In May 2019, the Group formulated its environmental declaration『GREEN CHALLENGE 2050』. In『GREEN CHALLENGE 2050』, we have set the following specific themes: reduction of CO² emissions, measures against plastic, measures against food loss/waste and for organic waste recycling, and sustainable procurement. The goals are to achieve decarbonization, circular economy, and society in harmony with nature.

Our specific numerical targets for reducing CO² emissions are to reduce CO² emissions from the Group's store operations by 50% by 2030 compared to FY2013, and to achieve net zero emissions by 2050. We have also set detailed numerical targets for other themes, and we are promoting initiatives for achieving them and monitoring their progress.

Our scenario analysis, in fiscal year ending February 28, 2022, highlighted the severity of damages that can be caused by natural disasters. In order to curb the risk of natural disasters caused by climate change, we have renewed our determination to limit the temperature increase to 1.5℃ by achieving the goals of『GREEN CHALLENGE 2050』in collaboration with our stakeholders.

Transition risks and opportunities were considered based on the decarbonization scenario in which various regulations and other measures are introduced to achieve the 1.5°C target. Of these, we estimated the following for the carbon tax, which is projected to have the biggest impact.

 For our estimate, we calculated the impact of carbon tax using the assumed tax amount as of 2030 at $130/ton-CO², which is the maximum amount with reference to the IEA’s “World Energy Outlook 2020.” Based on simple calculation, the carbon tax would amount to ¥22.12 billion whenCO² emissions increase in line with the growth of business activities. However, if we reduce CO² emissions by 50% compared to FY2013 levels by 2030 as stated in our environmental declaration『GREEN CHALLENGE 2050』, we can expect to reduce carbon taxes by ¥11.97 billion to ¥10.15 billion. Furthermore, we expect that this burden will eventually be eliminated by promoting efforts to achieve our 2050 net zero emission target.

In terms of physical risks and opportunities, natural disasters caused by extreme weather pose the greatest risk. It is difficult to predict when and where natural disasters will occur, and once they do, they can cause extensive damage. Currently, the occurrence of extreme weather such as heavy rainfall that cause disasters are increasing due to global warming, and this trend would become even more pronounced under the warming scenario. Based on the extent of damage caused by past disasters, we have estimated the flood damage to stores in the Tokyo metropolitan area, where the greatest damage would be expected. Based on hazard maps from the Ministry of Land, Infrastructure, Transport and Tourism, if the Arakawa River were to flood by five meters or more, the resulting damages including store damage, merchandise damage, loss of sales due to closures, and restoration cost, would amount to ¥11.19 billion.

The increase in raw material cost due to changes in weather patterns, which is expected to have the next largest impact, was estimated as follows. The scope was set based on the composition of purchase amount: rice, laver, and livestock products (beef, pork, chicken, and eggs). Assuming that climate change will lower harvest yields and increase the purchase price accordingly, we estimate that the increase will total ¥5.7 billion. However, this estimate does not include impacts such as those related to imports. Therefore, we assume that the actual amount will be several times larger and are considering countermeasures to address this.

Each department discussed and organized approximately 50 countermeasures aimed at mitigating risks and expanding opportunities. Through this discussion, we confirmed that theenvironmental impact reduction activities being promoted based on『GREEN CHALLENGE 2050』are effective measures for both the decarbonization scenario and the warming scenario.

In terms of transition risks, we will significantly reduce our carbon tax burden by achieving the CO² emission reduction targets of『GREEN CHALLENGE 2050』. In addition, by actively promoting energy savings in stores and CO² emissions reduction measures such as the installation of solar panels, we will mitigate transition risks such as higher electricity fee payments. Furthermore, we will also work to gain support from our customers by promoting『GREEN CHALLENGE 2050』including measures against plastic and sustainable procurement initiatives, thereby expanding opportunities for changes in consumer behavior toward sustainable merchandise and services.

In terms of physical risks, we confirmed that we should actively work to reduce CO² emissions in order to achieve the goals of『GREEN CHALLENGE 2050』. In response to the risk of increase in natural disasters, we will build a system for enabling early recovery from disasters by utilizing our 7view information sharing system to monitor the status of stores in real time. We will also steadily implement measures such as the installation of watertight panels to prevent flooding. By implementing efforts that enhance our preparedness for disasters, we will resume store operations quickly so that we can continue to serve our customers in the local community.

With regard to the rising cost of raw materials, we will promote dispersion of production areas and strengthen cooperation with domestic and overseas suppliers to ensure stability in securing raw materials. For example, we are expanding our procurement from indoor vegetable factories, where stable harvests can be expected regardless of weather conditions. Going forward, we will continue with our efforts to reduce the risks associated with rising raw material cost by collecting information on producers and production areas and utilizing advanced technologies such as digital technology and AI.

The Seven & i Group considers the issue of climate change to be one of the most important issues to be tackled across the Group companies. We have therefore established a governance structure centered on the CSR Management Committee and supervised by the Board of Directors.

The Board of Directors receives reporting from the Sustainability Development Department that is a secretariat for the CSR Management Committee on our efforts for sustainability including climate change issues at least once a year, supervises their progress and the status of achieving the goal, and reviews our policies and efforts as appropriate. In December 2020 and May 2021, the Board of Directors made a resolution to revise our CO² emission reduction target in our environmental declaration "GREEN CHALLENGE 2050" to 50% by 2030 and zero emission by 2050 in line with current international trends aiming at the 1.5 °C target and the decision of the Government of Japan for the net zero goal in 2050. In addition, we have added a target of reducing CO² emissions set in the environmental declaration “GREEN CHALLENGE 2050” that was formulated in May 2019 to the key performance indicator (KPI) for stock-based compensation as a non-financial indicator in compensation of Directors since fiscal year ending February 28, 2021.

* For the target level of the amount of CO² emissions for each fiscal year as the KPI for the stock-based compensation, it will be the target level for each fiscal year calculated based on the assumption of the actual amount of semission for the fiscal year ended February 28, 2019 to be equally reduced for each fiscal year to achieve the target level for the fiscal year ending February 28, 2031 (reducing emissions from Group store operations by 50% compared to the fiscal year ended February 28, 2014).

The CSR Management Committee, chaired by Representative Director and President of Seven & i Holdings, meets twice a year, attended by CSR managers from Group companies and managers from related divisions at Seven & i Holdings. Under the CSR Management Committee, the Environment Subcommittee has been established as a subcommittee to deal with climate change issues. The Environment Subcommittee consists of managers from the environmental departments of operating companies. In addition, when we announced the environmental declaration “GREEN CHALLENGE 2050” in May 2019, we established CO² Emissions Reduction Team to create innovations across the Group to reduce CO² emissions. This team is headed by executive officers or higher from responsible departments at our main operating companies.

The CSR Management Committee receives reports on trends in indicators related to climate change issues, such as CO² emissions, and on initiatives mainly for mitigation measures. The Committee approves measures implemented by the subcommittees and each group company, and provides necessary advice. The progress of such sustainability-related initiatives, including those related to climate change, is reported to the Board of Directors at least once a year.

Seven & i Holdings has established a comprehensive risk management system with the Risk Management Committee at its core, based on the basic rules for risk management. The risks related to climate change are also managed under this risk management system. Each Group company identifies its own risks twice a year based on the Group’s common risk classification, and quantifies them taking into account theirdegree of impact and likelihood of occurrence. The quantified risks and measures to deal with them are compiled into the risk assessment sheets and submitted to the Corporate Governance Management Department (Risk Management Committee Secretariat) of the Company. The risk assessment sheets include risks related to climate change such as CO² emission regulations.

The Risk Management Committee, which meets twice a year, comprehensively identifies the Group’s risk situation based on the risk assessments and countermeasures submitted by each company, and continuously monitors its risk management system and countermeasures.

Judgments concerning material risks for the Group are made based on a comprehensive evaluation of factors such as damage occurring when the risk materializes, timing of risk manifestation, degree of impact on the Group’s growth strategy, and the status of responses to current risks.

The status of such risk management and judgments concerning material risks are reported annually to the Board of Directors.

We have deepened our scenario analysis for SEVEN-ELEVEN JAPAN, which accounts for about 60% of the Group’s operating income. We believe that our analysis confirms the resilience of the business. Going forward, we will steadily implement measures to address the situation. We will also increase the number of operating companies subject to our analysis, and take the entire supply chain into perspective as we identify risks and opportunities quantitatively, while also developing and implementing practical countermeasures. We will work on initiatives to curb the temperature increase to less than 1.5°C at 2100 in order to leave a prosperous environment of our planet to future generations.