highly toxic chemicals, plastics, etc. that run off into the environment. In addition, to achieve Goal 6 of the SDGs,“ Clean Water and Sanitation,” Target 6.3 in particular calls for halving the proportion of untreated effluent and improving water quality through recycling in order to reduce water pollution.
The following table summarizes the nature-related drivers and the Shimadzu Group’s nature-related risks and opportunities that arise based on the changes in the external environment described above.
Table: Main Risks/Opportunities for Shimadzu Businesses (Theme: Water Pollution)
2. Downstream Opportunities (Usage of Sold Product)
Impacts on Business, Strategy and Finances
Regarding the reduction of water pollution, more stringent effluent regulations and pollution load reduction plans may be developed in the future in order to become“ nature-positive.” To reduce untreated effluent, new sewage treatment plants are expected to be built in emerging countries such as China due to the increase in the population served by sewer treatment plants, while in developed countries such as Japan, more advanced treatment is expected to spread in existing sewage treatment plants. Furthermore, it is expected that the private sector will set voluntary effluent standards, not only to comply with regulations, but also to introduce more advanced treatment.
In Shimadzu's mainstay analytical and measuring instruments business, water quality analyzers are used to analyze effluent from sewage treatment plants and factories. Demand for these products is expected to increase as effluent regulations are tightened and more facilities and more pollutants are subject to such regulations. In addition, as advanced treatment becomes more widespread, the need to analyze not only the effluent but also the water quality during the treatment process is expected to increase.
Response Strategy
- Understand the trends of existing regulations and chemical substances (microplastics, PFAS, etc.) that may become subject to new regulations.
- Strengthen relationships with NEDO, EPA, ISO, and other standards accreditation organizations in order to develop new measurement methods.
- Establish a consistent business system from development to manufacturing in order to respond to the preferential policy for domestic production in China.
In particular, we will pay close attention to regulatory trends in areas where environmental standards have not been met or where sewage treatment plants are not widely available, as well as to additional demand for water quality analyzers due to the introduction of voluntary control standards and advanced treatment in private companies.
3. Risks in Direct Operations (Manufacturing Steps)
Impacts on Business, Strategy and Finances
Effluent from Shimadzu’s main sites is connected to the sewage system and is treated at sewage treatment plants. However, there are some public water bodies where treated sewage is discharged that do not meet environmental standards for environmental water* quality. If effluent standards are tightened in these areas in the future as we move toward becoming“ nature-positive,” Shimadzu may be required to discharge at lower concentrations than the current regulatory standards, even if our sites are connected to the sewage system. Although the cost of sewage treatment, such as updating treatment facilities, is expected to increase in order to comply with such stricter regulations, the financial impact in this risk assessment is estimated to be limited.
- * Environmental water refers to river water, lake water, seawater, groundwater, etc.
Response Strategy
- Set voluntary standards that are stricter than legal standards.
- Proper management of chemical substances.
- Since we are keeping a close watch on the trends of existing regulations and chemical substances that may become subject to new regulations, we will also reflect this information in our risk management.
- For sites located in areas where environmental standards have not yet been fulfilled, understanding not only the regulations, but also the true state of the natural environment will be important.
Indicators and Targets
Since this is a pilot project, we will consider the indicators to be disclosed in the future based on the final recommendations to be published by the TNFD.