TCFD-based Climate Change-related Information Disclosure

Initiatives for the TCFD recommendations

Guided by "The Advantest Way," Advantest implements climate change mitigation and adaptation measures from a long-term perspective, aiming to help solve important environmental issues through our business. In April 2020, Advantest announced its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). In this section, we will disclose important information related to climate change in alignment with the recommendations of the TCFD.

Governance

Advantest newly established the Sustainable Management Promotion Working Group (SMWG) in FY2020. With the Director of Sustainable Management as the general leader and strategic managers and global leaders (executive officers) assigned to E, S, and G, the SMWG is composed of the managers of each Business Unit, Functional Unit, and Regional Unit. The SMWG identifies and evaluates issues related to climate change. Goals and priority measures are summarized in the ESG Action Plan 2021-2023 that promotes specific activities. The implementation status of the ESG Action Plan 2021-2023 is reported to the Executive Management Committee and the Board of Directors twice a year for discussion and assessment. In addition, the SMWG manages company-wide risk by sharing information in a timely and appropriate manner with other committees in the company's corporate governance system.

Strategies

Advantest has conducted scenario analysis to consider strategies for adapting to future events predicted by climate change. We began by referring to the greenhouse gas emissions scenarios such as the Representative Concentration Pathways (RCP) 8.5 and RCP2.6 of the United Nations Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report and B2DS of the International Energy Agency (IEA). We identified the risks that are expected to occur by 2050, which will have a particularly large financial impact on our business, including upstream and downstream of the value chain, and considered the well below 2-degrees Celsius and the 4-degrees Celsius warming scenarios.

well below 2-degrees Celsius warming scenario:

Under the well below 2-degrees Celsius framework, we assumed that climate change incentives, such as the introduction of carbon pricing, would be strengthened and that there would be no acute or chronic physical impact of climate change at levels that would impact our business. On another front, in a low-carbon economy, the demand for semiconductors will increase substantially, leading to an anticipated expansion of our business opportunities.

4-degrees Celsius warming scenario:

However, under the 4-degrees Celsius framework, where climate change countermeasures are not strengthened, we assumed that we may be physically affected in an acute or chronic manner by the effects of climate change such as the intensification of extreme weather events.

Climate change risks and opportunities

In order to respond to the effects of climate change, climate change risks and opportunities were deliberated under the TCFD categories. These risks and opportunities were assessed according to their "priority" and "impact", and were categorized into time spans of "short-term (now until 2027)", "mid-term (now until 2030)", and "long-term (now until 2050)".

Risks related to climate change

Two scenarios described in the TCFD categories were deliberated regarding business risks related to climate change.

(1)
"Risks related to the transition to a decarbonized society", which occurs mainly during the well below 2-degrees Celsius scenario
(2)
"Risks related to the physical effects of climate change", which occurs in the 4-degrees Celsius scenario in which global CO2 emissions reduction goals are not achieved
Well below 2-degrees Celsius scenario: Risks transitioning to a decarbonized society
Category Major risks Response/strategy Time axis
Policies and regulations Increased business costs due to laws and regulations
(Carbon tax / chemical substances)
  • Reduction of greenhouse gas emissions throughout the supply chain (achievement of SBTi certified target)
  • Product development that does not use environmentally harmful substances
Short-term
Technology and market Loss of sales opportunities due to delays in technological development
(Energy saving technology, test technology for new semiconductors is yet to be implemented)
  • Further energy-saving performance (low power and compact sizes) alongside improvements in testing performance
  • Development of new testing methods and testing devices
  • Generating human resources for next-generation energy-saving research and development
Short- to mid-term
Reputation Decrease in reputation among stakeholders
(due to delays in GHG emissions reduction plans)
  • Promotion of ESG management (achievement of ESG Action Plan 2021-2023 targets)
Short- to mid-term
4-degrees Celsius scenario: Physical risks of climate change
Category Major risks Response/strategy Time axis
Acute/chronic events Disruption of the supply chain due to large-scale typhoons and torrential rainfall
  • Response based on the business continuity plan
Long-term

Climate change opportunities

Semiconductors will contribute to the decarbonized society, where stringent climate change countermeasures will be imposed. We can assume that the quantity of manufactured semiconductors will continue to grow in the future due to factors such as the expansion in semiconductor demand accompanying the digital revolution. Meanwhile, the quality and quantity of semiconductor testing will increase in hand with the sophistication and technological evolution of semiconductors. It is thought that demand for semiconductor testing will increase because such demand will be multiplied by the two factors of "enhanced testing content per chip" and the "increase in the physical quantity of semiconductors", and so Advantest recognizes the decarbonized society to be an opportunity presented by climate change.
Advantest will make investments to achieve these technological advancements, such as in research and development and in developing the next generation of human resources, as part of our efforts to contribute to the future decarbonized society through semiconductor testing and product development of new semiconductor technologies.

Climate change-related opportunities
Category Major opportunities Response/strategy Time axis
Products & services/ market Growth in test demand outpacing market growth for core semiconductors where energy efficiency is important
  • Further energy-saving performance (low power and compact sizes) alongside improvements in testing performance
  • Development of new testing methods and testing devices
Short- to mid-term
Products & services/ market New test demand introduced by power semiconductors, which are required by the final demands such as EV
  • Development of new testing methods and testing devices
Mid-term
Products & services/ market Sales growth by providing green products
  • Introduction of energy-efficient products based on the ESG Action Plan 2021-2023 and steady implementation of the energy-saving plan
Mid-term

Risk management

At Advantest, we consider the factors that may hinder business management to be risks and have established a company-wide risk management system. Management risks posed by climate change are also managed within this system. With the support of the SMWG, we analyze and evaluate urgent and anticipated risks posed by climate change. Using the company-wide risk management system that we have already established, we implement countermeasures to avoid and mitigate those risks to prepare for and enable continuity of our business activities in the face of adversity. The SMWG makes timely decisions, and can launch a Task Forces consolidating efforts from related departments into full-scale start-up of initiatives to tackle risks or opportunities, which may be recognized as particularly critical.

Indicators and targets

The indicators and targets for measures taken in respect to risks and opportunities brought about by climate change are managed by the ESG Action Plan 2021-2023. The achievement status of the ESG Action Plan 2021-2023 is reported to the Executive Management Committee and the Board of Directors twice a year for discussion and evaluation. Based on the evaluation, SMWG will review and update the indicators and goals of the ESG Action Plan 2021-2023. Advantest has set a goal to reach net-zero GHG emissions by 2050. In addition, as medium- to long-term climate change countermeasures targets, we have set targets to reduce greenhouse gas emissions covered in Scopes 1 and 2 by 60% by FY2030 compared to FY2018, and to reduce greenhouse gas emissions covered in Scope 3 by 15% by FY2030 compared to FY2018. These goals have been approved by the Science Based Targets Initiative (SBTi), acknowledging that our greenhouse gas reduction targets are based on scientific evidence. We will actively promote activities to reduce environmental impact throughout the value chain, aiming to achieve our emission reduction targets.