TCFD-based Climate Change-related Information Disclosure

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), and is engaged in analyzing and disclosing information on business risks and opportunities attributed to climate change.

Advantest newly established the Sustainable Management Promotion Working Group (SMWG) in FY2020. With the Group CEO as the general leader, and strategic managers and global leaders (executive officers) assigned to E, S, and G, the SMWG is composed of 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, which 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.

Advantest has conducted scenario analysis to consider strategies for adapting to events predicted to occur in the future due to climate change. We began by referring to the Shared Socioeconomic Pathways (SSP) 1-1.9, 1-2.6, and 5-8.5, greenhouse gas emissions scenarios that cover the range of plausible emissions futures, of the United Nations Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report and NZE (Net Zero Emissions by 2050 scenario) and APS (Announced Pledges Scenario) of the International Energy Agency (IEA). We identified the risks that can 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 1.5-degrees/well below 2-degrees Celsius and the 4-degrees Celsius warming scenarios.

1.5-degrees/well below 2-degrees Celsius warming scenario:

Under the 1.5-degrees/well below 2-degrees Celsius framework, we assume that climate regulations, such as the introduction of carbon pricing, would be strengthened, helping to achieve Net Zero. We also expect that companies' responses to Net Zero policies will have a greater impact on the decisions of customers and investors, and that insufficient response will increase transition risks, such as loss of customers and increased reputational risk.
On another front, in a low-carbon economy, the demand for semiconductors will increase substantially, leading to an anticipated expansion of our business opportunities, as well as greater adoption of renewable energy and products that contribute to Net Zero targets, such as electric vehicles.
Given that climate change is already thought to be affecting weather events and natural disasters even today, where temperatures are 1.1-degrees Celsius higher than in the pre-industrial era, we predict that physical risks could occur even if the temperature increase is limited to less than 1.5-degrees/well below 2-degrees Celsius. However, the physical risks are predicted to be relatively low compared to the 4-degrees Celsius warming scenario.

4-degrees Celsius warming scenario:

We assume that climate change countermeasures would not be strengthened and that no progress will be made toward Net Zero. Therefore, we assume that the transition risk is low.
We also assume 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 and severe, frequent natural disasters, which will have a greater impact on our supply chains, production lines, and logistics. In addition, it is expected that significant funds will be required for adaptation measures to cope with and restore the situation in the event of possible physical effects.

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 examined regarding business risks related to climate change.

Assumed risks in the 1.5-degrees/well below 2-degrees Celsius scenario

Assumed risks in the 4-degrees Celsius scenario

Climate change opportunities

While the market is expected to continue to expand based on the semiconductor long-term forecast through 2030, the market for semiconductor test equipment is also expected to grow.

Amidst expectations of further semiconductor market growth, which is expected to be driven not only by climate change, but also by various factors such as economic growth and GDP growth in each country, Advantest has laid out direct business opportunities resulting from climate change as follows.

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

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 ensure 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 to rapidly tackle risks or opportunities, which may be recognized as particularly critical.

The metrics 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 their evaluation, the SMWG will review and update the indicators and goals of the ESG Action Plan 2021-2023.

As our mid-term climate change countermeasure target, Advantest has set a goal to reduce greenhouse gas emissions as 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. In addition, our long-term target is to achieve net-zero greenhouse gas emissions in Scopes 1 and 2 by FY2050.These goals have been approved by the Science Based Targets Initiative (SBTi), acknowledging that our greenhouse gas reduction targets are based on scientific evidence. While we are making steady progress in reducing emissions from Scope 1 and 2 through the adoption of renewable energy and other measures, progress on Scope 3 is lagging behind our target as of FY2022 due to a significant increase in sales compared to our expectations at the time the target was set. We will further strengthen our efforts to develop products with lower CO₂ emissions and promote collaboration throughout the value chain, aiming to achieve our emission reduction targets.