Fundamental Approach

AGC Group regards climate change as a critical determinant of both corporate value and business strategy, and proactively addresses it from the perspectives of both risk and opportunity. Recognizing the profound impact of global environmental change on society, we believe it is essential to contribute through both technological innovation and our business activities. Under our medium-term management plan, AGC plus-2026, we aim to help realize a sustainable society by advancing three core social values: “Blue planet,” “Innovation,” and “Well-being.” In particular, under “Blue planet,” we are advancing climate action and the efficient use of resources, striving to balance environmental impact reduction with business growth.

• Governance
• Strategy
• Risk Management
• Metrics and Targets

Governance

AGC Group recognizes environmental issues, including climate change, as management priorities and has established a governance structure centered on the Board of Directors. In addition, the Sustainability Committee, chaired by the CEO, regularly reviews and evaluates climate-related risks and opportunities. Furthermore, through the Environmental Response Meeting, which oversees operational execution, we promote both risk management and value creation. This governance framework enables us to achieve sustainable growth while ensuring accountability.

Governance and oversight centered on the Board of Directors

AGC Group positions climate change as a material issue affecting corporate value and has established an oversight framework centered on the Board of Directors. Climate-related assessments and policies are reported twice a year and reviewed in connection with strategic decision-making. The outcomes of committee and meeting deliberations are reflected in management decisions, helping to translate climate action into a source of competitive advantage.

Role of senior management and executive bodies

• Sustainability Committee
  The Sustainability Committee is the highest decision-making body responsible for addressing climate-related risks and opportunities. Chaired by the CEO, the committee meets four times a year and is attended by the CFO, CTO, Audit & Supervisory Board members, and heads of key business divisions. The committee deliberates on policies and targets, monitors progress, and conducts scenario analysis. It reports to the Board of Directors at least twice a year, serving as a bridge between management and environmental strategy.
• Environmental Response Meeting
  The Environmental Response Meeting is an operational body responsible for analyzing environmental issues and implementing initiatives, in line with the direction set by the Sustainability Committee. Led by the responsible executive, the meeting involves participation from both business units and corporate functions. Through eight meetings per year and thematic projects, it advances risk responses and provides recommendations to senior management as needed.

Indicators for evaluating executive compensation

Under AGC plus-2026, which aims to advance sustainability-driven management, Scope 1 and 2 emissions intensity (per unit of sales) has been incorporated as a performance metric for determining stock-based compensation for directors and executive officers, including the CEO. This indicator is incorporated into the compensation system alongside financial KPIs such as ROE, EBITDA, and relative TSR, strengthening incentives for management to work toward improving sustainable corporate value, including climate change response.

Strategy

To assess the short-, medium-, and long-term impacts of climate change on its business, the AGC Group conducts both quantitative and qualitative analyses of transition risks—such as carbon pricing and regulatory tightening—and physical risks—such as extreme weather events and rising temperatures. These assessments are based on multiple climate scenarios, including the Net Zero Emissions by 2050 Scenario (the NZE Scenario, which aims to limit temperature rise to 1.5°C above pre-industrial levels), the Announced Pledges Scenario (reflecting national climate commitments), and the RCP8.5 Scenario (projecting a temperature increase of around 4°C).

Risks

• Transition risks
  In assessing transition risks, the AGC Group analyzed the potential socioeconomic impacts based on the NZE Scenario. Under this scenario, we estimated the potential impacts of fluctuations in carbon pricing, energy, and raw material costs, and assessed how strengthened decarbonization regulations and the expansion of low-carbon product markets could affect our business. We also evaluate how the transition to a decarbonized society—driven by advances in low-carbon technologies and shifting market dynamics—may generate new growth opportunities through the expanding demand for GHG reduction technologies and solutions that help minimize environmental impact.
• Physical risks
  The AGC Group assesses a range of physical climate-related risks—including water risks such as floods, storm surges, and droughts; natural disasters such as heavy rainfall, typhoons, and lightning; and the business impacts of rising temperatures. These risks may lead to operational shutdowns or disruption in logistics, potentially resulting in lower sales and an increased cost for implementing countermeasure. For medium- to long-term risks, we conducted an in-depth assessment using scenario analysis. Based on the RCP8.5 scenario—which projects approximately 4°C of warming above pre-industrial levels—we analyzed the potential impacts of physical disasters on our manufacturing sites.

Impact on Business, Strategy, and Financial Planning

Transition risks

Policy and Regulatory Risks: Rising business costs and adaptation burdens from strengthened carbon regulations

The AGC Group assesses the impact of carbon pricing policies across different countries and regions. If Scope 1 and 2 GHG emissions remain at current levels, rising carbon prices by 2030 could result in up to 1 billion USD (approximately 150 billion yen) in additional annual costs. This estimate is based on AGC Groupʼs 2023 GHG emissions and incorporates projected policy trends and carbon pricing forecasts in major markets—such as a carbon price exceeding 100 Euro per ton of CO₂ under the EU ETS by 2030.

Technology: Shifts in competitive advantage and rising adaptation costs driven by advances in low-carbon technologies

As markets shift toward decarbonization, companies are under growing pressure to reduce GHG emissions, heightening the risk of increased capital expenditures and rising operational costs. We have identified the rising costs associated with energy transition and the adoption of low-carbon technologies as factors impacting the entire Group. This includes higher direct costs for fossil fuel alternatives, increased capital expenditures for low-carbon technology development, and rising implementation costs for renewable energy and energy-efficient technologies.

Reputation: Stakeholder Perception and Litigation Risk

Disclosing climate-related information may entail the risk of stakeholder complaints stemming from differences in interpretation, as well as the associated burden of responding to them. We also recognize the potential litigation risk from investors and other stakeholders should the AGC Groupʼs response to climate change be deemed insufficient. In particular, we carefully assess the disclosure of climate-related risks in our securities reports, as there is a risk that statements regarding their impact on financial results and business operations could be misinterpreted.

Market: Shifts in demand resulting from climate change mitigation and adaptation efforts

As climate change measures progress across society, demand is expected to shift—expanding markets for low-carbon products and renewable energy, while shrinking demand for conventional high-carbon products. In addition, customers’ decarbonization strategies and the tightening of environmental regulations may shift product selection criteria, intensifying market competition. Furthermore, there are concerns that rising transaction costs for products and raw materials with high carbon footprints, as well as reduced competitiveness in markets subject to carbon regulations, may negatively affect business performance. Given the potential impact of these factors on the AGC Groupʼs revenue and profit, we are actively assessing market risks and implementing appropriate countermeasures.

Acute Physical Risks

The AGC Group recognizes physical risks from floods, storm surges, and droughts as long-term management challenges. These risks are particularly concentrated in the Asian region, where we anticipate the following financial impacts.

We also consider physical risks in the supply chain to be a critical issue. Specifically, some raw materials rely on geographically concentrated resources, and depending on the location of our sites, transportation constraints can result in longer lead times. We also source from suppliers located in regions exposed to water-related risks. In addition, certain procurement items require consideration of geopolitical risks such as conflicts, which we recognize as factors that may increase supply chain vulnerability.

Chronic Physical Risks

The AGC Group recognizes that chronic physical risks such as rising temperatures, changes in precipitation patterns, and challenges in securing water resources may affect the manufacturing processes and raw material procurement in our glass and chemicals businesses. However, we believe these risks can be effectively managed through appropriate measures, allowing us to maintain stable business operations.

Opportunities

The AGC Group expects business opportunities to grow even under a NZE scenario. Leveraging market forecasts from trusted third-party institutions, we analyze shifts in product markets and incorporate these insights into our business planning. Under the NZE scenario, the decarbonization market is expected to expand at an accelerated pace. For example, the renovation ratio is projected to double, while the cumulative installed capacity of water electrolysis equipment is expected to surge from 5.2 GW to 558 GW. Furthermore, the market size of low-GWP refrigerants is expected to grow to 2.2 times its current size by 2030, and EV sales also expected to increase by 3.2 times. These trends will accelerate the adoption of next-generation low-carbon technologies across the construction, automotive, and chemical sectors, thereby strengthening the AGC Groupʼs product competitiveness. In addition, in anticipation of stricter regulations, we are accelerating the development of decarbonization-related products to strengthen regulatory alignment and translate emerging market opportunities into business growth.

Resilience of Scenario-Based Strategies

The AGC Group is enhancing the resilience of its business strategies to ensure sustainable growth across a range of climate scenarios. To address both transition and physical risks while maintaining business competitiveness and financial stability, we are advancing the following strategic initiatives.

Risk Management

The AGC Group considers climate-related risks to be an important management issue and evaluates and responds to them under an integrated management structure. We utilize scenario analysis to supervise and manage at the senior management level, and continuously improve by running a PDCA cycle. The AGC Group identifies and assesses climate-related risks from short-, medium-, and long-term perspectives based on the AGC Group Risk Management Implementation Rules. Environmental, risk management, and business divisions collaborate to assessthe likelihood of occurrence and impact throughout the supply and value chain.

Risk management process

Climate-related risks are assessed in terms of both transition and physical risk perspectives. Regarding transition risks, we refer to the SBTiʼs emissions reduction standards and analyze them using scenarios that take into account each country's carbon pricing policies and regulatory trends. We are measuring the magnitude of risk by quantitatively assessing the impact on business costs by assuming changes in carbon prices in 2030 and 2050. We also employ external market data and energy price simulations to examine the impact of the diffusion of low-carbon technologies on each project. In assessing physical risks, we use the RCP8.5 scenario to analyze risks such as floods, storm surges, and droughts for each of our business sites. We qualitatively assess the level of risk on a five-point scale and, for floods and storm surges in particular, estimate the risk of flooding in 2050 based on facility location information and data from Aqueduct Floods*. We then quantify the financial impact by taking into account the number of days of business suspension in the event of a disaster. Based on these risk assessments, we are reviewing our product portfolio and moving ahead with the deployment of renewable energy to address material transition risks. For physical risks, we are considering risk reduction and transfer measures such as reviewing suppliers and production sites, updating business continuity plans (BCP), and utilizing insurance. The evaluation results are reviewed annually, and the evaluation methods and scope are expanded as necessary. The results of risk identification and analysis are deliberated by the Sustainability Committee, reported to the Management Committee, and reflected in decision-making. Each business division conducts risk assessments at each site and implements continuous monitoring under an integrated risk management framework. * Aqueduct Floods: A database of flood and storm surge inundation depths under current and future climate conditions provided by the World Resources Institute (WRI)

Integration into company-wide risk management

Under its integrated risk management framework, the AGC Group assesses climate change-related risks every three years and identifies major risk factors. Identified risks are supervised and deliberated by the Management Committee and the Board of Directors in accordance with the AGC Group Enterprise Risk Management Basic Policies, and are addressed on a company-wide basis. In addition, based on the AGC Group Risk Management Implementation Rules, the corporate divisions, in-house companies, and strategic business units (SBUs) formulate and implement management plans for important environmental risks. Each organization conducts a self-assessment of its risk management level at the end of the fiscal year, and senior management monitors the results to establish a PDCA (Plan-Do-Check-Act) cycle and promote continuous improvement. In addition, the Internal Audit Division conducts independent monitoring and regularly verifies the appropriateness of the risk assessment process and the status of risk management. This ensures transparency and effectiveness in our risk management. Furthermore, we update our risk assessment tools and review assessment results annually toimprove the accuracy of risk assessments.

Metrics and Targets

With the launch of AGC plus-2026, which aims to deepen of sustainability management, the AGC Group has set new sustainability KPIs, including addressing climate change, and is strengthening strategic progress management. As risk and opportunity assessment indicators, we manage GHG emission reduction targets, which we have been working on, and growth indicators for products that contribute to the environment and energy fields, and reflect them in management decision-making.

Risks and opportunity indicators

Risks

The AGC Group manages Scope 1, 2, and 3 GHG emissions as KPIs and is promoting initiatives to realize a decarbonized society. Our 2030 GHG emissions reduction targets have received certification by SBTi as Science Based Targets (SBT) of “Well Below 2°C (WB2°C).”

Scope 1 and 2
　The AGC Group aims to achieve carbon net-zero*1 by 2050, with a milestone of a 30% reduction in GHG emissions by 2030 compared to 2019. *2
　In addition, the AGC Group has set a target to reduce Scope 1 and 2 GHG emissions per unit of net sales by 50% by 2030 compared to 2019 levels, as part of our efforts to realize sustainable business operations.
*1 Scope 1 + 2 *2 The electricity emission coefficient for 2030 is based on the figures determined using the Sustainable Development Scenario (SDS) published by the International Energy Agency (IEA).
Scope 3
　We target a 30% reduction by 2030 from 2019 levels for Category 1 (purchased goods and services), Category 10 (processing of sold products), Category 11 (use of sold products), 　and Category 12 (end-of-life treatment of sold products), which account for approximately 70% of Scope 3 GHG emissions. In addition, 　we have set an engagement target to encourage suppliers that account for 30% of GHG emissions in categories 1 and 3 to obtain SBT certification by 2027, 　and are promoting emissions reductions throughout the entire value chain.

Opportunities

The AGC Group sees climate change as a new growth opportunity and is advancing the expansion of products that contribute to environmental and energy solutions. Currently, products that contribute to the environment and energy field account for about 10% of the Groupʼs total sales. We will continue to expand areas where we can contribute to reducing GHG emissions by leveraging our technological capabilities.
We have set the following as part of our sustainability KPIs for AGC plus-2026 to visualize the value created through addressing climate change. These indices use 2022 as the baseline (100), and by continuously monitoring growth from 2023 onward, we are accelerating the creation of social value through our products.

• Architectural glass products: Accelerate the spread of energy-efficient high-insulation glass by setting “the shipment volume index for architectural products contributing to GHG reductions” as a KPI
• Low-GWP chemical products: Promote market growth of low-GWP refrigerants and solvents by using “Index for GHG emissions reduction by low-GWP products” as a KPI

Scope 1, 2 and Scope 3 GHG emissions volume and reduction policy

Scope 1 and 2
　Approximately 99% of the AGC Groupʼs Scope 1, 2 GHG emissions originate from its glass segment (Architectural and Automotive), Electronics, and Chemicals businesses. 　Of these emissions, approximately 50% come from the combined glass and electronics businesses, and approximately 50% come from the chemicals business.

Scope 3
　About 70% of the AGC Groupʼs Scope 3 GHG emissions come from Category 1 (purchased products and services) and from Categories 10-12 (processing, use, 　and end-of-life treatment of sold products). Such emission reductions require cooperation throughout the entire value chain, and we place great importance on strengthening ties with our business partners.

Emission Reduction Strategies throughout the Value Chain
　To reduce Scope 3 GHG emissions, we are promoting engagement with suppliers and encouraging them to reduce their major sources of emissions. Specific initiatives underway include the following.

• Supporting suppliers to obtain SBT certification: Encouraging business partners to obtain SBT certification for their emissions reduction targets to promote decarbonization throughout the entire supply chain
• GHG emissions data collection for raw materials: Collecting primary data for each raw material through surveys and quantitatively evaluating the reduction efforts of each material supplier
• Visualization of emissions throughout the supply chain: Conducting more accurate Scope 3 GHG emissions calculations and strengthening environmental impact assessments for each product

Priority measures by category