Approach to Integrating TCFD and TNFD

Approach to Integrating TCFD and TNFD

As climate and nature are closely related, increases in temperature have increased the risk of consequential effects such as water shortages and ecological change. As business operators, we also predict that intensified disasters and increased burdens on nature as a result of climate change will lead to greater physical risks. In the case that there is a greater global trend toward demanding the preservation of nature, operating companies must actively respond to such a situation and avoid transition risks such as regulations. The NTT Group has conceived various responses to tackle these challenges. Information about the current state of these responses are disclosed according to the TCFD/TNFD frameworks.

Governance

The NTT Group regards the promotion of sustainability as an important management issue, and items of particular importance, such as creating environmental targets for the entire Group, are decided based on discussions held with directors.

Under the governance structure overseen by the Directors, we have established a Sustainability Committee (chaired by the President and Chief Executive Officer) directly reporting to the Board. This committee is responsible for managing the policy direction and progress of sustainability initiatives across the entire Group. Policies related to sustainability (the Charter and creating and abolishing accompanying policies, particularly deciding critical indicators) will be decided by the Board of Directors via the Sustainability Committee.

In FY2021, for the processes selected as key issues and activities to be addressed from among the sustainability-related issues, we used evaluation organizations like third party institutions, ISO 26000 and GRI Standards, global trends, internal workshops, and materiality at other companies as a guide to identify material issues through comprehensive review of new problems related to sustainability, in order to discuss and select issues that the NTT Group should address on a global scale. In addition, NTT assessed the priorities to be addressed based on their impact on two aspects, "Growth as a company" and "Solving social issues." To achieve management that simultaneously helps resolve social issues and achieve business growth, NTT assesses priorities by incorporating the opinions of outside experts.

The validity of the specific issues we have identified and their level of priority is subject to an annual review by the Board of Directors, following discussions within the Sustainability Committee. During the Board of Directors held on April 20, 2023, we determined four key categories for sustainability in fiscal 2023 based on the reviewed priorities: 1) Climate Change, 2) Human Capital, 3) New Value Creation, and 4) Resilience.

In relation to climate change, we are managing progress on greenhouse gas emissions and other factors through the Green Innovation Committee, a subcommittee under the Sustainability Committee, and the Group Green Innovation Committee, which includes all companies within the NTT Group.

Strategy

The NTT Group formulated its Environment and Energy Vision "NTT Green Innovation toward 2040" and is advancing initiatives to reduce its environmental impact to achieve carbon neutrality by 2040. Besides promoting renewable energy usage as part of its own efforts to promote green power, the company is also working to enhance its environmental energy initiatives and information disclosure by promoting IOWN research and development aimed at achieving extremely low power consumption, introducing an internal carbon pricing system, and utilizing green bonds.

With regard to opportunities, we are focusing on expanding renewable energy options at data centers, aiding in the development of processes for visualizing greenhouse gas emissions, and broadening the sale of green energy to both corporate and individual clients.

Also, in alignment with our new medium-term management strategy announced in May 2023, the NTT Group is committed to achieving a Circular Economy Society. This includes promoting green solutions through the combination of Green Energy and ICT, expanding our renewable energy generation business, optimizing and efficiently securing a stable supply of locally produced, locally consumed electricity, recycling resources among various industries, and further accelerating regional development, all with the aim of creating a sustainable society. At the same time, we aim to extend the scope of "NTT Green Innovation toward 2040" to include Scope 3, as part of our efforts to achieve net-zero emissions.

【Scenario Assumptions】
1.5°C Scenario: About 90% of the NTT Group's greenhouse gas emissions stem from electricity use, so the introduction of carbon pricing mechanisms will pose a significant risk.We assess this risk with reference to the IEA WEO 2022 Net Zero Emissions Scenario (NZE).
Under this scenario, the carbon price for developed countries is projected to reach USD 130 per ton of CO2 by 2030.

4°C Scenario: The NTT Group provides many services essential to daily life, and recognizes the loss of service stability due to natural disasters as a major risk.For this risk assessment, we reference the IPCC's RCP8.5 scenario, which assumes no additional climate mitigation.
According to the "Integrated Report on Climate Change Observation, Prediction and Impact Assessment 2018," which incorporates this scenario, Japan is expected to face a sharp increase in heavy rainfall, a higher likelihood of landslides, and significant damage to suburban hilly areas.

Notes

^1.Degree of impact with 1.5°C scenario and 4°C scenario in FY2030

^2.There are three timeframes: short-term (less than 3 years), medium-term (3 to less than 6 years), and long-term (6 years or more). There are also three degrees of impact(▲: low, ▲▲: medium, and ▲▲▲: high).

^3.To promote energy conservation, in April 2025, we will set our internal carbon price to \21,000/t-CO? based on the International Energy Agency's projected carbon price for 2030 (140 USD/t-CO?). We utilize this for decision-making related to procurement (e.g., product selection), etc.

^*Estimated annual impact on profit:

¹⁾If carbon pricing is introduced: approximately -25 billion yen.

²⁾Higher costs from renewable energy surcharges and implementation: approximately -4 billion yen.

³⁾Disaster recovery from heavy rainfall and typhoons: approximately -3.0 billion yen in FY2022, -2.4 billion yen in FY2023, and -1.5 billion yen in FY2024.

[Assumptions and Calculation Basis]

¹⁾Carbon pricing (USD 140 per t-CO2) × FY2030 target emissions
(Based on FY2013 Scope 1 & 2 emissions of 4.65 million tons, with an 80% reduction target by FY2030).
(Carbon pricing unit price for FY2030 in IEA "World Energy Outlook 2024," Advanced economies: 140 USD).

²⁾Renewable energy surcharge: 4.1 yen/kWh in FY2030 and 3.49 yen/kWh in FY2024.

³⁾Estimated impact of disaster recovery from heavy rainfall and typhoons in FY2022-FY2024.

1.5°C Scenario

Transition Risks (Policy and Regulations) and Opportunities

The NTT Group consumes more than 8 billion kWh of electricity annually, and demand is expected to rise further as AI adoption expands.The transition to a decarbonized society will significantly affect our business through renewable energy surcharges and the introduction of carbon taxation.To address these risks, we have formulated our "NTT Green Innovation toward 2040" vision and we are advancing initiatives to achieve carbon neutrality by 2040.

At the same time, society's growing demand for renewable energy also presents significant opportunities for us.The NTT Group has long leveraged R&D, ICT infrastructure, and talent, collaborating with partners to co-create solutions that address societal challenges.To drive innovation in green transformation (GX) through solutions for society, we launched "NTT G×Inno."Specifically, we are advancing green solutions through the integration of renewable energy and ICT, expanding renewable energy generation, and ensuring stable, optimized, local production and consumption of electricity.We also anticipate growing demand for the migration from on-premise systems to more energy-efficient cloud-based data centers. The wider adoption of high-efficiency data centers represents additional opportunities for us.

Transition Risks (Market / Reputation)

The NTT Group promotes DX, remote work, and ICT services such as energy management systems to help reduce greenhouse gas emissions across society. However, as awareness of climate change grows, we face the risk that stakeholders may perceive us as less environmentally responsible than our peers--leading to reputational damage, customer loss, reduced decline, and even share price impacts.

To mitigate such risks, the NTT Group has advanced initiatives under its "NTT Green Innovation toward 2040" vision, earning the highest CDP Climate Change rating of "A" for two consecutive years.In addition, the NTT Group received SBTi certification for its Scope 1 & 2 target at the 1.5°C level (certified in 2021) and for its Scope 1, 2 & 3 Net Zero target (certified in 2025).

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As part of our initiatives in Japan, various telecommunications facilities, buildings, and towers are equipped with the following flood and storm damage protection measures.

For more details, please visit the NTT EAST website(Japanese only)

4°C Scenario

Physical Risks (Acute) and Opportunities

The NTT Group provides essential services--including communication networks and information systems--that underpin society, support economic activity, and safeguard daily life.These services face disruption risks from natural disasters such as earthquakes, tsunamis, typhoons, and floods, which could destabilize operations and hinder stable service delivery.Service interruptions could expose the NTT Group to liability for damages and erode both its reliability and corporate reputation.

To mitigate risks from natural disaster-related service interruptions, we deploy mobile power supply vehicles and portable satellite equipment, and participate in regional disaster-preparedness drills.We also apply disaster-resilient standards to communication facilities and buildings to ensure service continuity.For example, to prevent flooding, we install floodgates and other site-appropriate protective measures to protect communication equipment.At the same time, as customers also need to address risks from natural disasters and system failures, demand for business continuity (BCP) services is expected to grow.The NTT Group provides backup power services leveraging decentralized energy systems, supporting business continuity when transmission and distribution networks are damaged by disasters.

Physical Risks (Chronic)

The NTT Group operates numerous communication facilities and data centers in Japan and overseas.Significant temperature increases pose the risk of sharply higher electricity consumption.

To minimize rising operating costs, the NTT Group continues to implement measures to cut energy consumption from air conditioning.For example, we deploy wireless temperature sensors and operate an intelligent climate control system that automatically adjusts cooling based on sensor readings to save energy.In addition, we manage airflow with diffusers to release exhaust heat, blank panels, and optimized double-floor layouts, eliminating hot spots and achieving further energy savings through optimized air conditioning settings.

Risk Management

The NTT Group discusses risks and opportunities related to key sustainability issues at Sustainability Committee meetings and reports these to the Board of Directors.

Additionally, as part of the NTT Group's risk management process, the Business Risk Management Promotion Committee--headed by the senior executive vice president-- along with the Group Business Risk Management Promotion Committee are central to establishing and operating a PDCA cycle for risk management, with the aim of anticipating and preventing the occurrence of the potential risks close at hand and minimizing losses in the event that risks do materialize. The processes concerning the identification, evaluation, and management of sustainability-related risks are integrated into the NTT Group's overall risk management framework.

Climate change, resource recycling, and biodiversity are treated as business environment and strategy-related risks within the Business Risk Management Promotion Committee.