Climate Change (Information Disclosure Based on the TCFD Recommendations)

1. Corporate Governance

Climate change is one of our important tasks in corporate management. Formulation of a policy for responding to the climate change-related risks and opportunities of the Group as a whole, as well as important tasks such as medium-term reduction targets for greenhouse gas emissions, are discussed in the CSR Committee, which promotes sustainability management. The details of those discussions are brought up in Board of Directors meetings by the director in charge (the CSR Committee chairperson) for resolution. Based on policies related to climate change countermeasures, consolidated subsidiaries carry out initiatives led by the responsible departments, and report the specific measures and progress to the CSR Committee. The results of these initiatives are then reported to the Board of Directors on a regular basis by the director in charge of CSR, helping to maintain a management system that enables appropriate supervision by the Board of Directors.

2. Strategy

The MEDIPAL Group referred to multiple scenarios^*1 presented by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) to assess the business impact of two different scenarios: the average rise in global temperature of less than 2℃, and the average rise in global temperature of 4℃ by the end of this century, compared with pre-industrial levels. In addition, a scenario analysis was conducted in order to evaluate the resilience of the Group's strategies against climate-related risks and opportunities.
As a result of the analysis, in the less than 2℃ scenario, it is assumed that risks such as cost increases related to the adoption of carbon taxes and other measures, and supply shortages and higher procurement costs due to increasing demand for renewable energy, will increase, while demand for products such as ethical products, alternative foods and health foods will expand. In the 4℃ scenario, it is assumed that there will be an increase in capital expenditures for enhancing disaster preparedness functions, and that natural disasters will cause shutdowns of sales and logistics bases, delivery delays due to traffic paralysis and damage to supply networks. However, the MEDIPAL Group assumes risks such as large-scale disasters even in normal times, and has a backup system in place so that even if one logistics center is unable to provide supplies, alternative shipments can be made from other logistics centers. When record rainfall centered in Kumamoto Prefecture occurred in July 2020, our employees were dispatched to the affected region to assist in disaster-relief activities, and we were able to maintain stable supplies by delivering products to customers directly from a nearby logistics center. Because of such experiences, the MEDIPAL Group believes that the impact of physical risks related to natural disasters caused by climate change in FY 2030 will be small. On the other hand, we expect opportunities to increase as a result of growing demand due to the creation of logistics bases to maintain stable supplies and strict adherence to operational procedures that comply with quality control regualtions and GDP guidelines.
In either scenario, we view the prospect of certain cost increases as a risk, but we also believe it is an opportunity to leverage the sophisticated logistics functions the MEDIPAL Group has built.
Currently, to help resolve issues related to climate change, the MEDIPAL Group is working to build a new model for optimized pharmaceutical distribution with customers, enhancing its intermediary distribution functions, and improving efficiency throughout the supply chain in collaboration and cooperation with stakeholders in the pharmaceutical, health, and beauty fields.
We recognize that evaluating the financial impact of climate change is a task that we need to consider. We plan to obtain a deeper understanding of this impact through further scenario analysis.

Risks and Opportunities

Classification			Contents	Impact*2
				Less than 2℃	4℃
Transition Risks	Policy and regulation	Introduction of government policies such as carbon taxes and emission trading systems	Carbon taxes on our own emissions Cost of purchasing emission rights for excess emissions Increase in costs due to application of regulations such as carbon taxes on manufacturers and distributors, and resulting price adjustments	Moderate	Small
	Market	Changes in energy prices	Supply shortages and higher procurement costs due to increasing demand for renewable energy	Small	Small
	Reputation	Growing stakeholder concern	Loss of public confidence due to delay in responding to climate change (decline in business transactions, loss of business opportunities due to selection of wholesalers based partly on environmental impact, etc.)	Moderate	Small
Physical Risks	Chronic	Changes in flooding and weather patterns	Increase in expenses for capital investment in vehicles and air conditioning systems to enhance temperature control functions for products Increase in difficulty of handling prescription pharmaceuticals and other temperature-controlled products Decrease in demand for seasonal products (winter goods), etc., due to rising temperatures Higher prices and difficulty in procuring raw materials such as agricultural products, marine products, and livestock products (higher purchasing costs)	Small	Small
	Acute	Intensifying extreme weather (typhoons, floods, etc.)	Increase in capital expenditures for enhancing disaster preparedness functions Damage to and shutdowns of sales and logistics bases, delivery delays due to traffic paralysis, and damage to supply networks	Small	Small
Opportunities	Increase in sales opportunities		Expansion of ethical consumption needs Expanding demand for alternative foods and health foods Increase in demand for seasonal products (summer goods), etc., due to rising temperatures Increase in demand for disaster supplies	Small	Small
	Rise in relative competitiveness		Growing need for creation of environmentally friendly distribution model Growing need for low-cost logistics network Growing need for logistics infrastructure to maintain stable supplies (operational procedures based on BCP measures and GDP guidelines, nationwide logistics network, etc.)	Small	Small

• *1 Main reference scenarios: IEA WEO 2021 (APS, STEPS), IPCC (RCP 2.6, RCP 8.5),
• *2 Impact is presented qualitatively on three levels:
  Large: A large impact on business strategy or financial impact is assumed
  Moderate: A moderate impact on business strategy or financial impact is assumed
  Small: A small impact on business strategy or financial impact is assumed

Anticipated view of the world under each scenario for the average rise in global temperature

3. Risk Management

We are assessing the impact that climate change will have on the MEDIPAL Group's business and identifying climate change risks and opportunities. The identified risks and opportunities are discussed in the CSR Committee, which makes reports and proposals to the Board of Directors on a case-by-case basis.
In addition, the MEDIPAL Group, which handles distribution of products that are essential to healthy living, including pharmaceuticals and daily necessities, responds quickly to physical risks to ensure uninterrupted distribution. We have formulated a BCP to carry out supply activities even during emergencies, and are implementing various measures that will enable us to reliably deliver required products.

4. Indicators and Targets

We have used greenhouse gas emissions (Scope 1^*1 and Scope 2^*2) as an indicator to evaluate our efforts to address climate change.
Our targets for the Group as a whole below.

a) FY2030: 50% reduction (compared with FY2020)
b) FY2050: Carbon-neutral.

• *1 Direct emissions from Company fuel consumption
• *2 Indirect emissions from electric power used by the Company
• *3 Numbers exclude companies that were included in the Group from the base year onward.

• Greenhouse gas emissions results for each fiscal year

In addition, we are planning the following initiatives as measures to address the risks and opportunities associated with climate change as described above.

Countermeasures

• Step up programs to improve energy efficiency, such as power saving measures
• Conduct supply chain management for realizing sustainable distribution, including the use of drones
• Update the emergency response manual for extreme weather events and conduct disaster response training
• Enhance climate-related disclosures
• Implement programs to increase employee awareness of environmental conservation