Environmental Risk Management｜Sumitomo Forestry

Understanding and Responding to Environmental Risks

The Sumitomo Forestry Group is aware of the risk upon our business activities from environmental changes such as climate change or reduced biodiversity and works to gather related information, analyze this information as necessary as a way to evaluate business risks.

We also determined specific measures as evaluation metrics in each department for risk with the potential to arise in daily operations and report on the progress of those measures to the Risk Management Committee each quarter while the Sustainability Committee formulates measures for risk with the potential to arise in the medium to long term. Risks with the potential to high impact business are reported to the Board of Directors to discuss their countermeasures.

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Risk Management Framework

Climate Change and Biodiversity-related Risks and Strategies

Responding to Natural Disasters

Damage from a major earthquake, windstorm, flood or other natural disaster could result in significant costs arising from restoring operations at facilities, verifying the safety of delivered housing products, delays in the completion and handover of contracted properties, or other events. Such costs could influence Sumitomo Forestry Group's operating results and financial position.

As countermeasures, Sumitomo Forestry promotes the sale of homes built with highly seismic resistant BF construction method as well as the sale of resilience housing equipped with the functionality to sustain living for a certain period of time even if lifelines are cut. Furthermore, we are building a service framework that aims to provide rapid assistance through IoT technology that rapidly grasps the damage during a disaster in real time.

Responding to Changes in the Wood Cultivation and Procurement Regulations

Sumitomo Forestry Group positions wood as its principal material and product. The risk of higher costs is always present as well as the risk of having to change suppliers in the event of regulations being imposed due to the depletion of wood resources or changes to habitats resulting from climate change and the loss of biodiversity.

Therefore, as a means of diversifying the risk of changes in conditions of wood cultivation and wood procurement regulations, wood is imported from more than 20countries. In addition, we have representatives in major countries to gather information. We also conduct factory inspections of suppliers by overseas representatives and head office employees to confirm legal compliance and sustainability. We work to procure legally harvested timber throughout the entire Group in accordance with the Clean Wood Act enacted in May 2017, such as becoming the first company to register in Japan.

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Distribution Business Initiatives

Setting Carbon Pricing Such as Mandatory Emission Reductions

As reduction of greenhouse gases advances globally, there is the possibility that reduction obligations will be imposed upon businesses in countries where the Sumitomo Forestry Group has bases. If Group companies with bases in these countries are unable to meet reduction obligations, they will be required to purchase emission credits, creating the risk of increased business costs.

In regard to Japan, carbon pricing has also been implemented due to the Tax for Climate Change Mitigation measures enforced in October 2012. Achieving targets outlined in the Paris Agreement could result in changes such as higher taxes and new levies and emissions trading, which could influence business activities and costs.
As a countermeasure, Sumitomo Forestry sets greenhouse gas reduction target for each Group company and department and pursues those reductions based on the numerical targets that are drafted each fiscal year. We are also considering introduction of internal carbon pricing to promote reduction in greenhouse gas emissions and continue sustainable growth.

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Material Issue 2 To realize carbon neutrality by leveraging forests and wood resources

Responding to Energy Supply Shortages

In June 2022, Japan's power crisis has become apparent, as tight supply-demand warning was issued for four consecutive days in the service area of Tokyo Electric Power Company. There is a risk that disruption of power transmission may cause the Sumitomo Forestry Group's exhibition halls and factories to cease operations.

As a countermeasure, Sumitomo Forestry sets greenhouse gas reduction targets for each Group company and department and promotes energy savings while pursuing those reductions based on the numerical targets that are drafted each fiscal year. In addition, solar power generation system is installed on the roofs of exhibition halls and factories responding to energy supply shortages.

Corporate Image Deterioration

Any failure in addressing various risks such as climate change measures and the preservation of biodiversity may be detrimental to the corporate image, directly affecting sales and other performance indicators.

Sumitomo Forestry comprehensively analyzes and addresses risks from environmental, social and governance perspectives in the short to medium and long term through the Risk Management Committee and Sustainability Committee. We also engage in dialogues with our stakeholders as necessary and provide opportunities for these stakeholders to share their opinions with the Sumitomo Forestry Group.

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Responding to Environmental Laws and Regulations

The Sumitomo Forestry Group is striving to reduce and to prevent the manifestation of legal risks such as the disposal of industrial waste, soil and water pollution caused by toxic substances, noise and vibration.

Processing of Industrial Waste

Construction-related waste makes up the highest percentage of industrial waste that is illegally dumped in Japan. In terms of the breakdown of illegally dumped industrial waste, 77.9%* of the total is construction waste. Viewing the environmental risks presented by the processing of industrial waste as one of the biggest in terms of the potential impact on society and business, the Sumitomo Forestry Group works to ensure that industrial waste is disposed of appropriately.

Specifically, to comply with the Waste Management and Public Cleansing Act and other related laws and regulations, the Group has established a set of industrial waste management regulations covering appropriate disposal, reduction, recycling and reuse of industrial, as well as manufacturing regulations stipulating standards essential for production activities. In keeping with these regulations, voluntary audits of waste manifests and terms of outsourcing agreements with waste processors are carried out twice a year for each Sumitomo Forestry Group company office in Japan emitting industrial waste. If an audit concludes that corrective action is required, appropriate action is taken and it is subsequently confirmed through reports submitted in line with the industrial waste management system that waste is being properly treated.

In addition, industrial waste managers at each office conduct site checks of contractors' waste treatment plants at least once a year. In fiscal 2023, managers from the Housing Division conducted 513 on-site checks at 533 waste treatment plants run by 367 waste treatment contractors. Divisions other than the Housing Division as well as offices of Group companies are being instructed to continue using waste treatment plants which the Housing Division has already inspected. From fiscal 2024, we will electronically circulate and store site check records and share such information.

To be able to determine whether industrial waste is being processed in an appropriate manner, the Group asks waste treatment contractors to employ electronic manifests. All branches of the Housing Division as well as all contractors accepting industrial waste from new housing construction sites have already introduced electronic manifests. In fiscal 2023, 100% of all manifests, including those for housing demolition waste, were electronic.

In conjunction with this, training is also provided for employees who coordinate the processing of industrial waste. In fiscal 2023, 76 persons participated online training at Group companies in Japan, including newly appointed personnel in charge of industrial waste treatment operations and those responsible for industrial waste management. Furthermore, in April 2020, the Sumitomo Forestry Group created an e-learning program on basic waste management to teach the fundamentals of industrial waste management and built a system for employees to undergo this curriculum via the intranet. In order to acquire knowledge necessary for their work, production managers in Housing Division are required to attend e-learning "Points for Construction Waste Management" and pass a test. Trainings on industrial waste are given to new graduates and managers in charge of production.

*From the materials announced by the Ministry of the Environment in 2022

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Waste Reduction and Recycling

Soil Contamination

Soil contamination is difficult to discover as contaminants build up and spread underground out of sight. The Sumitomo Forestry Group implements soil contamination countermeasures for land owned or administered by the Group and conducts voluntary soil contamination studies prior to new land purchases in the subdivision business. We are in compliance on land applicable to the Soil Contamination Countermeasures Act.

The Group's domestic built-for-sale housing business conducts independent surveys of land related to brownfields* and has not purchased or sold any land that has not been through soil contamination measures.

*Land that is not used or underutilized significantly compared to its potential value due to the presence or concern of soil contamination

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Project for Soil Purification Technology and Environmental Remediation Aided by Plants

Water Pollution

Water pollution creates the risks of human health being directly affected by contamination of drinking water and of contamination affecting the habitats of organisms living in rivers, lakes and seas. Inspections entrusted to external measurement agencies are conducted once every two months and daily water quality tests are done internally through automatic COD measurement devices for the waste water expelled from waste water processing facilities in the Sumitomo Forestry Crest Imari Plant, which is a specified office under the amended Water Pollution Control Act of Japan, and the inspection results are issued to the local municipals every six months.
In addition, water is also sampled and inspected by the prefecture once a year. Through these measures, all inspections found the level of water pollution to be within the statutory limit for wastewater.

In addition, the Tsukuba Research Institute is considered a specified office under the amended Water Pollution Control Act of Japan and therefore, delivers notification of updates to some testing equipment and new installations according to this law. The Institute also conducts water quality inspections once every month through an external measurement agency to monitor those results and issue reports to Tsukuba City once every six months.

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Management of Water Pollutants

Contamination by Hazardous Chemical Substances

Contamination caused by hazardous chemical substances leads to risks of a major impact on human health or the environment and the risk of a disaster. The Sumitomo Forestry Group keeps track of amounts of hazardous chemical substances including volatile organic compounds (VOCs) used and discharged as part of appropriate management, meanwhile making an effort to reduce the use of these chemicals.

The Group takes appropriate action in response to the Air Pollution Control Act. Sumitomo Forestry Crest's Niihama Plant equipped with boilers and Kagoshima and Shizuoka plants equipped with incinerator make regular measurements of emission volumes and concentrations of NOx, SOx and soot and dust, and dioxins, respectively, and monitor that these figures are maintained below the statutory limits.

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Management of Air Pollutants

Noise and Vibrations

The Sumitomo Forestry Group makes an effort to prevent noise and vibrations during housing construction. When complaints about noise or vibrations are received, the circumstances are recorded and the information is shared with the rest of Group to prevent the occurrence of similar incidents.

Sumitomo Forestry Crest confirms that noise levels within the site boundaries of plants are below the statutory limit by taking regular measurements.

No complaints about noise or vibrations having a major impact on the environment were received from local residents during fiscal 2023.

Global Warming (Addressing the Act on Rational Use and Proper Management of Fluorocarbons)

In April 2015, the Fluorocarbons Recovery and Destruction Law came into force for the purpose of promoting drastic measures over the entire lifecycle of chlorofluorocarbons that have a strong greenhouse effect, from manufacture to disposal.

Since April 2020, regulation based on the law have been further strengthened, and the Sumitomo Forestry Group has taken steps to disseminate the details and take appropriate measures.

In addition, as a manager of specified products, we conducted simple and periodic inspections as planned.

In most cases, the Sumitomo Forestry Group leases its offices as tenants in buildings, therefore, it does not own (or manage) that much commercial refrigeration and air-conditioning equipment (air-conditioners, refrigerators, etc.). Some business sites have construction vehicles that fall under the category of "specified products," such as forklifts, etc. equipped with air conditioners. In response to the enactment of this law, we are conducting periodic simple inspections of the equipment that is using fluorocarbons as a coolant as well as executing legal and periodic inspections for devices with compressors that have 7.5kW or higher rated output.
Furthermore, Sumitomo Forestry promotes the transition to products that do not use fluorocarbons in accordance with the Law on Promoting Green Purchasing when replacing existing equipment or purchasing new equipment.

Environmental Management