Key Sustainability Issues（Materiality）

Identifying Materiality
Materiality: The Identification Process
Environmental and Social Impacts, Risks & Opportunities, Indicators & Targets

Identifying Materiality

In order to realize our KAYAKU spirit corporate vision of “Continuously providing society with the best products through ceaseless progress and the combined forces of our consciences,” we are creating environmental, social and economic value while aiming for the twin goals of improving corporate value and realizing a sustainable society.
To cover the period FY2026 to FY2035, the Nippon Kayaku Group has fixed its Long-term Management Plan: Evolution2035. Containing accurate perceptions of upcoming environmental and societal changes, the plan pursues value creation from the starting points of KAYAKU Technology, human resources and business assets. It also aims to deliver in tandem, through advances in our corporate spirit of challenge, solutions to social issues and sustainable corporate value creation.
Noting relevance to business operations and environmental changes of both an internal and external nature, we are identifying the key companywide (Materiality) issues likely to affect our medium-to-long-term improvements in corporate value. We have also reassessed our Materiality by incorporating a “Double Materiality” perspective, and aligned this with the commencement of our long-term management plan. Such a reassessment has seen us identify both “Environmental and Social Issues Impacting upon the Nippon Kayaku Group” (Financial Materiality) and “the Nippon Kayaku Group’s Impact upon the Environment and Society” (Impact Materiality) as the Materialities we should tackle, and incorporate both aspects into our plan’s basic strategy.
We perceive Materiality as an important element behind heightening business sustainability and contributing to expanded profits. Through planning for the compatibility of creating environmental and social value with the generation of economic value shall we realize both a sustainable society and improved corporate value.

Climate Change Response

Natural Capital Conservation

Product Safety, Patient Safety and Security (including Anti-Corruption)

Community Safety and Security

Promoting Human Capital Management

Promoting Responsible Supply Chain

Risk Management

Materiality: The Identification Process

Based on a synthesis of internal and external viewpoints, the Nippon Kayaku Group has accurately ascertained the issues confronting it and, to respond to stakeholder expectations and demands, made its first identification of Materiality in FY2019. Since then, a Materiality reassessment has been made in FY2022, while FY2025 has seen a further reappraisal conducted from a Double Materiality standpoint. To Nippon Kayaku, Materiality means considering changes in the business environment and social affairs alongside changing stakeholder demands, and conducting continuous reassessments so that our Group Materiality is relevant to the times and capable of addressing social issues.

Step1: Extracting and Organizing Social Issues

When exploring a reassessment of Materiality, we referred, among other materials, to the sources below, including items on disclosure requests within the Sustainability Information Disclosure Guidelines and ESG Evaluation Criteria for Accrediting Institutions, thereby gaining a better grasp of environmental and social issues, societal changes, and stakeholder demands. We thus extracted the environmental and social issues deemed important for observation by stakeholders and investors, classified and organized them into themes, and drew together some 26 candidate themes.

Multi-stakeholder viewpoints

WEF（The World Economic Forum）which produces an annual Global Risk Report
Cefic（European Chemical Industry Council）and its Sustainable Development Indicators
WBCSD（World Business Council for Sustainable Development）and its Vision 2050 Project covering issues related to corporate spheres of activity
ESRS（European Sustainability Reporting Standards）

Investor viewpoints

SASB（Sustainability Accounting Standards Board）
ESG Evaluation Criteria for Accrediting Institutions（FTSE, MSCI, Sustainalytics）

Step2: Evaluating Importance and Identifying Priorities

Our 26 candidate themes were examined through the medium-to-long-term lenses of “The Nippon Kayaku Group’s Impact on the Environment and Society” (both positive and negative) and “Environmental and Social Issues Impacting upon the Nippon Kayaku Group” (both risks and opportunities), thereby enabling us to systematically ascertain and analyze the likely impacts on our Group.
Having used the analysis to determine the importance of each theme, we evaluated and mapped out our twin axes of “The Environmental and Social Issues Impacting upon the Nippon Kayaku Group” (Financial Materiality) and “The Nippon Kayaku Group’s Impact upon the Environment and Society” (Impact Materiality). Consequently, we could narrow down our items of highest importance to 15 “Materialities”, before grouping related social issues together to finish with 7 core Materialities.

Materiality Matrix

Step3: Deciding on Materiality

The identified Materialities, and indicators and targets for each, were assessed for reasonability and subsequently decided upon by our Sustainable Management Meeting and Board of Directors.

Environmental and Social Impacts, Risks & Opportunities, Indicators & Targets

With medium-to-long-term growth in corporate value set as its target, the Nippon Kayaku Group analyzes both the positive and negative impacts it has on the environment and society, as well as the risks and opportunities arising from environmental and societal impacts on the Group itself. Our Long-term Management Plan: Evolution2035 fixes indicators and targets for each Materiality, and ensures annual progress reviews and discussion of issues take place under the relevant director responsible. The results of our FY2025 Sustainable Action Plan can be seen below.

Environment

Environmental and social impact

Climate change driven by GHG emissions can give rise to significant impacts on society including environmental degradation and adverse health effects. On the other hand, reducing GHG emissions through the introduction of renewable energy and equipment upgrades can enable contributions towards reducing environmental burdens and lessening climate change impact on everyday lives.

Risks and opportunities

Risks

Strengthened GHG emission regulations increase costs in the form of compliance-related investments, carbon pricing, and higher raw material outlays
Increasingly severe natural disasters trigger heightened response costs and value chain disruption, leading to difficulties in raw material procurement and customer operational disruptions, resulting in declining overall sales

Opportunities

Meeting expanded demand for products that aid decarbonization may create opportunities for increased sales and business growth

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
GHG emission (Scope1+2) *Compared to FY2019	36% reduction	64% reduction	Consolidated

Initatives to reduce risks and expand opportunities

Promoting energy-saving activities and climate change mitigation measures to help us achieve our FY2030 environmental targets
Clarifying our response strategies through systematically identifying and organizing our technical, business and investment challenges in pursuit of carbon neutrality by FY2050

Director Responsible:

Director in Charge of Technology Unit

Related SDGs:

Environmental and social impact

Emissions of waste and hazardous chemicals during manufacturing and processing activities within our operations and across the value chain can contaminate air, water quality and soil, and bring the possibility of harmful effects on ecosystems and human health. Additionally, increased environmental burdens stemming from water withdrawal and wastewater discharge can lead to local water resource depletion, adverse health impacts on local communities, and local landscape degradation. On the other hand, improvements to the manufacturing process can facilitate more efficient resource use and reduced waste generation, thereby contributing to lightening environmental burdens.

Risks and opportunities

Risks

Strengthened environmental regulations lead to operational restrictions and increased compliance costs, leading to reduced profitability
Violations of environmental laws bring increased litigation expenses
Securing safe water resources becomes increasingly difficult, bringing increased procurement expenses

Opportunities

Promoting waste reduction and recycling can create opportunities to improve resource efficiency and achieve cost reductions

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Major Environmental Accidents	0 cases	0 cases	Consolidated
Environmental Law Violations	0 cases	0 cases	Consolidated
Recycling Rate	82% or higher	85% or higher	Non-consolidated
Zero-emissions Rate	0.8% or less	0.6% or less	Non-consolidated
VOC Emission *Compared to FY2024	1% per-unit reduction	3% per-unit reduction	Consolidated
Waste generation *Compared to FY2024	1% per-unit reduction	3% per-unit reduction	Consolidated

Initatives to reduce risks and expand opportunities

Enhancing transparency regarding the environmental burdens of business activities, promoting continual reductions in environmental burdens groupwide, and exploring ways to recycle rare metal raw materials
Integrated management of environmentally-related data linked with indicators and targets to construct a management foundation that supports environmental burden reduction and sustainable growth
Utilization of the TNFD Locate-Evaluate-Assess-Prepare (LEAP) approach to evaluate the dependencies and impacts on natural capital and biodiversity for each business unit. Based on analysis results, identifying priority response areas with regard to regional characteristics

Director Responsible:

Director in Charge of Technology Unit

Related SDGs:

Social

Environmental and social impact

Quality issues can threaten the health and safety of our own employees and business partners
Insufficient product information, drug development delays and supply instability, biased promotions to healthcare professionals, and the distribution of counterfeit drugs can risk harmful effects on patient safety and health. On the other hand, rapid provision of drugs in emergencies, and development and sale of drugs for children, can enable us to contribute to patient health recovery, children's health improvements and enhanced wellbeing all round
Corrupt practices in high-corruption-risk regions may lead to rights violations and unfair business practices which adversely affect stakeholders. On the other hand, fostering a culture of corporate ethics and compliance can guard against unjust use of corporate assets and help suppress corrupt practices

Risks and opportunities

Risks

Quality issues trigger recall and litigation risks
Insufficient product information and quality or supply issues alienate customers and attract public criticism, resulting in reputational damage and consequent reduced sales, as well as additional costs connected to regulatory compliance and litigation
Inadequate anti-corruption measures result in increased costs in fines, business disruptions and higher costs, as well as decreased sales resulting from reputational damage and loss of customer trust

Opportunities

Delivery of safe and high-quality products should present chances to gain the trust and support oof customers and business partners
Stable supply in emergencies and contributions to child health can enhance our corporate reputation and brand value, leading to increased sales

Product Safety, Patient Safety and Security

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Number of serious complaints *Losses of JPY 10 million or greater	0 cases	0 cases	Consolidated
Number of Major Quality Process Abnormalities *Losses of JPY 10 million or greater	0 cases	0 cases	Consolidated

Initatives to reduce risks and expand opportunities

So as to forestall human error, strengthening links both inside and outside the workplace, based on a culture of "awareness" and "dialogue"
Establishing a Quality Assurance System that flexibly responds to changes in the external environment while ensuring compatibility between customer satisfaction and compliance
Building a robust Quality Assurance System that can flexibly respond to change while promoting continuous improvements

Director Responsible:

Director in Charge of Business Unit, Chair of the Risk Management Committee

Anti-Corruption

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Number of Employee Disciplinary Actions, Dismissals, Fines and Penalties Related to Anti-Corruption Policy Violations	0 cases	0 cases	Consolidated
Number of Significant Compliance Violations reported through the Compliance Hotline by Business Partners	0 cases	0 cases	Consolidated
Training take-up rate	100%	100%	Consolidated
Corrective Action Completion Rate for Internal Audit Findings	100%	100%	Consolidated

Initatives to reduce risks and expand opportunities

Planning and implementing anti-corruption training and providing thorough education and awareness on gift-exchange policies and entertainment
Periodically verifying the effectiveness of our anti-corruption system through internal audits, the results of which feed in to continuous improvements

Director Responsible:

Director in Charge of Internal Control Management Division

Related SDGs:

Environmental and social impact

Raw material sourcing and the construction of manufacturing facilities may adversely effect the living environment, local heritage, and physical and mental health of local communities and Indigenous peoples. There is the additional possibility that an environment worsened by pollution can lead to adverse health impacts and, in severe cases, loss of life

Risks and opportunities

Risks

Leakage of pollutants during raw material sourcing and manufacturing activities harms both the local environment and public safety, resulting in public criticism and litigation costs, reputational damage and diminished sales
Suppliers discovered to be handling conflict minerals trigger operational suspensions, regulatory penalties, public criticism, litigation costs and reduced sales
Damage to the local living environment entails public criticism and the need to handle litigation, thereby causing reputational damage and reduced sales

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Number of Fires, Explosions, External Chemical Releases	0 cases	0 cases	Consolidated
Implementation of dialogue activities at all manufacturing sites	Once or more per year	Once or more per year	Consolidated

Initatives to reduce risks and expand opportunities

Thoroughly complying with the basic rules pertaining to the environment, health and safety (EHS), and responding promptly and precisely to laws and regulations as well as external requirements
In the handling of highly hazardous chemicals, continuously improving our measures to reduce both worker exposure and environmental risks to local communities
Strengthening our safety operation foundations at manufacturing sites and contributing to the sustainable development of local communities

Director Responsible:

Director in Charge of Technology Unit, Chair of the Risk Management Committee, Director in Charge of General Affairs Division

Related SDGs:

Environmental and social impact

Occupational Health and Safety: Accidents involving employees at manufacturing sites may adversely affect employee health and wellbeing
Human Resource Development: Underinvestment in human resource development leads to stagnated technological innovation, decreased competitiveness and declining sales
Labor Practices: Long working hours and harassment can detrimentally affect employee physical and mental health, leading to increased medical costs, poor mental condition, and declines in wellbeing
Diversity: The provision of an inclusive workplace environment and accessibile facilities combined with the creation of a diversity-respecting workplace free from discrimination should not only bring about expanded employment opportunities for people with disabilities but contibute positively to workplace comfort, wellbeing, communication, engagement and motivation

Risks and opportunities

Risks

Occupational Health and Safety: Accidents occurring at manufacturing sites lead not only to declines in productivity and sales but compensation claims and litigation expenses, and increased oversight costs associated with maintaing workplace safety
Human Resource Development: Underinvestment in human resource development leads to stagnated technological innovation, decreased competitiveness and declining sales
Labor Practices: Long working hours and workplace harassment bring increased recruitment costs due to higher employee turnover, declining sales stemming from decreased work productivity, and extra costs in the form of litigation and penalties
Diversity: Workplace discrimination causes a skewing of skills and perspectives, leading to lost new business opportunities and reduced profits

Opportunities

Human Resource Development: Development of highly specialized talent for research, technical, and digital integration fields should promote technical innovation and diversity of values, thereby leading to improved productivity and sales
Diversity: The fostering of a workplace in which diverse talent can perform presents the opportunity to improve worker motivation and productivity, which should feed into increased sales

Occupational Health and Safety

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Number of Serious Accidents and Disasters	0 cases	0 cases	Consolidated

Initatives to reduce risks and expand opportunities

Through expansion and periodical implementation of Environment, Health and Safety (EHS) Inspections, enhanced workplace interviews and evaluations by external experts, we will plan for early risk detection and accelerate corrective actions to drive up health and safety standards
Through utilizing AI, we shall rely on past cases and studies as well as real-time monitoring to automatically detect latent risks, identify hazards and prioritize response measures, and thereby enable continuous health and safety management

Director Responsible:

Director in Charge of Technology Unit

Human resource development

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Next-Generation Leadership Talent	120	130	Non-consolidated
Digital Talent	240 (10%)	480 (20%)	Non-consolidated
Financial Strategic Planning Talent	59	64	Non-consolidated
Global Talent	360 (15%)	480 (20%)	Non-consolidated
Training Investment per Employee	JPY　100,000	JPY　200,000	Non-consolidated
Next-Generation Management Candidate Training Completion Rate	100%	100%	Non-consolidated

Initatives to reduce risks and expand opportunities

Key Medium-to-Long-Term (3-to-10-year) Initiatives

Through optimizing our human resources portfolio and continuous strengthening of investment in education and training, we will strategically develop highly specialized talent in the leadership, digital, financial and global fields, and achieve both business growth and social value creation

Key Initiatives Towards FY2028

Defining the talent requirements linked with management strategy and using systematic selection, development and posting to forge the foundation of our talent for next-generation leadership and strategic growth areas

Director Responsible:

Director in Charge of Human Resources Division, Director in Charge of Corporate Planning Division

Labor Practices

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Number of labor law violations	0	0	Consolidated
Average Monthly Overtime hours	10 hours or less	10 hours or less	Consolidated
Number of employees Working more than 45 hours of overtime per month	0	0	Consolidated
Consultation Hotline Awareness Rate	100%	100%	Consolidated

Initatives to reduce risks and expand opportunities

Key Medium-to-Long-Term (3-to-10-year) Initiatives

Based on the establishment of a labor management system grounded in compliance and respect for human rights, we will embed respect for human rights and psychological safety within our corporate culture, and deliver sustainable labor practices that emphasize transparency and continuous improvement

Principal initiatives towards FY2028

Via thorough compliance and personnel management, we shall establish the foundation for a safe, comfortable and supportive workplace free from long working hours and harassment

Director Responsible:

Director in Charge of Human Resources Division, Director in Charge of Corporate Planning Division

Diversity

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Ratio of Female Directors	20% or higher	30% or higher	Non-consolidated
Ratio of Female Managers	10% or higher	30% or higher	Non-consolidated
Employment rate of persons with disabilities	2.7% or higher	3% or higher	Non-consolidated
Numbers of foreign national employees	68	107	Non-consolidated

Initatives to reduce risks and expand opportunities

Key Medium-to-Long-Term (3-to-10-year) Initiatives

We will continue striving to engender a climate in which diversity is mutually accepted by all, and where all roles and responsibilities can be easily performed to the fullest potential. We shall also endeavor to become an organization which can implement systematic talent rotation as a standard practice, and where diversity no longer becomes an issue

Principal initiatives towards FY2028

Through the ZENKATSU initiative already well underway, we will move forward with preparing a workplace environment oriented towards employment opportunity creation and improved employment rates, and in which an inclusive climate translate into measurable outcomes

Director Responsible:

Director in Charge of Human Resources Division, Director in Charge of Corporate Planning Division

Related SDGs:

Environmental and social impact

Occupational accidents within supply chains and lack of access to clean water and sanitation facilities are liable to produce significant adverse effects on worker health, wellbeing and human rights. Additionally, supply chains exhibiting the problems of child or forced labor, unstable employment and working conditions, insufficient labor-management dialogue, restrictions on freedom of association, and usage of conflict minerals may lead to loss of education, freedom, health and economic resources. These issues may also exacerbate inequality and social instability, thereby significantly reducing worker wellbeing

Risks and opportunities

Risks

Identifying the presence of occupational accidents, defective sanitation environments, child and forced labor, unstable employment, inferior working environments, insufficient labor-management dialogue, restrictions on freedom of association and use of conflict materials within a supply chain causes declines in productivity and quality, disrupted operations, and heightening public criticism, in turn decreasing company sales, increasing costs and damaging reputation

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Sustainability Survey Response Rate	90% or higher	90% or higher	Consolidated
Establishment of a Supplier Human Rights Due Diligence Framework	Establish a risk assessment and management framework	Risks identified and addressed through a Human Rights Due Diligence System across all domestic and overseas sites.	Consolidated
Procurement Rate of Raw Materials Sourced with Environmental and Human Rights Considerations	Establish a risk assessment and management framework	100%	Consolidated
Monitoring of Supplier Occupational Accidents and Safety Training	Establish a risk assessment and management framework	0 occupational accidents 100% safety training implementation rate	Consolidated
Tier 1 Supplier Safety Training Completion Rate	Establish a risk assessment and management framework	100%	Consolidated

Initatives to reduce risks and expand opportunities

Medium-to-Long-Term (3-to-10-year) Initiatives

Supplier-oriented due diligence to be conducted focusing on key identified risks, with audits to be carried out on suppliers in need of remedial measures
Links to be forged with industrial bodies and external initiatives as we strengthen risk management capability across the entire supply chain
In tandem with improving supplier assessment efficiency, we shall set up a grievance mechanism and clarify our grievance response process
Establishment of an internal management framework and ensure that both comprehension and practical application of sustainable procurement permeates the entire organization

Key Initiatives Toward FY2028

Set up continuous evaluations of, and dialogue with, important suppliers
Establish human rights risk management across the supply chain and identify high-risk raw materials so as to draw up and implement a relevant response strategy
Build an internal management framework to ensure that understanding of sustainable procurement permeates the entire organization

Director Responsible:

Director in Charge of Corporate Planning Division

Related SDGs:

Governance

Environmental and social impact

Instances where a manifested risk can neither be forestalled nor promptly or appropriately responded to may result in severe adverse impacts such as harm to society and human life, environmental damage and external losses caused by information leaks. On the other hand, forestalling of emerging risks, and delivering responses that minimize damage should those risks still occur, should enhance business resilience and trigger positive impacts through strengthened stakeholder trust

Risks and opportunities

Risks

Instances where a manifested risk can neither be forestalled nor promptly or appropriately responded to result in harm to society and human life, environmental damage, losses caused by information leaks, and business disruption or stagnation, undermining stakeholder trust

Opportunities

Strengthening our risk management framework enables us to forestall risks, or at least respond promptly and appropriately to them, thereby supporting business continuity. This should provide us with chances to both gain and increase stakeholder trust

Indicators and targets

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Indicator	FY2028 Target	FY2035 Target	Scope
Risk Assessment Completion Rate	100%	100%	Consolidated
Risk Response Plan Development Rate	100%	100%	Consolidated
Number of Cases with a Risk Response Implementation Rate Below 80%	Fewer than 10	0	Consolidated
Corrective Action Completion Rate for Internal Audit Findings	100%	100%	Consolidated
Risk Management Process Compliance Rate	100%	100%	Consolidated
Risk Management Training take-up rate	100%	100%	Consolidated

Initatives to reduce risks and expand opportunities

Business unit risks and Top 5 Risks are subjected to continuous action planning, progress confirmation and reporting of results as we strive to increase risk response reliability
Reliable operation of the risk management process through internal audits conducted in line with internal regulations, enhancing risk management effectiveness
Promotion of risk management training for relevant employees, including at Group company level, raising organization-wide risk awareness and response capability

Director Responsible:

Director in Charge of Internal Control Management Division

Related SDGs:

For the results of the FY2025 Sustainability Action Plan, please refer to the following.

FY2025 Sustainability Action Plan

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Key Sustainability Issues（Materiality）

Identifying Materiality

Materiality: The Identification Process

Step1: Extracting and Organizing Social Issues

Step2: Evaluating Importance and Identifying Priorities

Step3: Deciding on Materiality

Environmental and Social Impacts, Risks & Opportunities, Indicators & Targets

Environment

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Social

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs:

Governance

Environmental and social impact

Risks and opportunities

Indicators and targets

Initatives to reduce risks and expand opportunities

Director Responsible:

Related SDGs: