Governance

In the Lacto Japan Group, the basic policy and important matters related to environmental issues, including climate-related issues, are discussed by the Executive Committee and decided and supervised by the Board of Directors.

The Group has newly established the Sustainability Promotion Department to grasp changes in the business environment due to climate change, identify medium- and long-term climate-related risks and opportunities, and study Group-wide responses. While sharing information with each division and department, the Sustainability Promotion Department submits climate-related issues it has examined and proposals such as measures to be taken to the Executive Committee in conjunction with the Group-wide Sustainability Promotion Task Team.

In addition, the Sustainability Promotion Department sets targets and manages progress in addressing climate-related issues, and considers additional measures as needed in conjunction with the Sustainability Promotion Task Team. These measures are deliberated by the Executive Committee and reported to and supervised by the Board of Directors.

 

 

Strategy

Considering the possibility that climate-related issues may also materialize in the medium to long term, the Lacto Japan Group identifies climate-related risks and opportunities that could have a significant impact on the organization's finances in the short, medium, and long term. Moreover, we discuss the potential impact of these identified risks and opportunities on the business and financial plans and utilize them in the consideration and formulation of the Group's strategy.

Climate-related risks and opportunities are identified based on medium-term (2030) and long-term (2050) world scenarios, assuming a 1.5°C scenario consistent with the Paris Agreement target and a 4°C scenario in which no measures to reduce global warming are taken beyond the status quo. In our scenario analysis, we refer to the following scenarios published by external organizations.
The Group has bases and is operating businesses in ten countries worldwide, as well as Japan. Furthermore, the products handled by the Group and their ingredients are produced in a wide range of countries and regions, including Europe, Oceania, the United States, and Asia, and we conduct scenario analysis that takes regional characteristics into account.
 

Referenced scenarios

World view

Transition scenarios

Physical scenarios

1.5℃
  • Net Zero Emissions by 2050 Scenario, IEA
  • Representative Concentration Pathways (RCP1.9), IPCC

4℃
  • Stated Policy Scenario, IEA
  • Representative Concentration Pathways (RCP6.0, 8.5), IPCC

The Lacto Japan Group analyzes the entire value chain using multiple climate-related scenarios to comprehensively identify climate-related risks and opportunities. In addition, we identify risks and opportunities that are expected to have a particularly significant financial impact, taking into account the magnitude of the impact on our group's finances if they materialize and the duration over which the financial impact is expected to last.

Climate-related scenarios and the resulting risks and opportunities for the Group are regularly reviewed.

Major climate-related risks in the Lacto Japan Group

Type of risk

Assumed risks and financial impacts

Transition risk

Policies and regulations
  • Ingredient costs increase due to introduction of carbon tax and carbon pricing

Transition risk

Market
  • The delay in responding to the shift to low-carbon products and the lack of publicity about environmental considerations have resulted in a slow response to changes in the behavior of consumers and retailers who demand environmentally friendly products, and a slump in sales volume and market share.

Transition risk

Market
  • Risk that consumption of dairy and livestock products will decline due to environmental concerns, and that we will not be able to increase the sales volume and market share of the products we handle

Transition risk

Market
  • Suppliers require additional investment to promote greenhouse gas (GHG) emission reductions, resulting in higher ingredient and product purchasing costs

Transition risk

Reputation
  • Risk that delays in environmental response or inadequate information disclosure may lead to a decline in public reputation or a violation of business standards by suppliers or customers, resulting in a decrease or suspension of business transactions

Transition risk

Reputation
  • Our public reputation declines and our brand value diminishes

Physical risk

Chronic
  • Decrease in the volume of biological resources produced against the backdrop of changes in precipitation patterns and average temperatures and increased ingredient procurement costs, or difficulties in procurement resulting in lower sales volume

Physical risk

Chronic
  • Chronic climate change (e.g., rising temperatures) results in changes in product demand, which is affected by weather and temperature changes, and decrease in sales volume

Major climate-related opportunities in the Lacto Japan Group

Type of opportunity

Assumed opportunities and financial impacts

Energy sources
  • Increase sales volume by securing and retaining supply sources by reducing emissions from suppliers associated with the dairy and livestock farming industries, including the use of carbon offsets, and by strengthening procurement of competitive ingredients

Products and services
  • Increased sales volume in response to growing customer demand for BCP in terms of supply of products handled

Products and services
  • Increase in sales volume of imported dairy products due to decrease in raw milk production caused by rising temperatures and abnormal weather in Japan

Products and services
  • Extreme weather events increase the uneven distribution of supply around the world and the impact on the distribution network, raising the relative value of the trading company function and boosting sales volume.

Reputation
  • Improved social reputation of the company due to the PR effects of reducing its own GHG emissions, etc., leads to the hiring of high-quality human resources, resulting in greater competitiveness

Reputation
  • Improved social reputation of the company due to the PR effects of reducing its own GHG emissions, etc., and increase in new transactions based on enhanced reputation, etc.

Addressing climate-related risks and opportunities

The Lacto Japan Group has developed measures and is pursuing activities to address the significant climate-related risks and opportunities that have been identified.

Measures to address risks and opportunities
  • Improve competitiveness by securing and fostering supply sources that can reduce GHG emissions
  • Understand changes in climate-related consumer behavior and the needs of customers, and provide ingredients and products in demand through expansion of product lines and diversification of business
  • Promote environmentally friendly activities in the Group's value chain and appeal to stakeholders
  • Diversify while expanding environmentally friendly products in existing product lines
  • Ensure stable procurement by promoting diversification of production areas and strengthening relationships with suppliers
  • Set reduction targets for own GHG emissions (Scope 1 and 2 emissions) and promote reduction activities
  • Support suppliers in carbon offsetting their products

Risk management

In the Lacto Japan Group, the Sustainability Promotion Task Team, a Group-wide organization operated by the Sustainability Promotion Department, identifies and assesses climate-related risks based on scenario analysis. Identified climate-related risks are reported to the Risk Management Committee, chaired by the President, and integrated into Group-wide risk management. In addition, the identified major risks and opportunities are reported by the Sustainability Promotion Department to the Executive Committee for approval.

Measures to address risks are reviewed by the relevant business divisions, and plans are formulated and implemented. The formulated measures and plans are reported by the Sustainability Promotion Department to the Executive Committee for approval. The progress of the plans is also reported to the Risk Management Committee and subsequently to the Board of Directors.

Going forward, we will monitor the status of responses by our suppliers that have an influence on climate change and collaborate with them to realize a decarbonized society. We will also initiate quantitative analysis of factors such as the medium- to long-term financial impact and promote disclosure in accordance with the TCFD's recommended disclosure practices.

Metrics and targets

(Aim to achieve carbon neutrality by 2050)

The Lacto Japan Group’s Scope 1, 2, and 3 emissions