Response to the TCFD Proposal

Renesas’ purpose, “To Make Our Lives Easier,” is driven by our commitment to aligning our business and sustainability goals and making positive changes for all stakeholders. To identify top strategic priorities, we conducted a materiality assessment engaging various stakeholders.

One of the materiality topics analyzed is our “response to climate change, energy and emissions.” We are committed to improving our response to climate change, energy and emissions by reducing the climate change impact on our business, conducting environment-friendly activities, and creating opportunities that contribute to the environmental protection.

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Governance

At Renesas, we recognize various opportunities and risks brought by climate change as important factors in business strategies. Thus, our CEO is responsible for all company-wide activities related to sustainability. Policies and important factors related to climate change, as well as risks and opportunities, are regularly discussed and reviewed by the CEO, an Executive Officer appointed by the CEO and the Sustainability Promotion Office, and are reported to the Board of Directors. In addition, under the CEO’s supervision, a corporate officer who manages Renesas’ group-wide environmental activities assesses, plans and establishes a system on a global basis.

library_books Sustainability Promotion Structure

library_books Environmental Management System

Strategy

Climate change is a critical issue for Renesas. To understand the impact of climate-related risks and opportunities on Renesas Group’s business, strategy and financial planning, and to establish countermeasures, we conducted a scenario-based analysis using the following assumptions.

Assumptions for Scenario Analysis

For the analysis, we took all regions into consideration and the scope of our greenhouse gas (GHG) emission range was verified by a third party (more than 95% of total GHG emissions). We selected all businesses segments for the scope, consolidated accounts for the company scope, and 2030 as the time axis. Scenarios included SDS (Sustainable Development Scenario) by the IEA (International Energy Agency), IPCC RCP2.6, etc. as "below 2°C scenario," and the IEA STEP (State Policies Scenario) as "4°C scenario,” and RCP8.5 by IPCC (Intergovernmental Panel on Climate Change).

Item	Scope of analysis, time axis, and selected scenarios
Region	All Regions Scope of GHG emission verified by a third party (95% or more of total GHG emissions)
Business scope	Expected financial impact
Company scope	Scope of consolidated financial statements
Time axis	2021 - 2030
Scenario selection	Below 2℃ scenario: IEA SDS scenario (Sustainable Development Scenario), IPCC RCP2.6, etc. 4℃ scenario: IEA STEP (Stated Policies Scenario), IPCC RCP8.5, etc.

How We Conducted Scenario Analysis

First, we predicted social and regulatory trends as of 2030 and listed a wide range of climate change-driven risk and opportunity items that are likely to impact the Group based on the, using risks and opportunities exemplified in the TCFD recommendations as the basis.

Risks can be broadly classified into transition risks related to the transition to a low-carbon economy and physical risks related to physical changes due to climate change. Transition risks include policies and laws, markets, reputations (e.g., changes in reputations by customers and investors), etc. Physical risks include those with chronic occurrences (e.g., average temperature increase, changes in precipitation and weather patterns, rising sea levels) and acute ones (e.g., intensification of extreme weather). Opportunities were categorized in terms of resource efficiency, products and services, and new markets.

Next, based on our mid to long-term business plan, we narrowed down on the items that are expected to have a significant impact on our operations due to climate change. For these items, we collected parameters based on the below 2°C scenario and the 4°C scenario and extracted data regarding potential financial impact in 2023. Based on the results, we considered countermeasures to increase organizational resilience.

Hypothetical Events in below 2°C and 4°C Scenarios

Scenario	Hypothetical events
Below 2°C RCP2.6	Carbon pricing will be introduced in Japan, the U.S., and emerging countries, and carbon prices will rise globally. Stricter carbon regulations will increase procurement prices of energy and carbon-intensive raw materials. Growing demand for products designed low-carbon and decarbonization technologies worldwide, including emerging countries. Companies that are unable to respond to increasing demand for decarbonization from customers and investors will be weeded out.
4℃ RCP8.5	The introduction of carbon pricing in Japan, the U.S., and emerging countries is slow. Carbon regulations will not be strengthened, and the increase in procurement prices for energy and carbon-intensive raw materials will be limited. Growing demand for products designed for low-carbon and decarbonization technologies will mainly increase in developed countries such as Europe. Due to global delays in reducing GHG emissions, global warming will progress and abnormal weather (e.g., floods, droughts) will increase.

Reference: Global average temperature change forecast (Source: IPCC)

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Summary of Extracted Results from Scenario-Based Analysis

Based on this analysis, the primary risks and opportunities for the Group and countermeasures are as follows. We anticipate a major opportunity in case of the below 2°C scenario in particular, and will proactively promote measures to seize that opportunity in the future.

Details of Analysis and Countermeasures

We assume when each risk and opportunity will materialize based on the scenario-based and other analysis, and disclose information over nine years from 2022 to 2030 by classifying them into “short-term,” “mid-term,” and “long-term.” We assume “short-term” to be within 3 years, “mid-term” over 3-6 years, and “long-term” over 6 years.

Financial Impact and Countermeasures for Risk Factors

Category		Expected financial impact	Period	Countermeasures
Transition risk	Strengthening of laws and regulations	Various laws and regulations will be strengthened toward decarbonization, and the cost to meet the needs will increase. Carbon pricing (Scope 1-3) PFC regulations, recycling regulations Regulations related to energy conservation in emerging countries	Short to mid-term	Implement systematic measures to achieve mid to long-term GHG reduction targets Understand emissions by suppliers and promote reduction measures Continue 3R initiatives with a goal to “maintain a recycling rate of 90% or more” globally
	Changes in technology and markets	Sales opportunities will be lost due to delays in development in markets and products that require energy conservation, and our profits will decrease. As an example, it is assumed that sales of MCUs for ICE will decrease due to the decrease in gasoline-powered vehicles.	Short to mid-term	Detect changes in energy conservation standards in advance, and accelerate the start of development Introduce technology that enables flexible function changes Continue to invest in R&D to develop energy efficient products Concentrate development resources from ICE applications to xEV, ADAS application ICs, Discrete, and develop cross-domain MCUs
		If the carbon tax imposed on our suppliers is reflected in the unit price of materials, we assume that production costs will increase.	Mid-term	Understand and monitor CO2 emissions by suppliers Share targets with suppliers and encourage them to promote reduction measures
	Changes in stakeholder evaluation	Sales will decrease if we are unable to meet customer demands for decarbonization in the supply chain. In addition, the expansion of ESG investment is expected to affect fund procurement.	Mid-term	Promote and accelerate environmental activities that satisfy customers' environmental procurement regulations Proactively disclose environmental information to stakeholders and promotion of communication for mutual understanding Achieve progress toward environmental targets to meet executive evaluation
Physical risks	Increase in disasters due to extreme weather	Due to an increase in disasters caused by abnormal weather, our own sites and supplier sites will be affected. Sales will decrease during the period until restoration, and restoration costs will be required.	Mid to long-term	Implement risk assessment and countermeasures for each site based on BCM Continuously collect information including bases currently outside the hazard map Continuously diversify procurement and consider/prepare alternatives

Financial Impact and Countermeasures for Opportunities

Category		Expected financial impact	Period	Countermeasures
Efficient use of resources		Efficient use of resources (energy, water) at business sites and production bases will be promoted and costs will be reduced.	Short-term	Implement systematic energy-saving measures considering investment effect Promote efficient use of water with a target water recycling rate of 35% Expand PPA utilization bases
Low carbon emission products and services	Expansion of xEV solution market	As decarbonization progresses in the automotive sector, the xEV solution market expands.	Short to mid-term	Accelerate the development and reduce power consumption of products for BMS Expand product repertoire, such as monolithic/wireless Provide development kits that shorten customer development time Accelerate the development of products for xEV, enhance product portfolio with low power consumption, high efficiency, OTA support, etc. Accelerate the development of products for AD/ADAS, improve functionality and performance
	Expansion of industrial solutions market	Decarbonization will progress in the industrial sector, and the related industrial solutions market will expand.	Short to mid-term	Accelerate the development of products conforming to DDR5 and later DDR memory standards, and reduce power consumption and load Accelerate the development of millimeter-wave beamformer solutions for 5G, achieve low power consumption and high efficiency Accelerate the development of products for FA (mainly motor control ICs and MCUs/MPUs equipped with endpoint AI) and products for BA (mainly products for air conditioning systems and lighting), increase functionality, and strengthen RF functions Accelerate the development of IGBTs, improve efficiency through advanced processes, and increase production capacity Accelerate the adoption of next-generation power semiconductors
Respond to changes in customer preferences and interests		Increase sales by responding to changes in customer interest (energy efficiency, IoT, sensors, advanced weather forecasts, etc.) associated with climate change.	Short, mid to long-term	Promote product development to provide low-power consumption products and solutions that improve energy efficiency, and focus on R&D to create innovation Expand product repertoire, improve speed, functionality, and efficiency
New market expansion	New business	Diversion of technologies developed in existing businesses to new industries in a low-carbon society	Short to mid-term	Enhance security for products in the Automotive/IIOT field
	Emerging markets	"Sales of IGBTs and millimeter-wave beamformer solutions for 5G to emerging countries will increase as the decarbonization needs increase.	Short to mid-term	Promote sales expansion in emerging markets, improve performance and efficiency of IGBTs

Risk Management

We have established a company-wide risk management system based on the “Renesas Electronics Group Risk and Crisis Management Regulations.” We regularly maintain our risk management system for possible risks that may occur, and for each one, a department will be put in charge of crisis management depending on the type of risk to conduct the day-to-day risk management. We also attempt to identify risks in advance by checking those that are represented realistically in our Risk Map. At the same time, we formulate contingency measures, systems, and response policies to prevent and respond to those risks. Furthermore, in the event of a company-wide emergency, we would establish an Emergency Response Headquarters (ERHQ) led by our CEO, which is designed to gather information, propose countermeasures, and implement measures to minimize losses.

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Indicators and Targets

Renesas Aims to Become Carbon Neutral by 2050 to Minimize the Impact of Climate Change

We plan to achieve our goal by reducing the emission of PFC gas – a greenhouse gas that heavily impacts the environment – and meeting the domestic electrical and electronics industry targets in Japan and the energy intensity reduction target in accordance with the Energy Conservation Law. These initiatives also include expanding the use of reusable energy at our manufacturing sites which consume significant amounts of energy.

Regarding Scope 3, we have also set a new target for reducing GHG emissions by 2026 by suppliers (including outsourced production companies) who account for 70% of GHG emissions in Category 1 of Scope 3. We will strive to meet those targets and reduce GHG emissions throughout the supply chain.

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Glossary

Assumptions for Scenario Analysis

IEA	International Energy Agency
SDS	Sustainable Development Scenario
STEPS	Stated Policies Scenario
IPCC	Intergovernmental Panel on Climate Change
RCP	Representative Concentration Pathways

Financial Impact and Countermeasures for Risk Factors

Scope 1	Scope 1 emissions refer to direct greenhouse gas (GHG) emissions that occur from sources that are controlled or owned by an organization. This includes all land-use emissions from companies that own or control land to produce agricultural and forest-risk commodities.
Scope 2	Scope 2 emissions refer to indirect GHG emissions associated with any purchases of electricity, steam, heat, or cooling.
Scope 3	Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.
PFC	Perfluorocarbon. A type of the alternative CFC Gas used for etching and cleaning in the manufacturing process of semiconductor manufacturing.
3R	Reduce, Reuse, Recycle. Acronym for three initiatives to reduce waste.
ICE	Internal Combustion Engine
MCU	Micro Control Unit
xEV	The generic name for electromotive vehicles such as a hybrid electric vehicles, plug-in hybrid electric vehicles and fuel-cell electric vehicles
ADAS	Advanced Driver-Assistance Systems
BCM	Business Continuity Management

Financial Impact and Countermeasures for Opportunities

PPA	Power Purchase Agreement: A solar PPA, or power purchase agreement, is typically an off-balance sheet financial arrangement through which an energy consumer allows a third-party developer to develop, construct, operate and maintain a photovoltaic (PV) system on its property, at no cost. The energy consumer then agrees to purchase electricity from the system’s owner, over a predetermined period.
BMS	Battery Management System
Monolithic	Reconstruction of multiple ICs (Die) separated by function and integration into one Die for implementation.
Wireless	Implement the Wireless (wireless communication) function.
OTA	Over The Air: Sending and receiving data via wireless communication
DDR	Double-Data-Rate: Advanced version of SDRAM, a type of memory IC.
Millimeter-wave beamformer solutions for 5G	Learn more
FA	Factory Automation
Endpoint AI	Learn more
BA	Building Automation
RF	Radio Frequency
IGBT	Insulated Gate Bipolar Transistor
IIOT	Industrial Internet of Things

<Indicators and Targets>

Scope 3 Category 1

Includes GHG emissions from all purchased goods and services