Response to TNFD Recommendations

Policy and Approach

Skylark Group endorses the Task Force on Nature-related Financial Disclosures (TNFD) and, starting in May 2024, is participating in the TNFD Forum, which was established to establish a framework for risk management and disclosure with respect to natural capital by endorsing companies.
In support of the “Nature Positive” concept and goal of halting and reversing biodiversity loss by 2030, as articulated in the Kunming-Montreal Biodiversity Framework, and based on risk assessments of our own dependencies and impacts on biodiversity and ecosystem services, we will work collaboratively with suppliers and business partners and promote engagement with nature-related stakeholders.
In addition, based on the LEAP approach* recommended by TNFD and based on an analysis of the company's nature-related dependencies/impacts and risks/opportunities, the status of the company's efforts and the results of the analysis will be organized along the four pillars of “Governance,” “Strategy,” “Risk and Impact Management,” and “Indicators and Targets".
*LEAP Approach : A method of prioritizing natural capital impacts and measures by focusing on where to locate (Locate), diagnose dependencies and impacts (Evaluate), assess risks and opportunities (Assess), and prepare to address nature-related risks and opportunities and report back to investors (Prepare).

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

General Requirements

1. Adaptation to materiality
   For natural impact-related assessments based on the TNFD, we analyze and evaluate our dependence on natural capital and the impact of our business activities on natural capital based on the double materiality approach.
2. Scope of disclosure
   It covers direct operations and upstream of the value chain.
3. Locations and sites where nature-related issues exist
   The following locations are included in this analysis. 

   Value Chain	Business Locations	Area
   Food Processing	Merchandizing Center（MDC）	Higashimatsuyama MDC (Higashimatsuyama City, Saitama Prefecture)
   Raw Material Production	Origin of Beef	Australia and Uruguay

4. Integration with other sustainability disclosures
   Climate change-related disclosures are made in accordance with the TCFD (Task Force on Climate-related Financial Disclosures) framework, and we will promote integrated disclosures between TCFD and TNFD in the future.
5. Time frame considered
   Short-term (0-2 years), medium-term (3-5 years), and long-term (>5 years) are considered in this analysis. Impacts are considered as of 2030.
6. Involvement of indigenous peoples, local communities, and relevant stakeholders in the identification and assessment of the organization's nature-related issues
   Based on the Skylark Group Human Rights Policy, we conduct CSR checks and human rights due diligence to strengthen dialogue with suppliers, partners, and other relevant stakeholders, gather local information, and enhance our efforts to respect human rights.

Governance

Supervisory structure of the board of directors　
Role of management

We have established a governance structure to promote sustainability management across the Group under the supervision of the Board of Directors. As a decision-making body for sustainability-related initiatives such as climate change, biodiversity, and water conservation, we have established the “Group Sustainability Committee,” which is chaired by the President, vice-chaired by the CSuO (Chief Sustainability Officer), and consists of the Chairman & CEO, all executive officers, and presidents of group companies as members.
The Group Sustainability Committee meets as needed to formulate company-wide policies, targets, and measures related to sustainability, identify materiality issues, monitor and review them annually, and establish and maintain a sustainability promotion system, which is reported to the Board of Directors. The Committee also includes outside officers in an advisory capacity to receive suggestions and advice from outside perspectives.
The Sustainability Committee has resolved to formulate a biodiversity policy and to participate in the TNFD Forum. In addition, from 2024, we have added the achievement of “GHG emission reduction targets” as an ESG indicator in the evaluation of executive compensation, and have introduced a mechanism to link the promotion of our sustainability management with executive compensation.

Human rights policy and engagement activities for indigenous peoples, local communities, affected stakeholders, and other stakeholders; Supervision by board and management

Our restaurant business relies heavily on raw material procurement, and we recognize the importance of human rights for local residents and relationships with local communities. In formulating the Group Human Rights Policy and Procurement Policy, we base them on respect for human rights as set forth by international standards such as the United Nations Guiding Principles on Business and Human Rights.
We have also endorsed and expressed our commitment to the United Nations Global Compact since 2023.
When selecting suppliers, we look not only for financial reliability and quality stability, but also for suppliers that fulfill their social responsibilities by incorporating ESG criteria such as supplier employee management, human rights considerations, environmental considerations, ethical compliance, and the status of other anti-social activities.We do not make judgments based on the laws, customs, or current conditions of each region, but rather on whether there are significant deviations from the applicable Japanese laws, and we strive to procure responsibly by implementing a strict policy of not initiating transactions if there is a problem.
In addition, to ensure FPIC (free, prior, and informed consent) of indigenous peoples as one of the requirements when selecting suppliers, and to strengthen the effectiveness of “responsible procurement,” one of our group's materiality, the whistle-blowing service is also available to suppliers to prevent violations and promote activities to disseminate the information throughout the supply chain.
Implementation plans and progress of sustainability-related initiatives, including respect for human rights, are approved and managed by the Group Sustainability Committee and reported to the Board of Directors. 

Risk and Impact Management

Process to identify, assess, and prioritize nature-related issues in direct operations, adjacent areas, and upstream and downstream value chains

In identifying, assessing, and prioritizing risks and opportunities, we strive to address them appropriately, taking into account the size and characteristics of our group's operations.
With regard to natural capital, we utilize TNFD recommended tools such as “ENCORE”, “IBAT”, and WRI Aqueduct's “Water Risk Atlas” to collect data and identify risks and opportunities in direct operations and value chains. 

Management processes　
Status of integration and information provision into organization-wide risk management

The Group Risk and Compliance Committee, chaired by the President and Representative Director and composed of the Chairman and Representative Director and all executive officers, oversees risk management for the entire Group.
In addition, sustainability-related risks, such as climate change and natural capital, are managed by the Group Sustainability Committee, which manages risks and response measures.
The Company identifies “business and other risks” that may have a significant impact on investors' decisions, and manages these risks on an ongoing basis. This business and other risks are reviewed once a year and emerging risks are established to enhance our sustainability.

Strategy

Following the LEAP approach proposed by the TNFD, we analyzed the dependence and impact of the value chain and natural capital, as well as risks and opportunities. 

【Locate】Identification of points of contact between the business and nature

We mapped our value chain by considering the procurement of raw materials from producers and suppliers as upstream, the processes in the factories and stores involved in our restaurant business as direct operations, and the disposal stages, such as food residues, as downstream. 

For this analysis, the target was set to upstream and direct operations due to the accuracy of the available data. Utilizing an external tool, ENCORE, to assess the interrelationships between our business and natural capital, we confirmed that the upstream of our value chain is highly influenced and dependent on natural capital. Food waste, a downstream value chain, will be investigated and future disclosures will be considered.

<Results of ENCORE's analysis of the relationship between natural capital>
Impact on natural capital

Dependence on natural capital

【Locate】Estimation of bases that may affect nature

We have inferred the locations at each stage of our value chain that are most likely to impact our natural capital.
We have approximately 3,000 locations, the majority of which are stores (restaurants).
We recognize that while the impact and dependence on the natural capital of each individual store may be small, it is very large when considered in the context of the business as a whole. We analyzed the bases where the degree of influence and dependence on nature are particularly concentrated by inferring that they are the “place of origin” of the food ingredients used in each store and the central kitchen “Merchandising Center (hereafter MDC)” that is responsible for the processing of those ingredients.
Since ENCORE is a general assessment tool for the sector as a whole, in order to advance our specific analysis, we utilized the High Impact Commodity List (“HICL”) provided by SBTN to identify raw materials with high natural risk and their origin for secondary assessment.
Among HICL's raw materials, this time we targeted “beef,” which has the highest purchase value in our company, and analyzed its origin as an upstream location in the value chain. 

Our main raw materials that fall under HICL
Beef	Pork	Chicken Meat	Palm Oil
Dairy Products	Rice	Soybean	Corn
Coffee	Cocoa	Avocado	Banana

【Locate】Identification of priority areas

TNFD defines priority regions as “regions and locations that are sensitive to our business activities” and “regions and locations that pose a high financial risk to us” and “regions that are sensitive to our business activities” as the following areas. 

• Areas important for biodiversity, including species diversity
• Areas of high ecological integrity
• Areas of rapidly declining ecosystem integrity
• Areas of high physical water risk
• Areas important for ecosystem services that benefit indigenous peoples, local communities, and stakeholders

We used an external tool recommended by TNFD to investigate whether our inferred sites [direct operations: MDC] [upstream in the value chain: beef origin] fall into the “areas susceptible to business activities”.
【Direct operating base: MDC】

Darker colored areas indicate higher risk

We have evaluated all MDCs that we operate at and found that all of them are located adjacent to “sensitive areas” for our business activities.
Of these, the Higashimatsuyama MDC supplies foodstuffs to the largest number of our stores and operates as our main production base. We have identified the Higashimatsuyama MDC as a “priority area” for direct operations because it is a site that, if production at the Higashimatsuyama MDC were to cease, would risk having a tremendous financial impact on our business.

【Upstream locations in the value chain:Origin of beef 】

The majority of the beef we procure is imported from overseas. For each major country of origin, we utilized the tools recommended by the TNFD to assess their ecological relationships.
Of the major countries of origin that supply beef to the Company, the financial impact of the suspension of beef production in Australia and Uruguay would be enormous, and therefore these countries were identified as priority areas upstream in the value chain.

Remarks　About the tools to be used

Area	Utilization Rules
Areas important for biodiversity	IBAT (Protected Areas, KBA, Endangered Species)
Areas of high ecological integrity	Global Forest Watch（global biodiversity intactness）
Areas of declining ecological integrity	WWF Risk Filter Suite（biodiversity risk filter）
Areas with high water risk	WRI Aquiduct（Physical Risks Quantity）
Areas of importance to indigenous and local communities	Global Forest Watch（Indigenous and Community Lands）

【Evaluate】Identifying dependencies and impacts

We have identified the impact of our business activities, MDC operations, and beef production on natural capital in the priority areas identified in the Locate phase (Higashimatsuyama MDC, Australia and Uruguay) and how they depend on natural capital. 

【Evaluate】Dependencies and impacts, prioritization of importance

The correlation chart shows that our value chain is closely related to water resources, which is a highly important natural capital.
We have identified “conservation of water resources” as a materiality and recognize it as a priority issue to be addressed.  

【Assess】Identifying risks and opportunities

Based on the relationship between dependence and impacts in Higashimatsuyama MDC, Australia, and Uruguay, we qualitatively evaluated and identified risks and opportunities that could affect business activities.
In developing the scenarios, we considered the scenarios recommended by TNFD and analyzed them assuming scenario #2.
We will continue to analyze multiple scenarios to strengthen the resilience of our strategy.

　 【Direct Operating Base: MDC】

	Category	Item	Period of Influence	Major Risks and Opportunities to us	Impact Assessment
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
	Market	Transformation of consumer behavior and preferences	Short to long term	Decrease in revenue due to changes in consumer demand	Medium
	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
Physical Risk	Acute	Increase in natural disasters	Short to long term	Decrease in revenue due to plant shutdown	Large
	Chronic	Water pollution of rivers due to environmental degradation	Medium to long term	Increased management costs due to deteriorating water quality	Medium
Opportunity	Market	Increasing intensity and frequency of disasters	Medium to long term	Enhancement of public trust and reputation through disaster response	Medium
	Reputation	Promote initiatives to prevent environmental pollution	Medium to long term	Improved contribution to local communities by promoting initiatives	Medium

【Upstream in the Value Chain: Origin of Beef】

	Category	Item	Period of Influence	Major Risks and Opportunities to us	Impact Assessment
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
	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
	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
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
	Chronic	Impact of environmental degradation on the growth of beef cattle, including epidemics	Medium to long term		Large
Opportunity	Market	Transformation of consumer behavior and preferences	Short to long term	Introduce environmentally friendly menus and develop brands	Medium
	Reputation	Increased stakeholder awareness	Short to long term	Increase in stock price due to inflows from the investor community	Medium

Indicators and Targets

Indicators used to assess and manage risks and opportunities
Indicators used to assess and manage dependence and impacts on nature
Water withdrawal reduction, environmental impact reduction (waste discharge, disposable plastic discharge), biodiversity conservation (switching to JGAP certification for domestic vegetables, RSPO certification for palm oil, FSC/PEFC certification for paper products), and zero deforestation are used as indicators for assessing and managing nature-related risks and opportunities.