Third-party Opinions

Third-Party Opinion on Environmental Disclosure

Cierpa ＆ Company, Inc., Director, Chief Sustainability Officer
Osaka Metropolitan University, Graduate School of Business, Visiting Associate Professor
Naho Nakakubo (中久保菜穂)

I have reviewed the disclosures related to Azbil Corporation’s (referred to as the Company) environmental initiatives and present my observations based on an independent third-party perspective.

Noteworthy Strengths

The Company’s core business, automation, has a distinctive feature in that its very growth can contribute to environmental improvement. This characteristic is also reflected in the Company’s unique message of promoting initiatives to contribute “in series” toward a sustainable society.

This way of thinking is also explicitly demonstrated as a commitment at the management level. For example, in the KPIs for executive compensation (stock-based remuneration), a high weighting of 20% is assigned to the non-financial indicator “CO2 reduction impact.” This shows that the resolution of environmental issues is positioned as a management priority linked to corporate growth, and may be regarded as a clear expression of strong managerial intent to achieve these targets.

Moreover, it is noteworthy that these commitments are being demonstrated in the form of tangible results. The Company has achieved its FY2030 reduction target for GHG emissions (Scopes 1 and 2) ahead of schedule, has obtained third-party verification across Scopes 1, 2, and 3, and has secured SBTi net-zero target certification. These achievements can be seen as evidence of the steady execution of initiatives grounded in scientific evidence and the reliability of its data. Furthermore, the Company quantitatively defines the “CO2 reduction impact at customer sites” through its automation business as a key KPI. This can be positively evaluated as a means of positioning environmental challenges as business opportunities and linking them to the creation of corporate value.

In addition, the Company maintains a high level of transparency in its information disclosure. Detailed data are disclosed such as water usage at each site, wastewater quality, and emissions of substances subject to the PRTR system. It is also noted that sufficient information is provided from the perspective of accountability to local communities. This approach to disclosure is also likely reflected in evaluations by external assessment organizations.

Challenges Toward Further Enhancement

One of the key issues in further advancing the Company's initiatives is the visualization of the financial impacts of environmental issues. Demonstrating these impacts going forward is also important for helping a wide range of stakeholders, including investors, understand how the Company intends to achieve sustainable growth. In this regard, the Company has already disclosed a certain level of financial impact related to climate change through scenario analyses of both physical and transition risks. However, the SSBJ standards^* require companies to clearly articulate the resources needed and their approach to investment in order to demonstrate the effectiveness of their transition plans. For the Company, the transition plan outlines initiatives such as the utilization of renewable energy and the gradual transition of company vehicles to hybrid and electric models. Providing more concrete information on these initiatives, such as specific investment amounts and approaches to financing, would further clarify the effectiveness of its plan.

It is also considered important to more clearly articulate the relationship between financial impact and environmental areas beyond climate change. For example, from a natural capital perspective, it is expected that companies will indicate the extent to which operational risks at overseas sites located in water-stressed regions could affect future revenues and costs.

Expectations Based on New Technological Trends

The Company is characterized by its efforts to improve productivity and enhance energy efficiency through product-based digital transformation initiatives. This includes the use of an AI-based production planning and modification system, an AI-driven navigation system for quality management, and an online anomaly detection system. These initiatives stand out as strong examples of environmental advancement that leverage the strengths of its automation business.

At the same time, as the use of AI rapidly expands across society, increased data processing has led to concerns about new environmental issues such as higher electricity consumption and water usage. It is expected that the Company will not only give due consideration to the environmental impact of AI within its own systems, but also take a leading role in reducing environmental impact across society by developing and deploying technologies such as the energy efficiency of data centers through its automation business.

*SSBJ Standards: Sustainability disclosure standards issued by the Sustainability Standards Board of Japan (SSBJ).