Trial Assessment of Nature-related Risks and Opportunities

Biodiversity conservation and restoration are necessary to achieve the NISSIN FOODS Group’s goal of Nature Positive. In November 2022, the Taskforce on Nature-related Financial Disclosures (TNFD)*1 release the TNFD Nature-related Risk and Opportunity Management and Disclosure Framework Beta v0.3*2, which we used as reference to conduct a trial assessment of nature-related risks and opportunities based on the LEAP approach*3 to understand the impact of the Group’s business activities on biodiversity.

• *1The TNFD is an international initiative for building a framework that allows private companies and financial institutions to properly assess and disclose the risks and opportunities related to nature’s assets and biodiversity.
• *2As the TNFD would be recommending the final version of the information disclosure framework in September 2023, this is a prototype framework released beforehand to gain feedback from stakeholders.
• *3This is a process advocated by the TNFD for science-based systematic assessment of nature-related risks and opportunities. It is characterized by its sequence of four steps—Locate, Evaluate, Assess, Prepare—after selecting the scope of assessment to locate the interface with nature, evaluate dependencies and impacts on nature, assess material risks and opportunities related to nature, and prepare to respond to risks and opportunities and report to stakeholders.

Definition of the Scope of Assessment

According to Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE)*1, the sectors most dependent on nature are agriculture, aquaculture, and fisheries and forest products that include production processes such as rainfed and irrigated arable crops, dairy, and saltwater wild-caught fish. In particular, food companies depend on natural resources and significantly impact biodiversity through their business activities.
We therefore determined that, out of the Group’s value chain, it was important to start from assessment regarding raw material procurement. In this trial, from the various raw materials being used in the major products of the Group, we defined a total of seven items as the scope of assessment. They are palm oil, wood pulp, cacao mass, and soybean which are included in the forest-risk commodities*2; and shrimp, squid, and fish paste which are raw materials from the sea (Fig. 1).

• *1ENCORE is a tool—jointly developed by entities such as the Natural Capital Finance Alliance (NCFA) and UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC)—that allows business activities’ degree of impact and dependence on nature to be understood.
• *2Of the commodities and raw materials being traded globally, these are the ones that are thought to contribute toward deforestation and forest degradation in their production processes. Specifically, such commodities include cacao, palm oil, soybean, timber, wood pulp, cow products, leather products, and natural rubber.

Four Steps of Assessment

Locate

We evaluated the major sources of the seven items in five grades for the areas of integrity of ecosystems, importance of biodiversity, and water stress. To ensure coherence with the NISSIN FOODS Group’s procurement strategy, we also considered each raw material’s strategic importance, possibility of alternatives, ease of procurement, and rate of price increase. From these, we selected priority countries and regions from our major sources. As a result, out of the major sources (37 countries and regions) for the seven items in the scope of assessment, we identified source countries and regions to be prioritized in the following four items (palm oil, shrimp, cacao mass, and wood chip).

(Fig. 2)

Evaluate

Regarding the raw material production processes in the priority countries and regions identified in the Locate step, we carried out integral evaluation of the degree of dependency and impact on nature by combining data from ENCORE regarding dependencies and impacts on nature with regional characteristics of the place of origin, raw material characteristics, and the results of document surveys related to actions of industrial groups and such (Fig. 3). When evaluating the degree of impact, for impact factors such as greenhouse gas emissions and water usage, besides negative impact arising from business activities, we also include initiatives that lead to mitigation of negative impact and creation of positive impact.

Raw material	Dependency	Impact
Palm oil (Indonesia and Malaysia)	・Sustainable use of fertile soil ・Presence of pollinating insects ・Flood damage minimization at plantations and oil mills	・Deforestation from agricultural land development and slash-and-burn farming ・Loss of biodiversity and deterioration of soil ・Soil pollution from chemical fertilizers, etc. ・CO2 emissions from modifying the land
Wood chip (Japan [Hokkaido])	・Water resources needed for growth of trees ・Soil nutrients needed for growth of trees ・Presence of pollinating insects	・Modification of ecosystems due to harvesting of natural forests ・Deterioration of ecosystems due to abandonment of reforestation ・Elimination of ground cover and topsoil due to tilling of land
Shrimp (India [Kerala])	・Maintenance of water quality needed for growth of shrimp ・Provision of nursery habitats for shrimp fry	・Destruction of marine ecosystems due to trawling ・Depletion of fishery resources due to bycatch and overfishing
Cacao mass (Ecuador)	・Water resources needed for growth of crops and operation of plantations ・Soil nutrients that support the growth and quality of crops ・Presence of pollinating insects	・Modification and destruction of rainforests due to expansion of agricultural land ・Pollution from improper use of pesticides

(Fig. 3)

Raw material
Palm oil (Indonesia and Malaysia)
Dependency
・Sustainable use of fertile soil ・Presence of pollinating insects ・Flood damage minimization at plantations and oil mills
Impact
・Deforestation from agricultural land development and slash-and-burn farming ・Loss of biodiversity and deterioration of soil ・Soil pollution from chemical fertilizers, etc. ・CO2 emissions from modifying the land

Raw material
Wood chip (Japan [Hokkaido])
Dependency
・Water resources needed for growth of trees ・Soil nutrients needed for growth of trees ・Presence of pollinating insects
Impact
・Modification of ecosystems due to harvesting of natural forests ・Deterioration of ecosystems due to abandonment of reforestation ・Elimination of ground cover and topsoil due to tilling of land

Raw material
Shrimp (India [Kerala])
Dependency
・Maintenance of water quality needed for growth of shrimp ・Provision of nursery habitats for shrimp fry
Impact
・Destruction of marine ecosystems due to trawling ・Depletion of fishery resources due to bycatch and overfishing

Raw material
Cacao mass (Ecuador)
Dependency
・Water resources needed for growth of crops and operation of plantations ・Soil nutrients that support the growth and quality of crops ・Presence of pollinating insects
Impact
・Modification and destruction of rainforests due to expansion of agricultural land ・Pollution from improper use of pesticides

(Fig. 3)

Assess & Prepare

Based on the dependencies and impacts on nature confirmed in the Evaluate step, we identified the nature-related risks and opportunities in the Group’s raw material procurement as shown below.
Nature-related risks that mainly arise from impact on raw material producers are seen as physical risks, while those that mainly arise from impact on stakeholders are seen as transition risks, and we identified risks with high criticality in particular (Fig. 4).
For nature-related opportunities, based on initiatives that lead to mitigation of negative impact and creation of positive impact established in the Evaluate step, we considered opportunities that are feasible for the Group by raw material (Fig. 5). We will also work on the development and use of plant-derived alternatives using food technology—a strength of the Group—as an opportunity that is shared by several raw materials. In addition, given that our products have contact points with a wide range of consumers regardless of age or gender, we will strive to improve consumers’ recognition of sustainable procurement and certification systems and contribute to the formation of a market for sustainable products by displaying Roundtable on Sustainable Palm Oil (RSPO) and other certification logos on product packaging. Going forward, we plan to assign priorities to the nature-related risks and opportunities we have identified and set targets for managing the progress of initiatives.

Nature-related Risks

Raw material	Physical risk		Transition risk
	Chronic risk	Acute risk	Policy/regulation risk	Reputational risk	Market risk
Palm oil (Indonesia and Malaysia)	Prices will increase if the supply of palm oil drops because producers are unable to adapt to deterioration in ecosystem services, such as a decrease in the number of pollinating insects and pest predators, soil pollution from the use of chemical fertilizers, and water pollution from discharge of palm oil mill effluent (POME).	Prices will increase or there will be a need to change sources if production activities at oil palm plantations are disrupted due to more severe water damage arising from agricultural land development, or the loss of plantations and deterioration of ecosystems due to improper slash-and-burn farming.	Prices will increase due to the need for costs of measures and restriction in palm oil supply if there are tighter regulations on agricultural land development and chemical fertilizer use, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations.	-	Supply will be pressured and prices will be high due to increase in demand for palm oil as an alternative for fossil fuels.
Wood chip (Japan [Hokkaido])	Prices will increase if the supply of timber drops due to deterioration in ecosystem services, such as soil pollution and pollution or depletion of water resources.	-	Prices will increase due to the need for costs of measures and restriction in wood chip supply if there are tighter regulations on land use and harvesting restrictions, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations.	-	Supply will be pressured and prices will be high due to increase in demand for timber, which is a renewable resource.
Shrimp (India [Kerala])	Prices will increase if the supply of shrimp drops due to deterioration in shrimp habitats because of poor seaweed growth caused by a rise in seawater temperatures, seawater becoming acidic, or water pollution along coastlines.	Prices will increase or there will be a need to change sources if the supply of shrimp drops due to crude oil discharge or occurrence of red tides. Supply will drop if there is a spread of diseases among shrimp due to water quality, biodiversity, and other environmental changes in their habitats.	Prices will increase due to the need for costs of measures if there are regulations regarding mandatory installation of devices to prevent bycatch, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations. Prices will increase if the supply of shrimp drops due to longer fishing ban periods.	-	-
Cacao mass (Ecuador)	Prices will increase if the supply of cacao drops because producers are unable to adapt to deterioration in ecosystem services, such as a decrease in the number of pollinating insects, pollution or depletion of water resources, and soil pollution from the use of chemical fertilizers. Production costs will increase due to artificial pollination and additional fertilizers caused by a decrease in the number of pollinating insects.	Prices will increase or there will be a need to change sources if production activities at cacao plantations are disrupted due to disasters, disease and insect damage, and other such impacts.	Prices will increase due to the need for costs of measures and restriction in cacao mass supply if there are tighter regulations on agricultural land development and chemical fertilizer use, mandatory acquisition of certification, limitations on water intake, introduction of carbon taxes, and other such policies and regulations.	-	-
Overall	-	-	Governance costs will increase due to strengthening of aspects such as supplier management and monitoring systems.	Blame for destruction of natural capital at suppliers affects NISSIN, lowering our brand image.	Consumer preferences shift to products that use raw materials with lower environmental impact.

(Fig. 4)

Nature-related Opportunities

Raw material	Opportunity
Palm oil (Indonesia and Malaysia)	●Sustainable use of natural resources	・Expansion in procurement volume of RSPO and other certified products ・Understanding and monitoring of high-risk suppliers through forest monitoring ・Request for voluntary engagement of and corrective actions from high-risk suppliers
	●Ecosystem conservation, restoration, and rejuvenation	・Support for small-scale farmers in acquisition of certification ・Conduct of activities to maintain the landscape of areas around plantations
Wood chip (Japan [Hokkaido])	●Sustainable use of natural resources	・Expansion in procurement volume of FSC and other
	●Resource efficiency	・Development of containers that use less timber
Shrimp (India [Kerala])	●Sustainable use of natural resources	・ Expansion in procurement volume of Marine Stewardship Council (MSC) and other
	●Ecosystem conservation, restoration, and rejuvenation	・Support for fishing operators in acquisition of certification ・Promotion of bycatch prevention measures
	●Resource efficiency	・Promotion of fishing waste reduction
Cacao mass (Ecuador)	●Sustainable use of natural resources	・Promotion of the procurement of Rainforest Alliance and other certified products ・Collaboration with NGOs and industrial groups

(Fig. 5)

Nature-related Risks

Raw material
Palm oil (Indonesia and Malaysia)
Physical risk
Chronic risk		Acute risk
Prices will increase if the supply of palm oil drops because producers are unable to adapt to deterioration in ecosystem services, such as a decrease in the number of pollinating insects and pest predators, soil pollution from the use of chemical fertilizers, and water pollution from discharge of palm oil mill effluent (POME).		Prices will increase or there will be a need to change sources if production activities at oil palm plantations are disrupted due to more severe water damage arising from agricultural land development, or the loss of plantations and deterioration of ecosystems due to improper slash-and-burn farming.
Transition risk
Policy/regulation risk		Reputational risk	Market risk
Prices will increase due to the need for costs of measures and restriction in palm oil supply if there are tighter regulations on agricultural land development and chemical fertilizer use, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations.		-	Supply will be pressured and prices will be high due to increase in demand for palm oil as an alternative for fossil fuels.

Raw material
Wood chip (Japan [Hokkaido])
Physical risk
Chronic risk		Acute risk
Prices will increase if the supply of timber drops due to deterioration in ecosystem services, such as soil pollution and pollution or depletion of water resources.		-
Transition risk
Policy/regulation risk		Reputational risk	Market risk
Prices will increase due to the need for costs of measures and restriction in wood chip supply if there are tighter regulations on land use and harvesting restrictions, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations.		-	Supply will be pressured and prices will be high due to increase in demand for timber, which is a renewable resource.

Raw material
Shrimp (India [Kerala])
Physical risk
Chronic risk		Acute risk
Prices will increase if the supply of shrimp drops due to deterioration in shrimp habitats because of poor seaweed growth caused by a rise in seawater temperatures, seawater becoming acidic, or water pollution along coastlines.		Prices will increase or there will be a need to change sources if the supply of shrimp drops due to crude oil discharge or occurrence of red tides. Supply will drop if there is a spread of diseases among shrimp due to water quality, biodiversity, and other environmental changes in their habitats.
Transition risk
Policy/regulation risk		Reputational risk	Market risk
Prices will increase due to the need for costs of measures if there are regulations regarding mandatory installation of devices to prevent bycatch, mandatory acquisition of certification, introduction of carbon taxes, and other such policies and regulations. Prices will increase if the supply of shrimp drops due to longer fishing ban periods.		-	-

Raw material
Cacao mass (Ecuador)
Physical risk
Chronic risk		Acute risk
Prices will increase if the supply of cacao drops because producers are unable to adapt to deterioration in ecosystem services, such as a decrease in the number of pollinating insects, pollution or depletion of water resources, and soil pollution from the use of chemical fertilizers. Production costs will increase due to artificial pollination and additional fertilizers caused by a decrease in the number of pollinating insects.		Prices will increase or there will be a need to change sources if production activities at cacao plantations are disrupted due to disasters, disease and insect damage, and other such impacts.
Transition risk
Policy/regulation risk		Reputational risk	Market risk
Prices will increase due to the need for costs of measures and restriction in cacao mass supply if there are tighter regulations on agricultural land development and chemical fertilizer use, mandatory acquisition of certification, limitations on water intake, introduction of carbon taxes, and other such policies and regulations.		-	-

Raw material
Overall
Physical risk
Chronic risk		Acute risk
-		-
Transition risk
Policy/regulation risk		Reputational risk	Market risk
Governance costs will increase due to strengthening of aspects such as supplier management and monitoring systems.		Blame for destruction of natural capital at suppliers affects NISSIN, lowering our brand image.	Consumer preferences shift to products that use raw materials with lower environmental impact.

(Fig. 4)

Nature-related Opportunities

Raw material
Palm oil (Indonesia and Malaysia)
Opportunity
●Sustainable use of natural resources	・Expansion in procurement volume of RSPO and other certified products ・Understanding and monitoring of high-risk suppliers through forest monitoring ・Request for voluntary engagement of and corrective actions from high-risk suppliers
●Ecosystem conservation, restoration, and rejuvenation	・Support for small-scale farmers in acquisition of certification ・Conduct of activities to maintain the landscape of areas around plantations

Raw material
Wood chip (Japan [Hokkaido])
Opportunity
●Sustainable use of natural resources	・Expansion in procurement volume of FSC and other
●Resource efficiency	・Development of containers that use less timber

Raw material
Shrimp (India [Kerala])
Opportunity
●Sustainable use of natural resources	・ Expansion in procurement volume of Marine Stewardship Council (MSC) and other
●Ecosystem conservation, restoration, and rejuvenation	・Support for fishing operators in acquisition of certification ・Promotion of bycatch prevention measures
●Resource efficiency	・Promotion of fishing waste reduction

Raw material
Cacao mass (Ecuador)
Opportunity
●Sustainable use of natural resources	・Promotion of the procurement of Rainforest Alliance and other certified products ・Collaboration with NGOs and industrial groups

(Fig. 5)