Top Commitment

Sustainability being put to a test in this uncertain time

"Every year with the preparation of our Sustainability Report, I look back on the past year and cannot help but feel that the pace of change in our business environment is accelerating. Tendencies toward nationalism and hegemony have become stronger, causing unprecedented geopolitical changes, disrupting international diplomatic frameworks, and shaking a global economic order that has been built over years of mutual interdependence. Given that many of these changes are irreversible, we must face and respond to new realities. In addition, while the rapid evolution of AI has made operations more efficient and created new value, it has also increased electricity and water consumption with a surge in the number of data centers, impacted employment and industry structures, and escalated fake content, cyber security risks, and other serious issues.

Climate change is also accelerating. According to NASA, the Japan Meteorological Agency, and several other institutions, 2025 was the third hottest year on record, following 2024 and 2023, causing extensive economic losses due to forest fires, hurricane-related flooding, and other natural disasters. Japan recorded its highest ever temperature of 41.8C, resulting in more than 100,000 people being transported by ambulance for heatstroke. This has not only adversely affected people’s lives and health but has also increased occupational safety risks and disrupted construction times.

At its core, sustainability is a framework for enhancing resilience and ensuring business continuity by preparing for the future with a medium- to long-term perspective and quickly adapting to changes in the global environment and socioeconomic conditions. With disruptions in the supply chain, energy and resource shortages, and other uncertainties, now more than ever, we must further advance the integration of our medium- to long-term ESG initiatives while weighing current business profits and a shift in business models.

Steady progress in carbon-neutral initiatives

In line with our long-term vision Mission TREEING 2030, Sumitomo Forestry Group　manages its global operations by promoting our value chain, the Wood Cycle, in each of our business areas of forestry, timber, construction, and energy. In 2025, the first year of our Medium-Term Management Plan Phase 2, we set out five basic policies, including contributing to decarbonization, deepening global expansion, and further integrating our business operations with ESG.

In our Global Construction and Real Estate Business, which commands 62% of our net sales, we newly established the Real Estate Division in 2026 to integrate our Japanese and overseas real estate development businesses, and we made our Overseas Housing Business an independent segment. With the addition of Tri Pointe Homes as a consolidated subsidiary, as announced in February, Sumitomo Forestry Group is now the fifth largest home builder in the United States. With Metricon joining the Group in 2024, we have also established our position as the number one builder in Australia. These developments, in addition to our efforts in Japan, are helping us to create a structure that will enable us to achieve our target to supply 65,000 units of housing annually by 2030.

On the other hand, we are facing serious issues, such as soaring building material prices, skilled labor shortages, and longer construction times not only in Japan, but in the United States and Australia, as well. These factors are causing a rapid rise in housing prices, which has significantly impacted affordability. As a company that supplies housing, this is a critical management challenge. In the United States in July last year, we brought a Louisiana lumber company into the Group as a subsidiary and are advancing vertical integration, from timber procurement to the design, manufacture, and installation of roof trusses and housing panels. By streamlining the supply chain and construction processes, we are working to supply high-quality, safe, and competitively priced housing.

In terms of our efforts to contribute to decarbonization, we achieved a 40.4% reduction in SBT (Scope 1, 2) greenhouse gas emissions, significantly exceeding our 2025 target of a 24.4% reduction. Our renewable energy utilization ratio reached 52.7%, compared to our target of 45.1%. A major contributor was our Japan housing business, which achieved a 100% ratio ahead of schedule. To achieve carbon neutrality by 2030, we are now formulating a Transition Plan, where we will incorporate concrete initiatives for each business segment in our Sustainability Targets as part of our Medium-Term Management Plan Phase 3, which starts in 2028.

The role of wood as a renewable natural resource

In Japan, a system to calculate and assess a building’s environmental burden over its entire lifecycle, from planning to demolition, known as the Building Lifecycle Carbon Assessment and Evaluation System (Building LCA), will be implemented in 2028. At the same time, the SHK system*¹ was revised to include carbon storage in wood products (HWP = Harvested Wood Products) as a reporting category.

The Japanese construction sector supports the employment of approximately 4.8 million people and accounts for nearly 40% of the nation’s CO₂ emissions, making initiatives to achieve carbon neutrality an urgent priority. Trees absorb CO₂ through photosynthesis during their growth process and store large amounts of carbon even after harvesting, making the utilization of wood for construction and other applications an important key to achieving decarbonization. Compared to other building materials, wood produces significantly lower CO₂ emissions during the manufacturing process. For a three-story office building with a floor area of 1,500 m2, CO₂ emissions can be reduced by approximately 45% compared with steel-frame structures. When we take into account carbon storage, this reduction effect reaches 67%.*² While new regulations apply only to buildings with a floor area of at least 5,000 m2 (equivalent to about a 10-story office building), they have triggered a turning point towards carbon neutrality in the construction sector, which until now focused primarily on conserving energy during occupancy.

In November last year, Sumitomo Forestry endorsed the Principles for Responsible Timber Construction as advocated by the NGO, Built by Nature. These principles were formulated through consultation with many key stakeholders, such as the Forest and Climate Leaders’ Partnership (FCLP) launched at COP27 in 2022. They include such goals as ensuring sustainable forest management, accounting for whole life cycle, and maximizing the carbon storage potential of wood, all of which perfectly align with Sumitomo Forestry’s philosophy and initiatives in promoting wood construction. Twelve countries, including Japan, Sweden, the United Kingdom, and Canada, and almost 400 organizations, such as developers and architectural design firms, are participating and endorsing these principles, driving a movement of global transformation based on collaboration with national and local governments, financial institutions, universities, and research organizations.

You can’t manage what you can’t measure: Making the natural capital of forests tangible

Gaining equal or even greater attention than carbon neutrality is nature positive, the goal to halt and reverse nature loss by 2030. While more than half of the world’s GDP directly depends on forests, rivers, oceans, and other ecosystem services, we have long regarded nature as “free.” We have not recognized or incorporated the true value of nature into our economic systems, and this is the root cause of nature loss. While it is no easy task to measure and quantify the value of ecosystem services, already we have begun trading carbon absorption from forests as carbon credits. In October 2022, Sumitomo Forestry established a forest asset management company in the United States and began managing its first fund in 2023. To halt nature loss, we must accurately assess the value of ecosystem services of sustainable forest management beyond carbon absorption and promote investments in renewable forest and forest-derived products and services. However, there is no globally agreed-upon protocol to measure the value of nature.

At COP30 in November last year, the international environmental organization Nature Positive Initiative (NPI) announced that they would develop the Nature Measurement Protocol. This initiative is supported by 11 organizations, including the World Business Council for Sustainable Development (WBCSD), the Capitals Coalition, and the Taskforce on Nature-related Financial Disclosures, all of which we also participate in. The plan is to formulate a nature-version of the GHG protocol, which provides a standard methodology for calculating greenhouse gas emissions. As a member of the International Sustainable Forestry Coalition (ISFC), Sumitomo Forestry launched a joint project to focus on the valuation of forests as a form of natural capital. This project brings together 18 companies that together own 23 million hectares of forests in 38 countries around the world. We selected seven indicators, including wood provisioning, water supply, global climate regulation, and habitat maintenance, and are working to quantify these ecosystem services based on a common measurement approach. Ultimately, our goal is to translate these values into monetary terms. Unless we can measure these values, forests will remain largely invisible in terms of economic activity, making it impossible to halt nature loss.

Improving governance for better disclosure

As part of our efforts to strengthen our management base, we reinforced our organizational structure and governance by establishing the Corporate Division in 2025, utilizing AI to enhance operational efficiencies and manage risk, and dispatching personnel to our regional management companies in the United States, Australia, Indonesia, and the United Kingdom. In addition to ongoing efforts to nurture global talent, we are working together with our more than 26,700 Sumitomo Forestry Group employees and reinforcing engagement with our suppliers to pursue the goals we set out in Mission TREEING 2030.

Following recommendations from the International Sustainability Standards Board (ISSB), 21 countries, including Japan, have decided to adopt non-financial disclosure standards. In Japan, these standards will become compulsory from the March 2028 term for companies with a market capitalization of at least 1 trillion yen. Sumitomo Forestry already discloses such sustainability-related information as GHG emissions and the female management ratio in our Securities Report. However, given the recent SSBJ decision, we are working towards early adoption starting the December 2027 term by creating a taskforce that goes across all relevant departments to disclose information in compliance with the standards and boost the efficiency of non-financial information gathering. Disclosure in and of itself is not the goal, but rather the result of effective management. In line with one of our basic policies to further integrate our business operations and ESG, we are committed to improving our ability to gather and utilize non-financial information to support strategic and sound management decision making.

*1SHK system: The Greenhouse Gas Emissions Calculation, Reporting and Publication System.

*2Calculated by Sumitomo Forestry’s Tsukuba Research Institute based on the “Report on Demonstration Projects for the Promotion of Wood Utilization and Energy Saving/CO₂ Reduction,” an official document released by the Forestry Agency.