Climate Change Countermeasure Implementation Framework

In the Environmental Management Implementation Framework, NEC engages in environmental management as well as climate change.

NEC's environmental policies and goals regarding climate change are discussed and formulated by the Environmental Management Promotion Committee, which is made up of the environmental promotion managers from each business unit. The Corporate Officer in charge of the Environment confirms the council's proposals and reports them to the Business Strategy Committee, an organization that is further up the organizational hierarchy and the one that provides approval at the corporate level. Risks related to climate change are also shared at the Environmental Management Promotion Committee. The Corporate Officer in charge of the Environment confirms those risks that could have a significant impact on businesses and, as necessary, reports to the Risk Control & Compliance Committee in accordance with the risk management process. In particular, climate risks and opportunities that could significantly affect businesses are also reported to the Board of Directors, as necessary. The Board of Directors deliberates on such reports and gives instructions on relevant measures, thereby providing supervision that ensures that NEC advances appropriate climate change countermeasures.

In fiscal 2023, participation in TCP was reported to the Business Strategy Committee and the Board of Directors, and the President approved the revision of the 2030 targets in conjunction with moving the target for net zero emissions up to 2040 from 2050. The new target is now shared by the entire Group through the revision of NEC Eco Action Plan 2025.

In addition, as part of our climate change countermeasures, we are advancing groupwide measures to reduce our in-house CO₂ emissions by addressing specific aspects of the issue through three special committees: the Eco Product Promotion Sub-group, the Eco Solution Promotion Sub-group, and the NEC Group Energy-saving Discussion Working Group. By reporting and submitting proposals to the Environmental Management Promotion Committee, these special committees facilitate the groupwide pursuit of energy-saving initiatives. Decisions made at the Environmental Management Promotion Committee are reported and instructed at each business unit and plant committee, and are then communicated to and thoroughly implemented by all employees.

Participation in Initiatives Related to Climate Change

NEC is participating in environmental initiatives to build a sustainable business foundation for itself and promote the realization of a sustainable society through co-creation.

Environment-related Reports for Main Committees

Since climate change is an important materiality, committees attended by managers deliberate, supervise and report on initiatives and risks related to the environment, including climate change. In fiscal 2022, in addition to engaging in dialogue with stakeholders, NEC set up the Sustainability Advisory Committee to broaden discussions between management and outside experts.

Key Discussions, Audits, and Reports

Climate Change Countermeasure Policy

NEC has positioned Environmental Action with a Particular Focus on Climate Change (Decarbonization) as one of its priority management themes from an ESG perspective – materiality. As a result, NEC will not only make efforts to reduce the environmental impact of its products and services, but will also support customers and society in their decarbonization efforts by utilizing ICT. Based on this approach, NEC formulated the Course of Action for Climate Change Toward 2050, declaring its intent to reduce its CO₂ emissions to net zero as a long-term environmental goal. 
At present, we have moved up our carbon neutrality target to 2040 pursuant to signing The Climate Pledge, and are implementing initiatives after changing the language of our climate change guidelines to move up the year for achieving our carbon neutrality target to 2040.

Aiming for reductions to achieve zero CO₂ emissions from our supply chain by 2040, we obtained SBT Net-Zero certification in April 2024 and have intensified action. Given the global goal of achieving a low-carbon society,  we established the Carbon Neutral Business Promotion PMO and are implementing initiatives throughout the Group that involve reducing energy use in our ICT infrastructure, visualizing solutions for CO₂ emissions, resource aggregation businesses, and environmental consulting.

Contributions through Businesses

Sustainability Transformation Consulting Services Including Carbon Neutrality

To help our customers achieve carbon neutrality and other sustainability transformation (SX) goals, we employ the knowledge we have gained from our own initiatives in providing SX consulting services that support strategy roadmap formulation, management, and implementation of priority measures. We also provide comprehensive support for solving various customer issues with solutions that underpin the implementation of SX initiatives.

EV Energy Management to support business changes accompanying the introduction of eco-friendly vehicles (business planning in progress)

The ongoing proliferation of electric vehicles (EV) is a means of decarbonization. We help businesses make decisions about transitioning to EVs by providing advance simulation of the impact on achieving targets that visualizes issues including upfront costs, operating expenses, and CO₂ reduction outcomes. We also resolve EV operation and management issues for businesses post introduction with solutions that include driving range predictions and battery management. Furthermore, we are thinking beyond efficient operation to the use of EVs as distributed power sources in the future. NEC thus provides EV energy management services that are integrated from customer EV introduction plans to efficient operation and use.

En-Route Charging Demonstration Experiment to Promote Electric Truck Proliferation

Automating Delivery Planning Using Quasi-Quantum Annealing

NEC Fielding, the NEC Group company responsible for maintaining NEC products including servers and network equipment, has been using quasi-quantum annealing to create delivery plans for delivering maintenance parts from their warehouses to customers since October 2022.

Previously, delivery planners manually created delivery plans for maintenance parts based on delivery instructions.

For example, the Tokyo Parts Center, which stores maintenance parts within Tokyo's 23 wards, had to draft a plan each day for approximately 30 trucks to make deliveries to several hundred destinations. An experienced delivery planner would spend approximately two hours formulating the plan after regular work hours the preceding day.

The use of quasi-quantum annealing has enabled the creation of a similarly efficient delivery plan in about 10 minutes. The center has been able to create delivery plans nearly in real time since April 2023, including same-day emergency deliveries, which has enabled a roughly 20% reduction in the number of trucks.

As a result, the center no longer needs experienced delivery planners, and has moved beyond personalized plans.

In addition, prioritizing driving distance is an option when creating the daily delivery plan, which makes a significant contribution to reducing CO₂ emissions when selected.

Using digital twins to visualize the benefits of adaptation measures that include disaster prevention and mitigation, and taking on the challenge of creating new funding mechanisms through adaptation finance businesses to promote private investment

In recent years, natural disasters such as floods and forest fires have become more severe and frequent due to global warming. Impacts on both the natural environment and socio-economics have been significant, not only in Japan but around the world. Natural disasters have a large carbon footprint because of the direct CO₂ emissions from disasters such as forest fires, and the large volume of CO₂ emitted during the reconstruction of infrastructure and buildings and related activities after disasters such as tsunamis and floods. More than 10% of global CO₂ emissions is attributed to damage from natural disasters.

In agriculture, various issues are becoming apparent, such as food shortages caused by crop failures due to extreme weather events like droughts and hurricanes, and public health issues are arising as a result of an increase in infectious diseases brought on by rising temperatures. Prompt action is needed to address these issues. Over the past 50 years, damage from natural disasters has increased sevenfold on an economic basis alone, but investment in adaptation measures stands at just 1/18 of investment in mitigation measures. The effects of adaptation measures are difficult to measure, and the amortization period of adaptation investments is often medium- to long-term, which creates difficulties in making investment decisions and attracting private investment. NEC sees this social situation as an opportunity to contribute to climate change countermeasures. Together with insurance companies, megabanks, development banks, and the like, we are co-creating new funding mechanisms for society to adapt to climate change.
For example, we use IT technologies such as remote sensing, AI, and digital twins to predict and visualize the benefits of adaptation measures, calculate risk premiums, and create and provide financial products that appropriately address climate change fluctuations.

NEC's President Calls for Action on Adaptation Finance at COP28

We participated in COP28, held in Dubai, United Arab Emirates from November 30 to December 12, 2023, and exhibited as one of the selected companies in the Adaptation Consortium Prep Office (NEC Corporation, etc.) at the Japan Pavilion organized by the Ministry of the Environment. In addition, NEC's president presented a keynote speech at the Global Innovation Hub Pavilion of UNFCCC, the host organization of COP28, and called on the world to create use cases for adaptation finance in preparation for COP29.

Adaptation Finance Consortium Established & Co-Creation of With/Without Standards

The challenges associated with the increase in climate change risk are common to NEC and Mitsui Sumitomo Insurance Co., Ltd. We therefore established the Adaptation Finance Consortium on March 15, 2024 to realize a resilient and sustainable society. The consortium applies digital technologies, such as information collection using remote sensing, analysis using AI, and visualization using digital twins, to quantify damage caused by natural disasters and the benefits of adaptation measures. The consortium aims to implement financial mechanisms that increase the probability of long-term and stable returns while reducing uncertainty in businesses, regions, and society by structuring and disseminating financial products with appropriate risk premiums based on climate change risks. We will generate use cases to exemplify the implementation of these mechanisms and work globally in collaboration with financial institutions, companies, academia, and regulatory agencies to create standards for measuring with/without adaptation measures.

Scenario Analysis

In order to build a sustainable management foundation for NEC and promote the realization of a sustainable society through co-creation, we analyze the risks and opportunities that affect the environment and are implementing measures to reduce risks and increase opportunities.

Risks and Opportunities Presented by Scenario Analysis

NEC's Vision for 2030/2050: Our Future Lifestyles and Local Governments

NEC believes that a company cannot continue to exist and grow without analyzing scenarios for climate change. Among recent global risks, climate change risks are numerous and could have an extremely large impact on not only corporate business activities and earnings but also our livelihoods. No matter what future is in store for us, based on multiple scenarios, NEC will examine steps that should be taken to realize a safe and secure society while surviving and growing itself. In 2019, we conducted a Companywide scenario analysis, and in two different scenarios, we analyzed potential changes in risks and opportunities for NEC.

We envisioned "climate change x government DX" (FY2023)

Since fiscal 2022, we have been conducting scenario analysis for each of our various business fields because the climate change risks and opportunities differ depending on the field. In fiscal 2023, in the domain of "digital government," we used the 1.5°C and 4°C scenarios to evaluate NEC's business opportunities in government digital transformation (DX) in Japan and the transition to a decarbonized society in 2030. Specifically, we drew up a picture of "climate change x government DX" in 2030, and considered the business concept proposal based on the company's risks and opportunities. Furthermore, we have enhanced our external hearings in order to reflect the voices of our stakeholders, .

Results of Scenario Analysis (2030): World Envisioned by NEC in 2030 and 2050
～climate change x government DX～

NEC created scenarios for 2030 and 2050 to envision the impact of climate change on the future of regions and local governments (core cities and small-scale cities). We evaluated four scenarios, with the 1.5℃ and 4℃ scenarios in the transition to a carbon-free society on the vertical axis, and the relationship of citizens with their governments and the state of government systems, separated by enforced actions and voluntary actions, on the horizontal axis. In each scenario, we used some items related to climate change and decarbonization, with assumptions for 2050 in the following scenarios.

Referenced Published Scenarios

Scenario：Our Future Lifestyles and Local Governments

Risks and Opportunities Based on Scenario Analysis

NEC identifies and classifies impacts arising from climate change as short-term, medium-term, and long-term risks and opportunities. Under the examination process, NEC evaluates the future impact of climate change based on scenarios after existing businesses are reorganized from a climate change perspective. At the same time, we confirm assets for addressing risks and taking advantage of opportunities. Major risks and opportunities are reflected in mid-term management plans.

Our actual greenhouse gas emissions for FY2024 are shown below. All figures have been certified by third-parties.

Assets and Business Activities Exposed to Physical Risks

NEC operates data centers in nine locations throughout Japan, including Kobe and Kanagawa. Data centers provide cloud services and data warehousing services to government agencies and companies, and are important facilities that operate multiple information systems. The operational continuity of data centers is critical to providing uninterrupted services to customers.

In recent years, natural disasters have become more frequent in Japan. In 2019, a typhoon that brought record-breaking rainfall impacted a wide area of Japan. This rain caused major damage to lifelines, including power outages and broken water mains. River flooding caused widespread damage. Abnormal weather caused by climate change could increase the frequency of disasters, which could pose a risk to the continued operation of data centers.

With this in mind, NEC builds data centers in areas that are less susceptible to flooding and tsunamis to prevent water damage to facilities.

Our data centers are equipped with emergency power sources with enough fuel to operate generators for at least 72 hours. This would allow information systems to continue to operate even in the event of a power outage.

We have concluded priority fuel supply contracts with fuel suppliers to ensure that we receive priority fuel supplies in the event of an emergency.

In addition, to enable NEC to proactively respond to climate change in the future, we have decided to reevaluate the natural disaster resilience of all data centers and conduct annual load tests that involve start-up tests of emergency generators in simulation of actual power outages, and are taking action accordingly.

Performance of Data Centers in Japan and Goals for Fiscal 2025

Introduction of Internal Carbon Pricing

With the aim of improving energy efficiency and promoting the introduction of low-carbon facilities and equipment, we have set internal carbon pricing. This pricing allows us to convert the CO₂ emission reductions that would result from a given capital investment into a monetary value, which we can then use as a reference when making investment decisions. The aforementioned carbon pricing mechanism will drive our decarbonization activities going forward and reduce the risk associated with potential increases in carbon taxes and emissions trading in a carbon-free society of the future. NEC has set its internal carbon price at 3,000 yen/t-CO₂.

Reflecting Climate Change in Executive Compensation

In fiscal 2023, the Board of Directors determined key performance indicators (KPIs) and sustainability performance targets (SPTs) that reflect NEC's initiatives to address environmental issues with a focus on climate change (decarbonization), and issued sustainability-linked bonds with maturities of five, seven, and ten years. Failure to achieve all SPTs will require NEC to purchase emission rights (CO₂ avoidance or reduction converted into credits or certificates) equivalent to 0.1% of the bond issuance amount prior to redemption, which will affect earnings. This will also significantly impact NEC's reputation, and will directly affect the evaluation of corporate officers, including directors. The impact is less than 5%.

The Chief Supply Chain Officer (CSCO) is responsible for the entire supply chain. NEC has formulated climate change guidelines with a long-term perspective to 2050, determined medium-term goals to 2030, and integrated short-term and medium-term goal that are reviewed annually. The CSCO is responsible for the NEC Group's medium- to long-term goals, and progress toward these goals factors into bonus assessment in the annual performance evaluation to reflect the significance of progress towards achieving the emission goals of the NEC Group. The impact is less than 5%.

The CSCO also serves as the Chief Procurement Officer (CPO) with responsibility for managing and overseeing engagement measures and working with suppliers to ensure sustainability throughout the procurement process, including climate change mitigation. The overall progress of these measures is a performance evaluation criterion that affects bonus allocation. The impact is less than 5%.

Carbon Credits

At present, NEC is not using carbon credits to offset CO₂ emissions. With a view to achieving carbon neutrality by 2040, NEC plans to use carbon credits in the future to neutralize residual emissions, but has not yet considered specific details.