Case Study

How the TNFD framework is informing DENSO’s action on biodiversity

DENSO is working with EY on risk analysis and disclosure in advance of adopting the TNFD framework.

The better the question

What must businesses do in their environmental efforts to exceed society’s expectations?

DENSO Corporation has a long track record of action on environmental issues and is developing its approach prior to the official establishment of the Taskforce on Nature-related Financial Disclosures (TNFD) framework.

1

Exploring opportunities beyond risk management

Confronted with loss of natural habitats across the globe, corporate social responsibility is ever more important. As a result, there is an increased focus on approaches to biodiversity, and businesses are expected to implement risk management and disclosure regarding their nature-related impact and dependencies. The Taskforce on Nature-related Financial Disclosures (TNFD) offers a framework for this and has scheduled the release of its first version for September 2023.

DENSO has long focused on global trends in biodiversity, and has been active in its response in this area. Yoshio Hironaka is the Head of the Environmental Promotion Office in the company’s Safety, Health and Environment Department. Looking back on activity to date, he reflects “We felt that we had to take action above and beyond the expectations of investors and wider society.”

“DENSO formulated its Environmental Charter and Initiatives Action Plan in 1993, against a backdrop of anti-pollution measures. Since then, we have continued to advance our environmental activities in areas such as tackling global warming, efficient use of resources and recycling. The work continues to this day, through the DENSO ECO VISION. Our previous work on preserving biodiversity, including work to promote greenification around our business locations was mainly seen from a CSR perspective. However, in view of recent global trends, it has become clear that coexistence with nature is directly linked to corporate management. We have redoubled our efforts in the belief that it is not enough to simply meet the expectations of investors and society as a whole. We have to go above and beyond.”

DENSO has placed particular emphasis on disclosure in line with global standards. With regards to climate change, it pledged its support for the Task Force on Climate-related Financial Disclosures (TCFD) in 2019 and implemented its framework in its business strategy. DENSO’s work has also been commended in third-party evaluations, scoring an “A” from the Carbon Disclosure Project (CDP) in the categories of Climate Change and Water Security. Its work on TNFD adoption was born from a desire to go beyond mitigating climate change to also address issues around biodiversity.

DENSO "ECO VISION 2025

Source: DENSO Eco Vision 2025 (https://www.DENSO.com/global/en/csr/environment-report/management/ecovision/ecovision/) (Accessed June 20th, 2023)

“Under the DENSO ECO VISION, we have set targets of ‘energy ½,’ ‘clean x 2’ and ‘green x 2’ for 2025. Biodiversity is a crucial area with regards to the green target. It is a complex issue and we felt that we had to go beyond our own company’s perspective and look to an international framework. That’s why we decided to adopt TNFD in 2022. We started working on it before the guidelines were officially established because we recognize that, with the Task Force on Climate-Related Financial Disclosures (TCFD), we took too long to examine the direction of travel in Japan before acting and were slow to get started as a result.”

Hironaka needed someone to consult about incorporating TNFD before the framework was finalized. He chose to EY as his partner.

“EY was one of the initial members of the TNFD and is highly familiar with the framework that is in development. The seminars and information provided through the firm's media demonstrate clarity in terms of focus areas, and we knew they would be a strong partner. While TNFD is a risk countermeasure, we also see the potential that it has to create opportunities. We looked to EY as a partner in order to explore possibilities to further enhance our business.”

Biodiversity is a complex area, and we have to analyze the impact and dependencies for ourselves. We knew that we had to fully embrace TNFD, but also realized we didn’t have an in depth understanding of the issues. That was our starting point.

Yoshio Hironaka

Head of Environmental Promotion Office, Safety, Health and Environment Department, DENSO Corporation

Gaining an overview of the entire supply chain to analyze latent impact and dependencies

The better the answers

Gaining an overview of the entire supply chain to analyze latent impact and dependencies

Biodiversity is a field in which many elements can often seem as unclear. EY and DENSO achieved an effective approach by taking a bird's eye view of the entire supply chain before focusing on the areas where targeted analysis was needed.

2

The Locate process as a crucial part of the LEAP approach

Beta versions of the TNFD framework have been announced at regular intervals since March 2022. DENSO and EY started their work together in October of that year, before the announcement of beta v0.3. With so much uncertainty, there was a question about which approach to take moving forward.

“We started by defining our relationship with nature throughout the supply chain. Next, we identified certain products and analyzed nature-related impact and dependencies. As we checked the interface with nature on a location-by-location basis, we also started to see areas not covered by our company’s perspective. Namely, our raw material suppliers.”

DENSO has a vast supply chain, and raw materials are an area that cannot be ignored. Nature-related impact and dependencies in production areas must be analyzed, and measures are required to ensure that supply chains continue to function even during emergencies.

“While we have always had a good grasp of the situation at our own locations, this did not extend to upstream sections of the supply chain. Learning how to perceive risks in biodiversity by clarifying the overall picture and exploring points for increased focus was a big step forward for us.”

LEAP approach

Created by EY based on “Updates to the TNFD beta framework in v0.4,” The TNFD Nature-related Risk and Opportunity Management and Disclosure Framework Final Draft – Beta v0.4, 2023, TNFD, framework.tnfd.global/wp-content/uploads/2023/03/23-23882-TNFD_v0.4_Integrated_Framework_v6-1.pdf (Accessed May 25, 2023)

The TNFD recommends the LEAP approach as an integrated assessment process for nature-related risks and opportunities. LEAP comprises four steps: Locate (identifying interfaces with nature), Evaluate (evaluating dependencies and impacts), Assess (assessing risks and opportunities), and Prepare (responding to risks and opportunities, and preparing to report). EY provides support for the LEAP approach on a trial basis as part of the groundwork for TNFD adoption, and DENSO has progressed through the steps to Locate, Evaluate, and Assess.

“As a trial, we carried out an analysis of metal mining at oversea sites. Although our information within the company is sufficient to know where we procure raw materials, we cannot get a full picture of how our suppliers impact and depend on nature. EY carried out incredibly thorough research, and their results looked as if EY people went to the site several times and checked at first hand. We sampled a specific product on this occasion, but we can now see the perspectives that are important for analysis, and believe this can be applied to other products and processes as well.”

Hironaka added in explanation that, compared to DENSO’s experience of adopting TCFD on its own, working towards TNFD adoption in partnership with EY has had a significant positive impact.

“With climate change, there are global scenarios that enable us to simulate, for example, the effect of a certain temperature rise on sea levels and crops. However, in the case of biodiversity, it’s difficult to envisage the extent of the influence of any one factor. As a result, there is a significant risk of failure if we rely solely on our own know-how. From that perspective, EY emphasizes the importance of Locate within the LEAP process. EY’s unique capabilities enabled us to take an approach starting with a high-level overview of the business, expanding our analysis to cover the whole supply chain then identifying key points for in-depth examination. The only step left for us in the LEAP process is Prepare, and our aim is to work on that during the current fiscal year. We hope to accumulate examples of analysis that we can reflect in our business.”

This method of going beyond superficial analysis is not something that we could have achieved alone.

Yoshio Hironaka

Head of Environmental Promotion Office, Safety, Health and Environment Department, DENSO Corporation

Manufacturers should strive to co-create sustainability

The better the world works

Manufacturers should strive to co-create sustainability

DENSO is currently formulating a new environmental action plan with biodiversity as one of the aims of this new plan. A future in which business and management reflect the TNFD framework is drawing ever closer.

3

Building stronger relationships with stakeholders as a part of future society

DENSO formulates its environmental action plan every 10 years, and the current ECO VISION runs to 2025. Its efforts to achieve the aims set out in ECO VISION 2025 are already anticipated to be broadly successful, and it is turning its attention to the formulation of its next environmental action plan.

“It looks like climate change, circular economy and biodiversity will be the three pillars of the next environmental action plan [starting in FY2026]. The results of TNFD-related analysis should help guide us in formulating this plan. However, the most important aspect is that we keep updating our business policies and business activities. As the TNFD framework becomes clearer over time, I also expect to see emerge a worldview looking to the future in 2030 and 2050 . As a company, we believe that we must be sincere in our response to this.”

Starting work on TNFD adoption from an early stage also seems to have brought benefits in terms of contributing to the building of the future of society.

“As a member of the TNFD, EY can feed information from companies that support the TNFD (including EY itself) to the taskforce for reflection in the framework. For us, being part of a group of global co-creation partners has been one of the benefits of being involved from the beta stage.”

Hironaka added, “We want to look for opportunities in addition to the risks.” He described his vision for the social value created by DENSO.

“DENSO is a supplier to automobile manufacturers, which means we don’t have direct contact with the general public. However, it is precisely because we are engaged in B2B business that we have a duty to enhance corporate value through participation in the creation of a sustainable society, in addition to pursuing technological developments. By sharing our longstanding efforts on CSR and the clear goals of the TNFD, our work can take on even greater significance. For today’s manufacturers, beyond providing high-performance, high-quality consumer goods, it is crucial to have a shared understanding with society. It is important to be proactive, but also to communicate how you are giving back to society. Everyone responsible for implementing sustainability should maintain close relationships with stakeholders while working to build the future together.”

Everyone responsible for implementing sustainability should maintain close relationships with stakeholders while working to build the future together.

Yoshio Hironaka

Head of Environmental Promotion Office, Safety, Health and Environment Department, DENSO Corporation

EY Nature Positive (societal change towards broader awareness of biodiversity)

EY is working with its clients to broaden awareness of biodiversity in business and support nature-positive change. (Available in Japanese only)

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