Response to TNFD Recommendations

Policy and Approach

Skylark Group endorses the Taskforce on Nature-related Financial Disclosures (TNFD). In May 2024, we joined the TNFD Forum, a consultative group of organizations supporting the development of a framework for managing and disclosing nature-related risks.
In line with the Kunming-Montreal Global Biodiversity Framework, we support the "Nature Positive" goal of halting and reversing biodiversity loss by 2030. Based on our assessments of the company’s dependencies and impacts on biodiversity and ecosystem services, we will collaborate with suppliers and business partners while promoting engagement with nature-related stakeholders.
Furthermore, we aim to achieve a net positive impact by 2030. We will strive to minimize the negative impacts of our business activities on biodiversity and contribute to the improvement of the natural environment.
Additionally, we will utilize the LEAP approach* recommended by the TNFD to analyze our nature-related dependencies, impacts, risks, and opportunities. We will organize our initiatives and analysis in line with the four pillars of the TNFD framework: Governance, Strategy, Risk and Impact Management, and Metrics and Targets.
*The LEAP approach is a method for prioritizing impacts and actions related to natural capital, with a focus on location. It guides the user to Locate their interface with nature, Evaluate their dependencies and impacts, Assess their risks and opportunities, and Prepare to respond to nature-related risks and opportunities and report on them.

Status of Our Response to TNFD Recommendation

As a “TNFD Adopter,” Skylark Group began disclosing information in line with TNFD recommendations in May 2024. Disclosures recommended by the TCFD (Task Force on Climate-related Financial Disclosures) Final Recommendations and TNFD (Task Force on Nature-related Financial Disclosures) Final Recommendations V1.0.

Click here for TNFD report　⇒　/Portals/0/images/sustainability/environment/TNFD/TNFD_report_en_251015.pdf

Click here for TCFD and TNFD comparison table　⇒　https://corp.skylark.co.jp/en/sustainability/environment/tcfd_tnfd/

Governance

Under the supervision of the Board of Directors, we have established a governance structure to promote sustainability management across the Group, including the "Group Sustainability Committee" as the decision-making body for initiatives related to natural capital such as climate change, conservation of water resources, and biodiversity.

Risk and Impact Management

1. Process for identifying impacts/dependencies and risks/opportunities related to natural capital
   We identify the dependence and impact of our Group's direct operations and value chain on natural capital by utilizing multiple tools recommended by the TNFD. In the "priority areas" where biodiversity and financial risks are of particular concern, we identify and evaluate risks and opportunities related to natural capital.
   （The specific process is described in the "Strategy" section.）


2. Risk Management System
   Risks related to climate change, water resources, and biodiversity are overseen by the Group Sustainability Committee, while risks not included in the above are overseen by the Group Risk & Compliance Committee. Both committees work in collaboration, designating a department responsible for each risk to ensure appropriate preventive and responsive measures are taken. The deliberations of both committees are shared with Outside Directors to ensure the transparency of the risk management system. Additionally, Outside Directors serve as advisors to both committees, allowing us to receive input and advice from an external perspective. The Board of Directors receives regular reports from the Group Sustainability Committee and oversees the status and management of these risks.

Strategy

In accordance with the TNFD recommendations, we have systematically organized the relationship of dependence and impact between our business activities and natural capital to better understand them.

In this analysis, considering the accuracy of the available data, we have set the scope to our upstream value chain and direct operations. We will continue to analyze and investigate data concerning waste disposal, which constitutes our downstream value chain.

Next, in accordance with the "LEAP approach" recommended by the TNFD, we identified risks and opportunities related to the dependence and impact of our business activities on natural capital, and examined response measures through the following process.

Specific Process

1. Identification of business activities with high-materiality dependence and impacts on natural capital
   Using "ENCORE," we confirmed the materiality of our business activities (upstream and direct operations) in terms of dependence and impact on natural capital, and identified business activities with particularly high materiality.
2. Identification of locations with high financial impact on our company
   ➡【Upstream Value Chain】
   Utilizing SBTN's "HICL," we identified raw materials with high nature-related risks. "Beef," which accounts for the largest purchase amount, was identified.
   ➡【Direct Operations】
   We identified our Merchandising Centers (MDCs), which serve as central kitchens for our stores. 
3. Identification of locations with high biodiversity risk
   Utilizing tools such as IBAT, Global Forest Watch, and WRI Aqueduct, we identified locations with high biodiversity risk from the sites identified in step 2 as "priority areas."
   　Upstream Value Chain: Beef production areas "Australia" and "Uruguay"
   　Direct Operations: "Higashimatsuyama MDC" (Higashi-Matsuyama City, Saitama Prefecture)
4. Identification of risks and opportunities and examination of countermeasures in priority areas
   We evaluate the degree of impact of risks and opportunities using multiple scenarios advocated by the TNFD.

Specific Process

Details of the Scenarios

【Excerpt】 Risks, Opportunities, and Response Measures in Beef Production Areas

	Category	Item	Period of Influence	Primary Risks and Opportunities to us	Impact Assessment		Our Countermeasures (Examples)
					Scenario #1	Scenario #3
Transition Risk	Policy	Enhanced taxation and traceability	Medium to long term	Increased store operating costs due to new taxes and regulations, increased raw material procurement costs, manufacturing costs, packaging costs, and logistics costs	Large	Medium	Strengthening CSR checks Promoting the procurement of certified raw materials Promoting the procurement of Uruguayan beef
	Market	Penetration of certification systems such as sustainable cattle and livestock GAP	Short to long term	Decrease in revenue due to changes in consumer demand	Medium	Small
	Reputation	Damage to brand value	Short to long term	Decrease in revenue due to loss of trust from society and deterioration of brand image due to delay in addressing biodiversity issues	Medium	Small
Physical Risk	Acute	Induced flooding and flood damage due to land conversion	Short to long term	Soaring raw material prices and increased costs of procuring alternative food materials	Medium	Large	Diversification of procurement sources
	Chronic	Impact of environmental degradation on the growth of beef cattle, including epidemics	Medium to long term		Small	Medium
Opportunity	Market	Transformation of consumer behavior and preferences	Short to long term	Introduce environmentally friendly menus and develop brands	Medium	Small	Menu development reflecting customer feedback Big data analysis
	Reputation	Increased stakeholder awareness	Short to long term	Increase in stock price due to inflows from the investor community	Medium	Small	Acquisition of SBT-FLAG certification Engagement meetings with institutional investors

【Excerpt】Risks, Opportunities, and Response Measures at the Higashimatsuyama MDC

	Category	Item	Period of Influence	Risks and Opportunities to us	Impact Assessment		Our Countermeasures (Examples)
					Scenario #1	Scenario #3
Transition Risk	Policy	Tighter regulations on wastewater and waste	Medium to long term	Increased costs due to new taxes and regulations, increased manufacturing and distribution costs	Large	Medium	Identification of water-stressed areas and risk assessment Wastewater/waste management Disclosure of accurate data
	Market	Transformation of consumer behavior and preferences	Short to long term	Decrease in revenue due to changes in consumer demand	Medium	Small	Menu development reflecting customer feedback Big data analysis
	Reputation	Damage to brand value	Short to long term	Decrease in revenue due to loss of trust from society and deterioration of brand image due to delay in addressing biodiversity issues	Medium	Small	Dissemination of sustainability information
Physical Risk	Acute	Increase in natural disasters	Short to long term	Decrease in revenue due to MDC shutdown	Medium	Large	BCP measures Strengthening the resilience of MDC
	Chronic	Water pollution of rivers due to environmental degradation	Medium to long term	Increased management costs due to deteriorating water quality	Small	Medium	BCP measures Strengthening water-saving activities at MDC and stores
Opportunity	Market	Increasing intensity and frequency of disasters	Medium to long term	Enhancement of public trust and reputation through disaster response	Medium	Small	Establishment of various regulations for emergency response Disaster response support
	Reputation	Promote initiatives to prevent environmental pollution	Medium to long term	Improved contribution to local communities by promoting initiatives	Medium	Small	Reduction of food waste Promotion of recycling

Indicators and Targets

At our company, we track business activities that could impact the environment by gathering data on GHG emissions, water withdrawal and discharge volumes, food waste, and petroleum-derived plastic use. We also manage the percentage of certified products for domestic vegetables, palm oil, and paper products.
For each of these indicators, we set annual KPIs with the relevant departments and drive these initiatives by reporting progress to the Sustainability Committee quarterly.
Moving forward, we will continue to monitor and analyze these key data points. We
will also advance discussions within the Sustainability Committee regarding the addition of new indicators to manage and the setting of future targets.