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Materiality and the Sustainability Action Plan

Identification of Materiality

Advantest has identified sustainability-related risks and opportunities that may have a material impact on its financial position, business performance, and cash flow, and that could reasonably be expected to influence investor decision-making, with reference to the Sustainability Disclosure Standards issued by the Sustainability Standards Board of Japan (SSBJ).

In conducting the materiality assessment, scenario analysis was partially incorporated in consideration of climate change. As part of the assessment, Advantest reviewed its value chain and compiled a list of sustainability-related risks and opportunities that may be material to Advantest, referencing the SASB (Sustainability Accounting Standards Board) Standards, the European Sustainability Reporting Standards (ESRS) established under the EU Corporate Sustainability Reporting Directive (CSRD), along with other relevant frameworks and standards, as well as the disclosure practices of companies operating in the same industry. The significance of each identified risk and opportunity was evaluated based on its likelihood of occurrence and potential financial impact, through engagement with external stakeholders and discussions with relevant CxOs and departments. The sustainability-related risks and opportunities determined to be material, along with the materiality assessment process, were deliberated at the Executive Management Committee Meeting and reported to the Board of Directors. The materiality assessment is planned to be conducted annually, with specific targets to be incorporated into the Sustainability Action Plan.

Based on the results of our materiality assessment, we have identified the following items as areas of particular importance for our Group.

Sustainability-related Risks and Opportunities

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Topic Risk Opportunity
Climate change
Transition risk
  • Business costs may rise as a result of future compliance with climate regulations and the growing adoption of renewable energy.
  • An impact on our sales may arise if our products fail to meet customer expectations for energy efficiency.
Physical risk
  • Disasters driven by climate change may disrupt logistics and production, potentially resulting in substantial losses and lost revenue opportunities.
  • Enhanced customer trust through the development of products with superior environmental performance could lead to competitive advantage and business growth.
  • Reducing energy consumption through the shortening of construction periods, logistics optimization, and supply chain localization for key products could lead to lower operational costs and improved environmental performance.
Pollution
  • Future costs may arise from responding to environmental incidents involving the discharge of untreated water and hazardous substances, as well as from meeting regulatory requirements for pollution prevention.
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Circular economy —
  • Promoting product reuse strategies could lead to the creation of new sustainability-driven business models, enhanced brand image, and the acquisition of environmentally conscious customers.
Own workforce
  • A decline in corporate attractiveness could lead to talent outflow and recruitment challenges, resulting in reduced labor productivity and a loss of technological competitiveness.
  • Inadequate or negligent Occupational Health and Safety management may result in workplace accidents, posing risks to employee well-being and business continuity.
  • Compliance violations or human rights violations could negatively impact business operations and erode corporate credibility.
  • A lack of progress in promoting gender equity could lower employee satisfaction and motivation, potentially hindering efficient business operations.
  • Enhancing training systems and promoting work-life balance could lead to expanded recruitment opportunities, while continuous employee development could strengthen competitiveness.
  • Utilizing a diverse workforce could lead to greater innovation, improved performance, and enhanced problem-solving capabilities.
  • Promoting a positive workplace environment and fostering open communication between labor and management could lead to increased employee commitment and improved performance.
Workers in the value chain
  • Incidents involving human rights violations in the supply chain, such as child labor, poor working conditions, and the use of conflict minerals, could lead to negative impacts on business operations and a loss of corporate credibility.
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Sustainability Action Plan 2024-2026

The Mid-Term Management Plan is an initiative to achieve our Grand Design and to continue sustainable growth thereafter. In order to contribute to a sustainable future through our business, we made the four strategies in the third Mid-Term Management Plan, which began in fiscal 2024.

One of the four strategies is "Enhance Sustainability". To promote this, we have set up the Sustainability Policy and formulated the Sustainability Action Plan 2024-2026 as the overall picture of our med-term sustainability initiatives and their respective medium-term targets from 2024 onwards in line with this policy.

In developing a new medium-term sustainability action plan, we have completely reorganised the themes to be addressed to be linked to the Grand Design and the third Med-Term Management Plan (MTP3), from the perspective of increasing the value provided to stakeholders, and have set new medium-term targets for each of these themes. New medium-term targets have been set for each of these themes. In conjunction with this, the name of the plan was changed to better reflect the content and scope of future initiatives. We are currently identifying materiality for the entire Advantest Group in line with the priority themes in the new Sustainability Action Plan 2024-2026.

The Sustainability Reort describes the new Sustainability Action Plan 2024-2026 and reports on the results of our sustainability initiatives to date, based on the ESG Action Plan 2021-2023. Advantest strategically promotes initiatives to achieve the targets set for each issue in the Sustainability Action Plan. Furthermore,The action items and targets in the Sustainability Action Plan are regularly reviewed in accordance with changes in their importance to Advantest.

We formulated the 'Sustainability Basic Policy' based on the 'Sustainability Basic Policy,' one of our Corporate Philosophy and Policies, and 'Strengthening Sustainability Initiatives,' one of our Materiality (four strategies). Based on this, we formulated the 'Sustainability Action Plan' within the Priority Measures (Corporate).

Sustainability Action Plan 2024-2026

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Stakeholders Priority Themes Target CxO in charge*1 KPIs KPI Target (FY2026) Progress (FY2024)
Shareholders and capital market Mid-/long-term and sustainable enhancement of corporate value Aiming further sales growth, improved profitability, and more efficient use of capital CFO In accordance with MTP3 Management Indicator In accordance with MTP3 Management Indicator Exceeding the target figures for all management indicators set as averages over the three-year period of the medium-term plan
Enhancement of sustainability information disclosure Timely and appropriate disclosure of financial and non-financial information CFO ESG evaluation by rating agencies Maintaining and improving evaluations by major ESG evaluation by rating agencies Maintaining high standards of evaluation by major rating agencies
Employees Respect for diversity Promoting gender diversity CHO Ratio of female managers*2 11% 9.7%
CHO Ratio of female employees among candidates (Level6) for executive and managerial positions*3 16% 15.5%
Employee engagement Fostering and instilling an attractive corporate culture CHO Turnover rate Voluntary turnover rate is below average of the period of MTP2 (5.9%). 4.4%
CHO Gallup Survey Scores*4 3.80 3.76
CHO The INTEGRITY Award nominations/year*5 400 activities 465 activities
Investment in human capital Promoting health and wellbeing management and work-life balance CHO Japan: White 500 Certified (Japan)*6 Japan: Certified as White 500 Certification obtained
Promoting human capital development based on the Advantest Development Framework CHO Education and training expenses 0.8 (Billions of yen) 0.68 (Billions of yen)
Customers Providing superior solutions Provision of new products and integrated solutions that solve customer issues CTO Market position Maintaining 'No.1 position in the focus markets' Maintaining the status
Customer satisfaction and trust Provision of more value added and comprehensive customer support quickly and accurately CCRO Market position Maintaining 'No.1 position in the focus markets' Maintaining the status
Climate change countermeasures and reduction of environmental impact Improving the environmental performance of our products CTO “GHG emission per AT innovations” reduction rate *7 86% reduction
when comparing Ave. (FY2021-FY2023) and Ave. (FY2024-FY2026)		 84% reduction
CCRO Market Share of ATE products, including those with enhanced environmental performance 58% or more 58%
CSRO Enhanced Product Life Cycle Assessment Expansion of the life cycle assessment management scope and data refinement Initiatives for improvement started
Suppliers Respect for human rights and fair deals in the supply chain  Responsible Mineral Procurement CSCO Supplier response rate to conflict minerals survey 99% 99%
Penetrating Sustainability in the Supply Chain CSCO Due diligence implementation rate for designated business partners*8 100% 100%
CSCO Number of designated business partners*8 50 suppliers (Designated 42 suppliers as business partners in FY2023)*8 44 companies
Greenhouse Gas Emission Reduction (Scope 3) Supply chain decarbonization CSCO Percentage of main business partners that have introduced renewable energy sources*9 60% 52%
Partners Creation of innovation and contribution to local communities and global society Implementation of activities related to innovation and social good CSRO The number of strategic partnerships Maintain the same level as FY2023 Maintaining the status
CCO The number of employees' activities contributing to local communities (both inside and outside of work) 180 (FY2024-FY2026 Cumulative Total) 90 activities
Global Environment Greenhouse gas emission reductions (Scope 1+2) Reducing GHG emissions from Scope 1+2 CSRO GHG emissions reduction rate 65% (vs. FY2018) 76% reduction
Raising renewable energy usage CSRO Renewable energy coverage rate 80% 87%
Reducing energy consumption by shortening the production period of major products CSCO Reduction of production period by reviewing production processes Reducing production period by 20% (vs. FY2020) 40% reduction
Contribution to the Circular Economy Improvement of recycling rate through promotion of 3Rs (Reduce, Reuse and Recycle) CSRO Waste recycling rate (Japan and overseas) Japan:90% or more
Other regions: 73% or more		 94%
67%
Maintaining company-wide water consumption at FY2016 levels Water resource usage Less than 288,000m3/year 297,771m3/year
Conservation of biodiversity and natural capital Preservation of biodiversity, promotion of nature conservation activities (protection of endangered species in biotopes, tree planting, beach cleanups, etc.) CSRO Total number of participants in social contribution activities related to natural capital 600
(FY2024-FY2026 Cumulative Total)		 2,449 participants
Governance Promoting ethical management and business Compliance with international/industry standards CSRO Compliance with business codes of conduct and management system standards Maintain and recertify ISO certification and pass RBA(Responsible Business Alliance) audit Maintained and recertified ISO certification, and passed RBA audit
Implementation of Global Compliance Education Program (GCEP) e-learning for all employees CCO e-learning participation rate 100% 96.4%
Fair and Transparent Workplace CCO Percentage of respondents*11 who answered that 'the convenience of internal reporting channels has improved' in the compliance survey*10 50% or more 82.8%
Maintaining and improving occupational health and safety CHO Incidence of serious occupational accidents which result in absence from work (LTIR: Lost Time Incident Rate) 0 0.35
Fostering internal understanding of sustainability CSRO Implementation of measures for different levels of the organization to promote understanding of sustainability Implementation of the measures for different levels Implemented
Continued enhancement of Corporate Governance structure Enhancement of board structure and governance to increase effectiveness of corporate governance COO Ensuring the effectiveness of the Board of Directors Enhancement of disclosure of effectiveness evaluation results The results of the effectiveness evaluation will be disclosed in the CG report
COO The board composition that satisfies the skill set required in line with management strategy and the business environment, and also ensures diversity Periodic review by the Board of Directors and review and revision as necessary Reviewed by the Board of Directors
Enhancing risk management Strengthening internal control CCO Risk clarification and response based on twice-yearly risk reviews Implementation of risk review twice yearly Implementated the risk review twice a year
  • *1
    Please refer to "Management" for the list of CxOs.
  • *2
    The non-consolidated Female manager ratio is described in the Securities Report under “Item 1. Company Overview 5. Status of Employee.”
  • *3
    Advantest's qualification system is a 10-level system which is globally standardized, with Level 6 being the highest level of qualification for general employees.
  • *4
    A group-wide survey is conducted every three years.
  • *5
    This award system honors employees who embody INTEGRITY through nominations from other employees.
  • *6
    As the White 500 is a certification system in Japan, the Company and its subsidiaries in Japan are subject to certification.
  • *7
    GHG emission per AT innovations is calculated by dividing Scope 3 Category 11 GHG emission by AT innovation (number of transistors based on Advantest's market share, pins, frequency, DPS current in systems that account for 80% of annual sales, and number of the systems).
  • *8
    Tier 1 suppliers, which represent the top 85% of suppliers in terms of transaction value, and Tier 2 suppliers, which are the main suppliers of the Tier 1 suppliers, are subject to due diligence. These suppliers are defined as designated business partners.
  • *9
    The top 85% of suppliers by transaction value are defined as main business partners.
  • *10
    A group-wide compliance survey is conducted every three years.
  • *11
    Considering that not all employees wish to use the internal reporting system, the percentage of employees who answered that they would use the internal reporting system was calculated excluding those who answered ‘I don't know’ regarding the improvement of the convenience of the internal reporting system.
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