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Biodiversity

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Basic Concept

Sumitomo Corporation Group’s business activities largely depend on the wealth of Earth’s diverse living organisms as well as from the biodiversity that is generated by their many networks. Therefore, our Environmental Policy recognizes placing great importance on preserving the environment, including the natural ecosystem and biodiversity as an important issue for us. We make efforts to understand how our business activities that may have a significant impact on biodiversity depend on such biodiversity, as well as what kind of impact such activities have on biodiversity, in order to minimize their impact on ecosystems and contribute to ecosystem restoration.

In the process of reviewing new projects and monitoring existing projects, we also assess social and environmental risks including impact on ecosystems, and check the status of management and improvement.

Sumitomo Corporation Group Environmental Policy

DFF Inc.

Trial Disclosure Based on the TNFD Recommendations

Trial Disclosure Based on the TNFD Recommendations

Contents

Introduction

In June 2022, Sumitomo Corporation endorsed the philosophy of the Taskforce on Nature-related Financial Disclosures (TNFD)* and joined the TNFD Forum supporting TNFD activities. In January 2024, we also registered as a TNFD Early Adopter, of the recommended disclosures announced in September 2023, with the aim of reporting in line with the TNFD recommendations within FY2025.
We updated our material issues in May 2024 and added “Preserve and regenerate natural capital” with “Accelerate initiatives toward a nature-positive world by 2030” as its medium-term goal to again demonstrate our medium- to long-term commitment to natural capital.

  • The Taskforce on Nature-related Financial Disclosures (TNFD) is an international organization that has developed a framework for appropriate assessment and disclosure of risks and opportunities related to natural capital and biodiversity.

We also conducted a gap analysis based on the TNFD recommendations as a way of organizing our existing efforts concerning natural capital, accelerating our future efforts, and linking them to enhanced disclosures. Because we conduct business in a wide range of sectors and regions, the businesses and themes potentially subject to analysis of nature-related risks and opportunities are wide-ranging. Therefore, we identified the sectors with significant dependencies and impacts on natural capital and took a risk-based approach to exploring those sectors in depth to enable us to use the analysis in business operation and disclose useful information to stakeholders.

Here, we present the analysis as a trial disclosure ahead of our FY2025 report. The objective of this trial disclosure is to provide an interim report of the details, issues, and future outlook of our initiatives that can be used as a tool for dialogue with stakeholders and to further enhance our initiatives and disclosures. The trial disclosure is presented in the following order.

  • Outline of initiatives
  • Details of initiatives according to the four disclosure pillars of the TNFD recommendations
  • Issues and future outlook
  • Response to TNFD general requirements (Appendix)

TNFD’s recommended disclosure framework

Source: Recommendations of the Taskforce on Nature-related Financial Disclosures

Outline of initiatives

TNFD’s four pillars Main nature-related initiatives
Governance
  • The Board of Directors makes decisions concerning key management matters related to sustainability, including natural capital, and oversees the decision-making and business execution of the Management Council and Executive Officers.
  • The Management Council and Executive Officers make decisions and execute business concerning key management matters related to sustainability, including natural capital.
  • The Corporate Sustainability Committee is established as the advisory body of the Management Council.
  • The Sustainability Advisory Board is established as the advisory body of the Corporate Sustainability Committee, and sustainability-related advice and recommendations are obtained from outside experts.
  • Business operation is conducted according to the Environmental Policy, Policies on Climate Change Issues, and Sumitomo Corporation Group’s Human Rights Policy formulated through discussion by the Board of Directors and Management Council.
Strategy
  • “Preserve and regenerate natural capital” is added to our material issues updated in 2024.
  • Considerations for preserving the environment, including the natural ecosystem, and maintaining and preserving biodiversity are clarified in the Environmental Policy.
  • Individual measures are implemented for businesses that are traditionally considered as areas of high risk to natural capital (formulation of Forest Management Policy and Sourcing Policy for Forest Products, environmental impact assessments for development businesses, etc.).
  • Initiatives are implemented to create business opportunities through building of a circular economy and other measures.
Risk & impact management
  • When applying for new investment, the applying division prepares a social and environmental risk assessment sheet, which includes nature-related matters, and identifies anticipated risks and opportunities.
  • For existing businesses, high-dependency, high-impact sectors and related priority businesses, where the dependency and impact on natural capital is high, are identified and policies are developed for implementing initiatives in those sectors and businesses using a risk-based approach that prioritizes analysis and countermeasures.
Metrics & targets
  • “Accelerate initiatives toward a nature-positive world by 2030” is set as a medium-term goal. Each Strategic Business Unit (SBU)*1 sets related goals on a voluntary basis.
  • Conducting LEAP*2 analysis of priority businesses on an individual basis, and setting indicators and goals based on that analysis.
  1. SBU stands for Strategic Business Unit. A group of businesses that share the same strategies in the company.
  2. LEAP is TNFD’s suggested four stage process for identifying and assessing nature-related issues. It stands for Locate, Evaluate, Assess and Prepare.

Governance

Structure

The Sumitomo Corporation Group conducts risk and opportunity assessments, decision-making, and business execution and oversight under a governance structure of sustainability management. Please refer to Governance of Sustainability Management for the functions of the Board of Directors and the roles of our executives. The key management matters related to sustainability, and sustainability management measures, detailed on this page include natural capital-related topics.
We have established the Corporate Sustainability Committee that provides advice on sustainability measures and other matters to the Management Council, and the Sustainability Advisory Board comprised of outside experts that gives advice on sustainability, including natural capital, to the Corporate Sustainability Committee. Through this structure, advice is reflected in the decision-making of management on issues that are complex and require expertise. In FY2023, advice was obtained from the Sustainability Advisory Board on adding natural capital to our material issues and on enhancing related efforts.
We define various policies through discussion by the Board of Directors and Management Council, and operate businesses in line with those policies. They include natural capital initiatives such as helping to build a circular economy based on our Environmental Policy, carbon neutrality by 2050 initiatives for our own businesses and society based on our Policies on Climate Change Issues, and risk reduction initiatives such as engagement with diverse stakeholders (indigenous peoples, local communities, etc.) based on the Sumitomo Corporation Group’s Human Rights Policy and international standards*.
Please refer to the following pages for details of each initiative.

Environmental Policy and related initiatives
Policies on Climate Change Issues and related initiatives
Sumitomo Corporation Group’s Human Rights Policy and related initiatives

  • Including the International Bill of Human Rights, United Nations Guiding Principles on Business and Human Rights, Declaration on the Rights of Indigenous Peoples, and the principle of Free, Prior and Informed Consent (FPIC)

Strategy

We updated our material issues in May 2024 and added “Preserve and regenerate natural capital” to achieve sustainable growth through resolution of social issues, with consideration also given to the further aggravation of social issues such as climate change and the loss of biodiversity over recent years, the Group’s strengths, and expectations from stakeholders. To address the issue of “Preserve and regenerate natural capital,” we established the medium-term goal of “Accelerate initiatives toward a nature-positive world by 2030” and demonstrated our medium- to long-term commitment to natural capital. To achieve a nature-positive world by 2030, we recognize the importance of reflecting reduction of nature-related risks and seizure of nature-related opportunities in our strategies, while also taking advantage of existing initiatives.

In terms of risk reduction, our Environmental Policy gives full consideration to preserving the environment, including the natural ecosystem, and maintaining and preserving biodiversity. Following the Environmental Policy, we conduct environmental impact assessments, based on international standards and the laws and regulations of each country, of businesses that are traditionally considered as areas of high nature-related risk, including mining businesses, large-scale development businesses (power generation businesses, etc.) and forestry businesses. We also formulate individual policies if needed and manage suppliers through which implemented measures to mitigate individual impacts on natural capital of those businesses. For example, we have formulated our Forest Management Policy to define sustainable forest management practices in our forestry businesses, and our Sourcing Policy for Forest Products to set out our environmental and social commitments to forest products sourced by all our businesses, and we manage those businesses in line with the policies. (Please refer to our page on Sustainable use of natural Resources and Circular economy for details.)

As new measures to achieve a nature-positive world by 2030, we have also started to identify sectors that require a priority response due to their significant dependencies and impacts on natural capital, to identify our Group businesses conducted in those sectors, and to both understand and promote related initiatives. As the first step in this process, in FY2024, we analyzed the dependencies and impacts of our overall asset portfolio on natural capital and identified 20 high-dependency, high-impact sectors. (Please refer to the “Risk & impact management” section below for details.) The sectors include mining and forestry sectors which we have already implemented individual measures to mitigate impacts on natural capital. With that we were able to confirm the validity of our individual efforts to date.

As part of our efforts to seize opportunities, we are trying to develop businesses that goes beyond our traditional regions and business areas. In particular, we perceive the development of products, services, and schemes that encourage the shift toward a circular economy to offer significant business opportunities, with examples of specific initiatives including launching proof-of-concept trials to establish solar panel reuse and recycle businesses. In FY2023, we saw opportunities in the increasing momentum toward a nature-positive world, and we formed a company-wide working group of diverse members from business units and corporate group to work on creating nature-related businesses. With increasing demands and expectations on companies to implement nature-related initiatives, we also recognize that implementing the above risk-reduction measures may lead to business expansion through positive responses from suppliers and consumers. As we work to achieve internal penetration of the new material issues we established, we will also link those efforts to value creation by not only preserving natural capital, but also by pursuing regeneration and effective use.

We recognize that society as a whole is in the process of developing initiatives toward a nature-positive world, including the expected formulation and updating of international rules and indicators going forward. Therefore, we will work to accurately understand changes in the external environment, and update the above strategies or respond as necessary, while actively engaging in dialogue with investors and other stakeholders.

Risk & impact management

Structure for managing risks and impacts

The business activities that we conduct as a Group have connections with various social issues. To always reflect those social issues in our management decisions and business execution, we establish company-wide frameworks and policies to appropriately assess, manage, and address the social and environmental impacts of those businesses, and we work to ensure awareness and implementation within the Group. Please refer to Risk Management for details of our approach to social and environmental risks and our related management structure.

Management of nature-related risks and impacts of new businesses

In the review process for new investments, the SBU in charge of executing the investment prepares a social and environmental risk assessment sheet, and considers and confirms important measures for value creation and against value loss from relevant businesses. The assessment sheet contains eight main social and environmental sections focusing on things like impacts on human rights and local communities, environmental pollution and destruction of nature, and climate change risks. The impacts of the business activities of new businesses (companies in which we invest), together with those of their business partners, subcontractors, and direct suppliers, are then assessed and, if problems or issues are identified, we implement any necessary remedy while referring to international standards and criteria. Depending on the size and importance of the new business, the assessment results are used in discussions of the Company Investment Committee, which is an advisory body of the Management Council, and the Management Council, Board of Directors, and other bodies make decisions in light of those discussions.

Management of nature-related risks and impacts of existing businesses

Because of the diversity of existing businesses across our Group, each has different relationships with nature, including dependencies and impacts on natural capital, depending on the business sector or region in which they operate. We have implemented individual initiatives according to these business characteristics in the past, but due to the medium-term goal of “Accelerate initiatives toward a nature-positive world by 2030” that we established, we now believe it is also necessary to organize and consider measures for risks and impacts from a company-wide perspective. This is why we have launched new initiatives following a risk-based approach that takes a company-wide view of all Group businesses and supply chains, identifies businesses where the dependency and impact on natural capital is high, and prioritizes management and response.

Overview of initiatives that follow a risk-based approach

Progress in FY2024 (identification of high-dependency, high-impact sectors)

In FY2024, in accordance with advice received from experts, we analyzed general dependency and impact factors related to natural capital using the ENCORE* analysis tool used internationally, while referring to TNFD recommendations and other methods, and we identified 20 high-dependency, high-impact sectors from among the diverse sectors in which we operate Group businesses. Specifically, we assessed dependencies and impacts of each sector against the 33 dependency and impact categories related to natural capital that are specified in ENCORE, such as water use and soil quality, and we calculated dependencies and impacts on a four-level scale—very high (VH), high (H), medium (M), low (L)—based on the results. We then selected our high-dependency, high-impact sectors as those recording the highest VH level for either dependencies or impacts and those recording the second-highest H level for both dependencies and impacts.

  • ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure), jointly developed by a network of UN agencies and financial institutions (Natural Capital Finance Alliance), is a TNFD-recommended tool for visualizing dependencies and impacts on natural capital by sector. ENCORE does not account for geographical variations.

Selection of high-dependency, high-impact sectors through analysis of general dependency and impact factors related to natural capital

  • Selection is based on generally-available information and does not reflect information specific to businesses operated by the company.

We found that the natural capital-related dependencies were rated highly (level H or higher) in the majority of these 20 sectors, with Forest Products, Aquaculture, Livestock, and Agriculture sectors in particular rated at the VH level. As one example, large amounts of water are required for growing crops in the Agriculture sector, including when irrigating, so it has a high dependency on underground water, giving it a dependency at the highest VH level. In addition, the flood regulation function and soil erosion prevention function of vegetation are important for protecting and maintaining agricultural land, making the Agriculture sector highly dependent on vegetation.

Assessment of high-dependency, high-impact sectors against 21 dependency categories

* White cells denote no available ENCORE data.

On the other hand, we found that natural capital-related impacts were rated highly (level H or higher) in all of these 20 sectors, with Homebuilding Construction, Hydropower Production, and Mining sectors in particular rated at the VH level. As one example, the Mining sector has an impact at the highest VH level due to the potential for high impact on the terrestrial ecosystem by large-scale land changes during mine development, and the potential for depletion of water resources through large-scale use of water when processing ores, so impacts on the terrestrial ecosystem and water use are both high.

Assessment of high-dependency, high-impact sectors against 12 impact categories

* White cells denote no available ENCORE data.

According the results of these assessments, we will analyze Group businesses operated in our high-dependency, high-impact sectors and assess related risks and opportunities. We also recognize the need for future assessment of whether any of our high-dependency, high-impact sectors apply to the supply chains of our businesses, so we are currently considering how we will do that as well. While utilizing information on high-dependency, high-impact sectors identified through these assessments, we will identify priority supply chains to focus on by incorporating the unique perspectives of supply chains, such as businesses related to the High Impact Commodity List established by the Science Based Targets Network (SBTN)*, and we will consider a risk-based approach to these supply chains like we do with our Group businesses.

  • The Science Based Targets Network (SBTN) is a framework being developed to encourage companies and cities to set science-based nature-related targets. The network publishes a list of high-impact commodities comprising around 40 raw materials with high impacts on nature.

Metrics & targets

We have established the medium-term goal of “Accelerate initiatives toward a nature-positive world by 2030” and our SBUs sets related goals on a voluntary basis. Please refer to [Reference] Key Social Issues and Medium- and Long-term Goals for details on these goals. To further these efforts, we are considering how to clarify the definition of achieving nature-positive for the company. Utilizing the assessment result of the dependencies and impacts on natural capital as described in our risk and impact management, we will consider the necessity and effectiveness of company-wide indicators and goals which will lead to clarifying the definition of nature-positive for the company.

In line with the risk-based approach, we will also consider disclosure of core global metrics and core sector metrics, as recommended by the TNFD, for priority businesses and priority supply chains identified in the future. For priority businesses, we plan to conduct individual LEAP analysis of each business and then set indicators and goals based on the actual situation of the business and the natural capital characteristics around the areas.

For the Forest Products sector, which is one of our high-dependency, high-impact sectors, we conducted a trial analysis of our forestry business in New Zealand according to the LEAP approach to identify dependencies, impacts, risks, and opportunities related to natural capital, and we established indicators and goals for future initiatives. (Please refer to LEAP Analysis of New Zealand Forestry Business for details.

Issues and future outlook

Since participating in the TNFD Forum in 2022, we have been increasing our understanding of the relationship between our business activities and natural capital, and the initiatives needed, by conducting individual LEAP analysis of some of our businesses and organizing information for this trial disclosure. On the other hand, we need to continue discussions on natural capital initiatives that contribute to value creation, and on the appropriate form of information disclosure.
Taking our initiatives to date into account, we currently recognize the following as our main issues.

  1. We need to clarify the definition of achieving nature-positive for the company. It is preferable that this definition takes into account both reduction of risks and seizure of opportunities. However, there are no comprehensive indicators that apply to natural capital, in the way that greenhouse gas emissions apply to climate change, and regional dependencies on natural capital are high. As an integrated trading company conducting business in a wide range of sectors and regions, we need to consider these issues, including the need for a company-wide definition of nature-positive and related goals.
  2. To achieve the nature-positive defined in (1) above, we need to consider the effectiveness, necessity, and methods of reflecting existing business monitoring and new investment decisions in company-wide strategies. The following are the main points to consider.
    • Existing businesses: Identification of businesses with high dependencies and impacts on natural capital, and enhancement of initiatives in directly-operated businesses, and in upstream and downstream supply chains. Also, a risk management structure that integrates initiatives in each business with company-wide strategic considerations.
    • New investment projects: Necessity of the additional assessment process that exceeds the level of previously conducted environmental impact assessments based on laws, regulations, and international standards.
    • Method of assessing the financial impacts of risks and opportunities related to natural capital.

Lastly, the following table describes the future outlook of previously detailed issues for each of TNFD’s four disclosure pillars. We will use this trial disclosure to engage in active dialogue with stakeholders, drive initiatives to preserve and regenerate natural capital, and enhance actual reporting in line with the TNFD recommendations in FY2025.

TNFD’s four pillars Future Outlook Corresponding TNFD recommendations
Governance
  • Enhancement of structures for regularly reporting the results of assessments of nature-related risks and opportunities in our businesses to the Board of Directors and Management Council, and for utilizing the results in management decisions.
  • A. Oversight by the Board of Directors
  • Further enhancement of engagement with Indigenous Peoples and Local Communities (IPLCs) and consideration of ways to utilize that engagement.
  • C. Stakeholder-related human rights policies and engagement activities
Strategy
  • Visualization of such things as material nature-related dependencies, impacts, risks, opportunities, and priority regions of our Group businesses. Consideration of building mechanisms for reflecting this in strategies.
  • A. Description of dependencies, impacts, risks, and opportunities
  • B. Impact on the organization’s business model and strategies, etc.
  • C. Scenario-based analysis of resilience of the organization’s strategies
  • D. Disclosure of priority regions
  • Analysis of supply chains and visualization of such things as material nature-related dependencies, impacts, risks, opportunities, and priority regions. Consideration of building mechanisms for reflecting this in strategies.
  • A. Description of dependencies, impacts, risks, and opportunities
  • B. Impact on the organization’s business model and strategies, etc.
  • C. Scenario-based analysis of resilience of the organization’s strategies
  • D. Disclosure of priority regions
  • A(ii) [Risk & impact management] Assessment of dependencies, impacts, risks, and opportunities in value chains
Risk & impact management
  • Consideration of the necessity of a company-wide monitoring structure for priority businesses in high-dependency, high-impact sectors.
  • B. The organization’s processes related to dependencies, impacts, risks, and opportunities
  • Consideration of methods, taking a risk-based approach, for effective assessment of nature-related risks in value chains, and implementation of pilot assessments.
  • A(ii) Assessment of dependencies, impacts, risks, and opportunities in value chains
  • A. Description of dependencies, impacts, risks, and opportunities
  • D. Disclosure of priority regions
  • Consideration of assessment and response methods for contributing to a nature-positive world at the new business consideration stage.
  • A(i) Assessment of dependencies, impacts, risks, and opportunities in direct operations
  • A. Description of dependencies, impacts, risks, and opportunities
  • Consideration of integrated risk assessment and management, including other social and environmental risks.
  • C. Integration of the organization’s overall risk management processes
Metrics & targets
  • Consideration of clarifying our definition of a nature-positive world.
  • C. Targets, goals, and performance of the organization
  • Consideration of necessity and effectiveness, and formulation, of company-wide metrics and goals.
  • A. Metrics for material risks and opportunities
  • B. Metrics for dependencies and impacts
  • B. [Governance] Role of management
  • Consideration of disclosure of core global metrics and core sector metrics for priority businesses, establishment of goals where necessary, and monitoring of performance against the goals.
  • C. Targets, goals, and performance of the organization

Appendix: Response to TNFD general requirements

Our response to the six general requirements in the TNFD guidance for this trial disclosure is detailed below.

  1. Application of materiality
    We take a double materiality* approach whereby we consider not only dependencies of our Group on natural capital, but our impacts on natural capital as well.
  2. Scope of disclosures
    We recognize the need to not only disclose information about our Group businesses, but about our supply chains as well. We start by analyzing our Group businesses, and we describe our approach to analyzing the supply chains as part of the future outlook.
  3. Location
    We take a risk-based approach to identifying sectors with high dependency and high impact on natural capital, and related priority businesses. Going forward, we will individually analyze our priority businesses in light of their location information.
  4. Integration with other sustainability-related issues
    We describe how we recognize the issue of considering integrated risk assessment and management, including not only environmental risks, but social risks as well.
  5. Time horizons
    We describe time horizons holistically, including initiatives to date.
  6. Stakeholder engagement
    In line with our Environmental Policy and Sumitomo Corporation Group’s Human Rights Policy, we have traditionally conducted stakeholder engagement, including with Indigenous Peoples and Local Communities, for individual businesses. We intend to actively engage in dialogue with investors and other stakeholders about initiatives and disclosure content.
  • Double materiality is the approach of applying equal emphasis to the risks and opportunities that environmental and social issues have on corporate activities and business models, and to the impacts that corporate activities and business models have on the environment and society.

LEAP Analysis of New Zealand Forestry Business

In anticipation of the final recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD), we conducted a trial LEAP analysis of our forestry business in New Zealand (NZ) in FY2023, based on the TNFD’s Beta v0.4 framework. The purpose was to understand the TNFD framework and contribute to updating the standard. We also provided the insights gained from this analysis to the TNFD.

In FY2024, we identified 20 high-dependency, high-impact sectors through analysis of general dependency and impact factors related to natural capital. The forestry sector was among those sectors, confirming the validity of selecting the NZ forestry business for the trial analysis in 2023. Moving forward, as we identify priority businesses and conduct individual analyses, we will utilize insights from the NZ forestry business trial analysis.

Although this trial analysis was based on the TNFD’s Beta v0.4 as of September 2023, we have confirmed that the final recommendations published later did not change the recommended content of the LEAP analysis.

Details of Our Trial Analysis

We conducted our trial analysis in line with procedures of the LEAP analysis, which is a technique recommended by the TNFD. This time, we conducted an in-depth analysis of our forestry business in New Zealand, with separate analysis of the characteristics of each of the four sites where we do business in the country.

Procedures of the LEAP analysis

Identifying a Business Case for a Trial Analysis

Using the ENCORE analysis tool recommended by the TNFD, we conducted a primary screening of each of our business divisions and confirmed that businesses related to metal resources refining, oil drilling, agricultural products, real estate, and forestry have the highest risk scores. In addition, the TNFD beta framework has categorized Renewable Resources and Alternative Energy, including forest management and biofuel-related businesses, as a priority sector that is more likely to be financially impacted. Based on these findings, we determined that the upstream supply chain, which includes material procurement, is an area of high nature-related dependencies, impacts, and risks. Therefore, we decided to conduct this trial analysis on Summit Forests New Zealand (SFNZ), our forestry company in New Zealand.

Company details

Company Name Summit Forests New Zealand Ltd. SUMMIT FORESTS
Year of founding 2013
Business Description Management of owned forests and sale of timber harvested by the company or others to domestic lumber mills or export thereof
Capital 137million NZD(approx. ¥10.2billion) /
Ownership: 100%
Offices Auckland, Kaitaia, Gisborne, Coromandel
Harvestable area 50,000hectares (Main species under cultivation: Radiata pine)

Confirming Nature-related Dependencies and Impacts of Forestry Business in General

As part of our analysis of the forestry business, we started by using the TNFD-recommended ENCORE analysis tool, academic papers, and other methods to confirm dependencies and impacts associated with a typical forestry business, and we found that this business is dependent on climate and soil.

We also learned that the forestry business in New Zealand is particularly dependent on a “stable climate” and “soil suitability.” On the other hand, when looking at the impact that this business has on nature, we found that excessive harvesting and excessive use of chemicals in this business carries risks for ecological destruction of the surrounding environment, and therefore we organized these risks into “cultivation and harvesting” and “fertilizers and pesticides.”

Possible natural capital-related dependencies and impacts of a typical forestry business in New Zealand
Possible natural capital-related dependencies and impacts of a typical forestry business in New Zealand

Identifying Nature-related Risks for SFNZ and Evaluating their Materiality

1) Business Risks Related to Nature

We identified 9 associated risks as a result of applying the impact drivers, state of nature, and ecosystem services, indicated by the TNFD beta framework, to SFNZ’s forest operation. We also referenced the forestry business risks illustrated by the World Business Council for Sustainable Development (WBCSD).

Example: Risk analysis of impacts on threatened species
Example: Risk analysis of impacts on threatened species, with SFNZ-owned forest areas (left) and biodiversity hotspots (right) (Tool: IBAT)
Business Risks Related to Nature

2) Analysis of Each Business Site and Identification of Material Business Risks

Using IBAT and other tools recommended by the TNFD, we conducted a risk analysis of the nine business risks that we identified in each of the four areas where SFNZ operates in New Zealand, and then applied a qualitative matrix evaluation to each of them along two axes—degree of impact on business (financial and legal perspectives), and likelihood of impact occurring (relevance of business and risks). As a result, we identified four material business risks for SFNZ’s business. They are “Risks related to harvesting and development,” “Risks related to natural disasters,” “Risks related to impacts on threatened species,” and “Risks related to infringement of the rights of indigenous peoples.”

Nature-related Material Risks Identified in SFNZ’s Forestry Business

Identifying Nature-related Business Opportunities for SFNZ and Evaluating their Materiality

1) Business Opportunities Related to Nature

Using the same approach as when identifying business risks, we applied the sub-categories, detailed in the TNFD beta framework, to the forestry business and identified six business opportunities.

2) Identification of Material Business Opportunities

We applied a qualitative matrix evaluation to each of the business opportunities that we identified along two axes—degree of impact on business (financial and legal perspectives), and likelihood of impact occurring (relevance of business and risks). As a result, we identified three material business opportunities for SFNZ’s business. They are “Shift in timber-related markets (CO2 absorption credits)”, “Improvement of timber productivity” and “Shift in awareness towards timber.”

Identifying Nature-related Business Opportunities for SFNZ and Evaluating their Materiality

Examining Metrics and Targets

Based on the material risks and opportunities that we identified, we examined metrics and targets for SFNZ’s business operation. As a result, we set targets for future business operations and illustrated examples of typical business opportunities.

Business Targets Related to Material Risks

For SFNZ’s business risks that we considered to be particularly high risk for the company, with a high likelihood of occurring and a high degree of impact on business, we established specific business targets based on the Kunming-Montreal Global Biodiversity Framework (GBF) and in light of initiatives in SFNZ’s Forest Management Plan. The company is already implementing many initiatives that contribute to achieving these targets and will continue the efforts.

Risks Reference GBF Indicators Targets Initiatives already underway and contributing to achieving the targets
Business-related Material Risks Infringement of the rights of indigenous peoples Target 22
  • Develop and implement management processes that take the rights of indigenous peoples into account
  • Conduct extensive business partnerships with indigenous peoples
  • Create employment opportunities and conduct vocational training for local communities
  • Implement measures to support landowners become sustainable forest managers
Impacts on threatened species Target 4
  • Implement initiatives to prevent species extinction and to dramatically reduce extinction risk
  • Develop operational guidelines for the protection of threatened species and identify rare and threatened species that could be found in the forest areas
  • Develop and share operational guidelines in the event of an employee discovering threatened species
  • Manage actions to maintain and restore the genetic diversity of native species
  • Conduct ecological surveys to monitor kiwi bird populations
  • Conserve rare animals and plant species and implement bio-controls in cooperation with nature protection authorities
Harvesting and development Target 1
  • Develop and implement management processes that respect the rights of indigenous peoples and local communities
  • Develop measures with local community representatives to mitigate impacts of harvesting plans on biodiversity
Natural disasters Target 11
  • Develop measures to reduce river, flood, and fire risks
  • Participate in and advocate for development and amendment of rules related to operating forestry businesses with a focus on river and flood risk measures led by New Zealand authorities
  • Develop plans for fire prevention
  • Maintain firebreaks

Material Business Opportunities

For SFNZ’s business opportunities that we consider to be particularly material for the company, with a high likelihood of occurring and a high degree of impact on business, we recognized the following potential business opportunities.

Potential business opportunities (examples)

Shift in timber-related markets (CO2 absorption credits)

Official participation in the New Zealand Emissions Trading Scheme (NZ ETS)

It is said that obtaining and selling credits for the CO2 absorption value of existing forest resources not only creates a new source of revenue, but also contributes to climate change measures and biodiversity conservation.

We are forecasting an expansion of this new source of revenue by leveraging the absorption capacity of the 66,000 hectares of forest area owned by SFNZ to participate in the NZ ETS.

Shift in awareness towards timber

Maintaining and promoting FSC certification

In New Zealand, the government has established strict controls on forest management, and a government-led legal guarantee system is also being developed. Furthermore, the entire country is currently acquiring and promoting FSC certification.

Large portions of forest area owned by SFNZ already have FSC certification, hence it is possible that a shift in social and consumer awareness will increase demand for certified timber and contribute to growth of revenues.

Improvement of timber productivity

Digitalization and smartification in forest operations

Using IoT in the forestry business can help to appropriately understand the state of a forest’s health, which leads to stable production of high quality timber.

We are using a geographical information system (GIS) to understand the topography of the 66,000 hectares of forest area owned and managed by SFNZ, but adoption of technologies such as laser measurement of our forest resources may lead to growth of revenues.

Insight Earned from the Trial Analysis (Feedback submitted to the TNFD in February 2023)

In light of the processes and results of our trial analysis, we provided the following feedback to the TNFD to improve the usefulness of information provided to investors through TNFD framework-based disclosures.

  1. Due to lack a of normative scenarios, it is difficult for a company to set and disclose its own scenarios for each of its businesses.
  2. As identifying priority areas for a conglomerate company which operates in various sectors is a challenge, a specific LEAP analysis guidance for such companies would be desirable.
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Ambatovy Project Targeting “No Net Loss, Net Gain”

The Ambatovy Project in the Republic of Madagascar, which is one of the largest mine development projects in the world, began development in 2007 to expand the supply of nickel, cobalt and other metals. Establishing the environmental target of “no net loss, net gain,” it is conducting a unique biodiversity program.

In the Ambatovy Project, many new facilities, such as mining sites, refinery plants and pipelines, need to be constructed and operated, which poses substantial impacts on the surrounding environment. Particularly in Madagascar, there remains a globally precious natural environment where as many as 1,000 species of endangered animals are living. Giving careful consideration to these natural habitats in developing and operating the project, the biodiversity program accounts for the impact on every site. In developing and implementing plans for the project, special emphasis is placed on environmental management in compliance with not only Madagascar national laws but also various guidelines, such as the World Bank safeguard policy, the International Financial Corporation's (IFC) Performance Standards, the World Health Organization (WHO) standards, and the Equator Principles. In line with the ISO 14001 standard, we are also managing according to the Ambatovy Environmental Management System (EMS).

Under the Ambatovy EMS, we identified a number of priority areas, including flora and fauna habitats and marine ecosystems, and when developing, operating, and closing mines, we formulate management plans for business-related sites, such as plants and port facilities, and work according to those plans. For example, in developing the mining area, we created a buffer zone around the mining site of about 1,600 ha to ensure protection of wild animals. When trees are cut down to develop the mine site, felled trees are left on site for a while so that animals inhabiting these trees can move into the buffer zone. We also conduct ecosystem surveys jointly with international environmental NGOs. If endangered or other species that need to be protected are identified in such a survey, we adopt various programs designed to reduce impacts on ecosystems, for example, relocation of such species to a sanctuary and use of a fish farming system.

Furthermore, as part of this biodiversity program, we are collaborating with governments, local communities, and conservation and development NGOs to apply the IFC and BBOP standards while also promoting a large-scale biodiversity offset program. This is an approach to mitigate impacts of the development on ecosystems by restoring or creating another ecosystem. Specific measures include the conservation of a forest area of about 4,900 ha in the Ankerana area, which has an ecosystem similar to that of the development site of the project. In an attempt to offset the net loss of biodiversity, we have implemented measures to protect four conservation areas of almost 14,000 ha in total, equivalent to about nine times the affected areas, such as protection of areas near the mine site, tree replanting after the installation of pipelines, and tree replanting on the mine site after the closure of the mine. For this biodiversity program and its offsets, we are taking a comprehensive approach that controls not only the impact of businesses, but impacts received prior to them as well.

Ambatovy Sustainability Report2022

Survey and conservation of endangered plants
Survey and conservation of endangered plants
Coquerel's Sifaka (Propithecus coquereli), endangered species
Coquerel's Sifaka (Propithecus coquereli), endangered species
Reforestation after logging
Reforestation after logging
Diademed sifaka (Propithecus diadema), critically endangered species
Diademed sifaka (Propithecus diadema), critically endangered species
DFF Inc.

BBOP participating through the Ambatovy Project(Business and Biodiversity Offsets Program)

Business and Biodiversity Offsets Program (BBOP) is an initiative to prepare international standards regarding biodiversity offsets, participated in by companies, governments, NGOs and other specialists. The BBOP initiative ended successfully and is now recognized as an international standard for biodiversity offsets that is also referred to by the Convention on Biological Diversity. The Ambatovy Project in Madagascar continues to comply with this standard while maintaining a balance between conserving biodiversity and the lives of local residents.

BBOP Principles on Biodiversity Offsets

1 Adherence to the mitigation hierarchy: A biodiversity offset is a commitment to compensate for significant residual adverse impacts on biodiversity identified after appropriate avoidance, minimization and on-site rehabilitation measures have been taken according to the mitigation hierarchy.
2 Limits to what can be offset: There are situations where residual impacts cannot be fully compensated for by a biodiversity offset because of the irreplaceability or vulnerability of the biodiversity affected.
3 Landscape Context: A biodiversity offset should be designed and implemented in a landscape context to achieve the expected measurable conservation outcomes taking into account available information on the full range of biological, social and cultural values of biodiversity and supporting an ecosystem approach.
4 No net loss: A biodiversity offset should be designed and implemented to achieve in situ, measurable conservation outcomes that can reasonably be expected to result in no net loss and preferably a net gain of biodiversity.
5 Additional conservation outcomes: A biodiversity offset should achieve conservation outcomes above and beyond results that would have occurred if the offset had not taken place. Offset design and implementation should avoid displacing activities harmful to biodiversity to other locations.
6 Stakeholder participation: In areas affected by the project and by the biodiversity offset, the effective participation of stakeholders should be ensured in decision-making about biodiversity offsets, including their evaluation, selection, design, implementation and monitoring.
7 Equity: A biodiversity offset should be designed and implemented in an equitable manner, which means the sharing among stakeholders of the rights and responsibilities, risks and rewards associated with a project and offset in a fair and balanced way, respecting legal and customary arrangements. Special consideration should be given to respecting both internationally and nationally recognised rights of indigenous peoples and local communities.
8 Long-term outcomes: The design and implementation of a biodiversity offset should be based on an adaptive management approach, incorporating monitoring and evaluation, with the objective of securing outcomes that last at least as long as the project’s impacts and preferably in perpetuity.
9 Transparency: The design and implementation of a biodiversity offset, and communication of its results to the public, should be undertaken in a transparent and timely manner.
10 Science and traditional knowledge: The design and implementation of a biodiversity offset should be a documented process informed by sound science, including an appropriate consideration of traditional knowledge.
DFF Inc.

Bird-strike Prevention in Wind Power Generation

Dorper Wind Farm generates electricity using wind in a mountainous area of about 130 km2 in Eastern Cape, South Africa. In the Doper wind power generation project, measures to prevent bird strikes are implemented.

Windmills are installed in pastures and bird strikes are caused by birds that flock to feed on the carcasses of livestock and other animals. We therefore ensure to remove animal carcasses found in the power plant.

We also hire local residents to visually confirm if there is any endangered bird species circling around the windmills and, if detected, to send an emergency notice to stop the operation of the windmills. It is our aim to achieve a harmonious balance between wild animal conservation and wind power generation business.

Dorper Wind Farm Pty Ltd. in South Africa
Dorper Wind Farm Pty Ltd. in South Africa
DFF Inc.

Bird Friendly® Coffee

Sumitomo Corporation Group has imported and supplied Bird Friendly®-certified coffee (BF®-certified coffee) since 2004 as part of our biodiversity-friendly activities, which ensures a stable income for farmers. Since FY2014, SC Foods Co., Ltd. started dealing in BF®-certified coffee. BF®-certified coffee is grown under the shade of natural forest trees to conserve the environment and provide migratory birds a place to rest. The BF certification was created by the Smithsonian Migratory Bird Center (SMBC). As of June 2024, 48 farms and agricultural cooperation in 11 countries*1 are certified and part of the proceeds are used for SMBC's research, surveys and conservation activities.

Bird Friendly® Coffee

In 2019, this project was recognized by the Japan Committee of the International Union for Conservation of Nature and Natural Resources (IUCN) as a cooperative project authorized by the Japan Committee for the United Nations Decade on Biodiversity (UNDB-J)*2. This authorization means that the project is an important activity to conserve biodiversity as well as an activity that has achieved results toward meeting the Aichi Biodiversity Targets*3. We will continue our efforts to contribute to protecting migratory birds and ecosystems through this project.

  1. 11 countries: Ethiopia, Peru, El Salvador, Columbia, Guatemala, Nicaragua, Bolivia, Honduras, India, Mexico, Venezuela
  2. The committee was established in September 2011 to encourage the participation and cooperation of all sectors in Japan to promote efforts to conserve biodiversity and ensure its sustainable use.
  3. New international targets to conserve biodiversity, which were adopted by the 10th Conference of Parties (COP10)
This project has been recognized as a project recommended by the Japan Committee for the United Nations Decade on Biodiversity (UNDB-J).
BF® certified farm in Honduras
BF® certified farm in El Salvador
Harvest of BF® certified farm in Guatemala
DFF Inc.