Disclosures Based on the Four Pillars of TCFD and TNFD

Our Approach to Climate Change and Nature-Related Issues

The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) unequivocally recognized human activities as being responsible for the recent global warming, in the air, on the land and in the seas, causing extreme weather conditions that are increasingly frequent and intense while attributing changes observed in ice sheets and sea levels to greenhouse gas emissions. In addition, according to the report published by the World Economic Forum in January 2020, titled “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy,” more than half the world's GDP, equivalent to 44 trillion dollars, is related to some or large degree to nature itself or the services it provides, and loss of nature has a significant impact on the agriculture, forestry, fisheries, and construction industries. The international community has begun to advocate the concept of "nature positive," to call for the need to halt and reverse processes damaging nature by 2030, aiming to fully restore the state of the base year 2020 by 2050.

Against this backdrop, society's expectations for the forestry industry to solve these issues are increasing, primarily in light of forests’ capacity to: exercise their carbon sink and reservoir mechanism; provide ecosystem services; facilitate carbon fixation and reduce greenhouse gas emissions by supplying timber sourced from sustainable forests and offering wood products and wooden buildings; and make effective use of unused forest resources to provide biomass fuel.

In February 2022, the Sumitomo Forestry Group announced "Mission TREEING 2030," its long-term vision that incorporates the business concept behind the Group's ideal vision for 2030, which is also the target year of the SDGs. "Mission TREEING 2030" sets out our business policy in the following four areas: 1. Maximizing the value of forests and wood to realize decarbonization and a circular bioeconomy; 2. Advancing globalization; 3. Striving for transformation and the creation of new value; and 4. Transforming our business foundation for growth. Toward achieving this long-term vision, we endeavor to deliver value simultaneously to the three areas related to: our planet; people and society; and market economy. We will do this without compromising any and by enhancing value in each of the three areas.

The Sumitomo Forestry Group contributes to the realization of a carbon neutral and nature positive society by making effective use of forest resources, which are renewable natural resources produced from natural capital, through its business activities spanning the whole supply chain process, ranging from forest management (upstream) and the manufacture and distribution of timber and building materials (mid-stream) to wooden construction and renewable energy businesses (downstream).

At the time of entering the first stage of our long-term vision "Mission TREEING 2030," we also launched "Mission TREEING 2030 Phase 1" (2022 -2024), the three-year Medium-Term Management Plan created to lay groundwork for our future growth and contribution to decarbonization. This was followed by the new Medium-Term Management Plan "Mission TREEING 2030 Phase 2" (2025-2027) launched in fiscal 2025 under the theme of "Three Years of Reform and Implementation for Dramatic Growth." According to this plan, we will pursue effective contribution to nature positive initiatives by striving to build a circular bioeconomy.

Expressing Support for the TCFD and TNFD

The Sumitomo Forestry Group's businesses engaged in forests and trees are susceptible to changes in the natural environment, represented by climate change and disturbed biodiversity. For this reason, the Group was among the first to respond to major international initiatives promoted by the Task Force on Climate-related Financial Disclosure (TCFD) and Task Force on Nature-related Financial Disclosure (TNFD).

In response to the TCFD recommendations published in 2017, the Sumitomo Forestry Group expressed its support for the reporting framework in July 2018, and conducted its first TCFD scenario analysis in September 2018 under the sponsorship of Japan's Ministry of the Environment.

Subsequently, we also began to respond to initiatives promoted by the TNFD, for which the initial proposal was agreed on at the G7 Environment Ministers' Meeting in May 2019 and it took more than two years before the Task Force and Forum was launched. In March 2022, the first TNFD framework beta version (v0.1) was released, and the third version (v0.3) reflecting user feedback on the first two releases was published in November of the same year. Sumitomo Forestry used v0.3 to conduct an analysis based on TNFD’s LEAP approach on a trial basis for timber procurement, the area most suited for the analysis in light of data accumulation, and disclosed its results in the Sustainability Report 2023 released in April 2023. In response to the final TNFD recommendations (v1.0) released in September of the same year, the Company registered as a TNFD Early Adopter in December. From the end of 2023 through 2024, we conducted LEAP-based analyses for four business segments, excluding the Lifestyle Services Business, and disclosed the results in the Sustainability Report 2024 released in April 2024.

Major events of TCFD and TNFD		Our response to TCFD	Our response to TNFD
2017	Jun. TCFD released its recommendations
2018		Jul. Expressed its support for the TCFD recommendations Sept. Conducted its first TCFD scenario analysis, covering the two divisions for: Timber and Building Materials Business and Housing Business
2019		Jul. Disclosed information based on the TCFD recommendations for the first time, using the Sustainability Report, etc.
2021	Jun. TNFD launched	Oct. Conducted its second TCFD scenario analysis, covering the two divisions for: Environment and Resources Business and Global Housing and Real Estate Business
2022	Mar. TNFD released beta version v0.1 Nov. TNFD released beta version v0.3	May. Compiled and disclosed the results of its second TCFD scenario analysis Sept. Conducted its third TCFD scenario analysis,covering the Group’s all business divisions	Feb. Participated in TNFD Forum Dec. Conducted a trial analysis based on TNFD's LEAP approach using the framework beta version v0.3 (Scope: Timber Procurement operations)
2023	Sept. TNFD published its final report	Apr. Compiled and disclosed the results of its TCFD scenario analysis	Apr. Disclosed results of its trial analysis Dec. Became a TNFD Early Adopter; Conducted analyses based on TNFD's LEAP approach(Scope: four divisions excluding Lifestyle Services Business)
2024	Jan. TNFD announced the Early Adopter program at the WEF in Davos		Apr. Compiled and disclosed the results of its analyses
2025 and beyond		Started the Medium-Term Management Plan "Mission TREEING 2030 Phase 2" (2025-2027) Maintains KPI progress management Expands and enhances the scope of TCFD scenario analysis and analysis based on TNFD's LEAP approach

In preparing this report, we referred to the TCFD and TNFD recommendations for information disclosure to apply all applicable items listed.

Governance

The Sumitomo Forestry Group responds to climate change and nature-related issues under the leadership of the Sustainability Committee, chaired by the President and composed of Directors concurrently serving as Executive Officers and each Divisional Manager. The Sustainability Committee analyzes risks and opportunities associated with sustainability issues related to the Group’s business from a medium- to long-term perspective and formulates and promotes measures and initiatives based on analysis results. The committee also oversees the progress management of the Medium-Term Sustainability Targets, which incorporate business strategies toward achieving the SDGs, and monitors the effectiveness. All activities carried out by the committee are reported to the Board of Directors to be reflected in business execution.

The Sumitomo Forestry Group has formulated its Human Rights Policy in reference to international standards such as the United Nations Guiding Principles on Business and Human Rights and set forth the Group's commitment to respecting the human rights of all people involved in its business operations, particularly those subject to the impact of nature-related actions, such as indigenous peoples, local communities, and other stakeholders. The policy is operated and managed by the Sustainability Committee, and the progress status is reported to the Board of Directors.

In February 2022, we partially revised our executive compensation system to introduce the scheme linked to the achievement rate of sustainability indicators, in a bid to connect our business activities more closely with sustainability efforts. Specifically, if Sumitomo Forestry fails to meet its long-term greenhouse gas emissions reduction targets certified to the Science Based Targets (SBT), the amount of remuneration to be paid will be reduced from the standard stock remuneration amount according to the degree of target achievement. The performance status has been monitored in contraposition with "Mission TREEING 2030 Phase 1" (2022-2024) and "Mission TREEING 2030 Phase 2" (2025-2027), both being Medium-Term Management Plans created to support our long-term vision, "Mission TREEING 2030," as well as the Medium-Term Sustainability Targets.

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Strategy

In order to address climate change challenges, we considered the likely situation in 2030 based on two scenarios―the 4℃ scenario of the world facing difficulties in implementing climate actions; and the 1.5/2℃ scenario of decarbonization initiatives advancing steadily―conducted financial impact assessments, and discussed response measures for particularly significant risks and opportunities.To deal with nature-related issues, we organized a working group consisting of members from the head office and business divisions to conduct analyses on our businesses using the LEAP approach from the end of 2023 to 2024 in terms of dependence/impact on nature as well as risks and opportunities. The findings by the working group were compiled in March 2024.
The main opportunities and risks identified by the TCFD scenario analysis and TNFD’s LEAP-based analysis are summarized below.
The two different analyses presented common or similar suggestions on several issues related to characteristics of forests and trees, the core resources of the Sumitomo Forestry Group's business, especially their capacity to absorb and fix atmospheric carbon in the growing process while at the same time nurturing biodiversity and providing ecosystem services. One of the most important suggestions about the Sumitomo Forestry Group's business was for pursuit of decarbonization to expand the window of nature-related business opportunities.
For details on the TCFD scenario analysis and the analysis based on TNFD’s LEAP approach, please refer to the related information.

Division*1	Details		Transition Risks	Physical Risks	Opportunities
Timber and Building Materials Division	Manufacturing and distribution of timber and building materials	C	Costs increased due to the introduction of carbon taxes and stricter environmental regulations Wood procurement costs increased due to higher reforestation costs	Value and sales of wood materials decreased due to preference for more robust buildings growing in fear of the increasing severity of natural disasters	Demand for renovation to environmentally conscious housing increased due to stricter environmental regulations, and sales of wood building materials increased Sales increased due to development of materials processing technology for environmentally conscious housing and medium- to large-scale buildings
		C ・ N	Costs increased to address the need for compliance with stricter laws and regulations on illegal and unsustainable forest harvesting Costs increased due to higher wood procurement costs in response to increased demand for wood products to promote decarbonization, etc.	Sales decreased and business restoration costs increased as a result of operational shutdowns due to the increasing severity of flood damage induced by heavy rain, etc. Sales decreased and restoration costs increased due to operational shutdowns resulting from a landslide in nearby plantations Procurement costs increased as a result of wood supply capacity reduced due to suppliers suffering regional disasters and ecological degradation	Sales increased owing to biorefinery technology and new product development Sales increased owing to new product development for mass timber markets Sales increased owing to new product development that contributes to circular economy in the construction market
		N	Costs increased to address the need for compliance with stricter soil and water pollution laws and regulations Sales decreased due to conflicts with local communities and NGOs opposing the construction of forest roads in areas that may affect the surrounding ecosystem Costs increased to deal with litigation cases and address the need for compliance with stricter laws and regulations in association with the issue of managing impacts of waste, water use, soil contamination, and land alteration on protected areas, etc.	Sales decreased due to regional water availability reduced in the surrounding area Sales decreased due to operational shutdowns resulting from fires, land subsidence, tsunami, and landslides induced by an earthquake Sales decreased due to operational shutdowns resulting from fires and volcanic ash induced by a volcanic eruption	Procurement costs decreased by promoting a shift from natural wood to wood from planted forests Water procurement costs reduced by promoting further water conservation efforts and reduced and more efficient water use in manufacturing processes Costs decreased by maintaining stable raw material procurement while promoting resident-involved timber production (social forestry)
Housing Division	Custom-built houses, subdivision houses and greening (in Japan)	C	Technological development and construction costs for LCCM housing* and medium- to large-scale buildings increased for a short period Value of wood materials decreased relatively over a long period of time due to the advancement of decarbonization technologies for steel, concrete, and other building materials, and sales of wooden buildings decreased	Sales of wooden detached houses decreased due to preference for more robust buildings growing in fear of the increasing severity of natural disasters	Demand for and sales of LCCM housing increased on the back of an accelerating shift in demand toward decarbonization Sales of environmentally conscious multi-family housing increased driven by customer preferences, policy changes, etc.
		C ・ N	―	Sales decreased due to construction delays caused by increased disaster risks Costs of insurance premium payments increased to address increased disaster risks	Sales increased owing to sales at premium prices expanded by enhancing “natural symbiotic functions (greening, water retention/permeable pavement, biodiversity initiatives, etc.) installed within housing and construction sites
		N	Costs increased to address the need for compliance with stricter laws and regulations to control adverse impacts of waste, water use, and soil contamination on surrounding communities and ecosystems Costs increased due to delayed adoption of processes to reduce the impact on ecosystems, such as noise and vibration control, dust control, planting native species, etc.)	―	Industrial waste disposal costs decreased by curbing waste generation and promoting the conversion of waste into valuable resources Costs decreased by promoting green space management (e.g., greenkeeping) with ecological impact reduced (e.g., reduced use of pesticides and fertilizers, less intense pruning, etc.) Sales increased owing to the trust of client companies increased and long-term contracts agreed on the back of the number of users increased as a result of the development of environmental education business as well as the identification and protection of rare and native plant species in parks managed as a designated administrator
Overseas Housing Division, Real Estate Division	Detached house building (overseas), building materials manufacturing (United States), real estate development (Japan and overseas)	C	Costs increased due to the introduction of carbon taxes and stricter environmental regulations Brand value impaired, stock price slumping, and sales declining due to a delayed response to environmental regulations	Materials procurement costs increased due to construction damage, construction period extension, and supply chain disruption caused by disasters becoming severer Competitions Intensifying to secure development sites due to a shift in demand to areas with less risk of natural disasters	Demand for environmentally conscious housing increased in response to a shift in consumer preference toward decarbonization Market for medium- to large-scale wooden constructions expanded in response to growing ESG demand from investors and financial institutions
		C ・ N	Costs increased due to higher wood procurement prices in response to increased demand for wood products to promote decarbonization, etc.	Costs of insurance premium payments for properties under construction increased due to growing risk of natural disasters	Sales increased by acquiring new environmentally conscious customers through enhanced natural symbiotic functions (greening, water retention/permeable pavement, biodiversity initiatives, etc.) installed within housing and construction sites
		N	Pollution control costs increased due to delayed adoption of technologies to reduce environmental impact Costs increased due to delayed adoption of processes to reduce the impact on ecosystems (e.g., noise and vibration control, dust control, planting native species, etc.)	―	Costs decreased by promoting efficient construction methods (adopting panel and/or truss structures) Sales increased by promoting reuse of waste materials to develop new products Sales increased owing to improved reputation among customers for the procurement of certified wood, use of recycled wood materials, and acquisition of certifications for plants
Environment and Resources Division	Forest management, seedling production, and biomass power generation	C	Wood production decreased due to stricter forest protection policies Cost of installing energy-efficient heavy equipment increased due to the introduction of carbon taxes and stricter environmental regulations	Road repair costs increased due to forest road networks damaged as a result of changes in precipitation and weather patterns Wood procurement and reforestation costs increased due to growing forest fire occurrence attributable to higher average temperatures	Demand for logs and wood increased due to a shift in consumer preference toward decarbonization Demand for renewable energy increased backed by strengthened decarbonization policies, and biomass-derived energy business sales increased
		C ・ N	Costs increased to address the need for compliance with stricter laws and regulations related to policies implemented to promote certification of woody biomass feedstock and PKS Costs increased due to higher fuel costs resulting from increased demand and tougher competition for woody biomass feedstock and PKS Costs increased to address the need for further changes to forest management practices to meet growing demand for sustainable timber Costs increased due to delayed adoption of efficient and advanced forestry technology	Sales decreased due to operational shutdowns resulting from forest fires or landslides	Sales increased from the generation of carbon credits in connection with the promotion of forest and peatland management and forest fund operations
		N	Sales decreased due to unplanned operational shutdowns due to accusations from local communities and NGOs against timber production that violates the rights of indigenous and local people Sales decreased and costs increased as a result of delayed adoption of woody biomass fuels with less impact on ecosystems	―	Sales increased from sales of forest management technologies such as remote sensing, drone surveys, satellite utilization, etc. Sales increased by developing payment programs (PES) for companies and local governments to pay for the forest's public benefits (groundwater recharge, habitat provision, landslide prevention, etc.) they receive Sales increased by providing industrial tourism and eco-tourism products (e.g., merchandise sale utilizing traditional knowledge and culture) Industrial waste disposal costs decreased by promoting the conversion of incineration ash into valuable resources Sales increased by promoting the credit market through participation in rulemaking for biodiversity credits
Lifestyle Service Division	Nursing home operations and insurance business, etc.	C	Sales in the gasoline card business decreased due to a shift from gasoline cars to electric vehicles	Costs for renovation of company-owned facilities and BCP measures increased in preparation for the increasing severity of natural disasters Number of users of company-owned facilities decreased and costs for safety considerations increased due to rising temperatures	Sales in the insurance business increased backed by a growth in the number of policy purchasers and contract renewal frequency for shorter policy periods, due to the increasing severity of natural disasters Number of Sumirin Denki subscribers increased due to growing consumer preference for renewable energy New customers acquired by responding to an accelerating shift in consumer preference toward decarbonization and preference for safety and security in fear of the increasing severity of natural disasters

(C): Factors identified solely by the TCFD scenario analysis
(C/N): Factors identified by both of the TCFD scenario analysis and analysis based on TNFD's LEAP approach
(N): Factors identified solely by the analysis based on TNFD's LEAP approach

*1The Lifestyle Service Division underwent the TCFD scenario analysis only

*2LCCM housing: stands for “Life Cycle Carbon Minus housing,” the housing model for reducing CO2 emissions throughout the phases of construction, occupancy, and demolition while generating renewable energy using solar or other power sources to achieve negative CO2 emissions throughout the entire life cycle

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Management of Risks and Impacts

At the Sumitomo Forestry Group, each department decides on specific countermeasures and evaluation indicators for business risks, and reports progress to the Risk Management Committee on a quarterly basis. The Risk Management Committee is chaired by the President and composed of Divisional Managers and Administrative Managers from each division, General Managers of the Corporate Planning Department, Personnel Department, Legal Department, IT Solutions Department, and Sustainability Department, and other members selected by the chair.

In addition, medium- to long-term risks related to sustainability issues are discussed by the Sustainability Committee, chaired by the President and consisting of Directors concurrently serving as Executive Officers and Divisional Managers, in the quarterly meeting, while covering topics applicable to the entire value chain comprehensively. The number of Sustainability Committee meetings held annually has increased from four to six, which came into effect in fiscal 2024.

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Management process of business risks

Process for managing medium- and long-term risks in response to sustainability issues

Metrics and Targets

The Sumitomo Forestry Group has established long-term targets related to climate change, which have been incorporated into Medium-Term Management Plans "Mission TREEING 2030 Phase 1" (2022 - 2024) and "Mission TREEING 2030 Phase 2" (2025-2027) as well as annual plans to promote relevant initiatives. In 2017, the Group declared its intention to formulate science-based targets (SBTs) and created new Group-wide greenhouse gas emissions reduction targets, which were certified as a qualified SBT in July 2018. In November 2024, we obtained certification for the new net zero target established to achieve by 2050, as well as for the FLAG sector targets. In accordance with the SBT Guidance, we have updated our short-term goals for 2030 and have obtained the relevant certification.

In March 2020, in an effort to reduce greenhouse gas emissions, we joined the international initiative RE100 promoting fully renewable energy electricity consumption. Accordingly, we are accelerating efforts to cut greenhouse gas emissions and adopt renewable energy, setting a goal for 2040 to achieve 100% renewable energy usage for powering the Group's all business activities and fueling power plants in our power generation business. Also, divisional efforts have been exerted under the "Medium-Term Sustainability Targets Phase 1 (2022-2024)" and "Phase 2 (2025 -2027)", by setting divisional targets for the ratio of renewable energy procurement, and carrying out necessary budgetary measures, including capital investment, to steadily promote initiatives toward achieving RE100.
We disclose data corresponding to core global metrics and core sector metrics set forth in the TNFD final recommendations.

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Responding to TCFD and TNFD