Information Disclosure Based on TCFD Recommendations

I. Governance

Oversight of the Board of Director

Key decisions regarding USS Group climate change issues, including transition plans (related to Governance, Strategy, Risk management, and Indicators and targets), are subject to resolution by the Board of Directors.
At least once a quarter, the Board of Directors receives a report from the President on efforts to address climate change-related issues and progress toward established goals, and monitors and supervises climate change issues. The Board of Directors makes decisions on matters deemed important by the President, such as management strategies, management plans, annual budgets, and profit targets, after considering the risks and opportunities of climate change as necessary.

Manager in charge of climate-related oversight

Matters related to climate change shall be overseen by the President. The President shall monitor and receive periodic reports on trends in emissions from each business and group company and on the progress of emissions reduction measures to achieve SBT targets, and shall be responsible for implementing the climate change issues set forth in the following items and shall provide direction for the environmental management activities of the USS Group.
(1) Conduct an assessment of the impact of climate change issues on the business (at least once a year)
(2) Develop policies and strategies to minimize identified risks and capture opportunities, and reflect them in plans, budgets, targets, etc.
(3) Development of transition plans with emission reduction targets as a pillar
(4) Establishment of KPIs on climate change issues and evaluation of progress, including review of KPI performance
(5) Reporting important matters related to climate change issues to the Board of Directors

II. Strategy

Identification and assessment of climate-related risks and opportunities

USS has identified, assessed, and prioritized climate-related transition and physical risks as well as opportunities. We have also created specific climate-related scenarios to gain even greater insight into these risks and opportunities.

Scenario analysis

USS identifies climate-related risks and opportunities with the potential to greatly impact not only our businesses but also our stakeholders. Two of our climate-related scenarios give us insight into future. The first is a low-carbon economy with a 1.5°C or lower scenario. The second is a business-as-usual scenario. Through the data (parameters) rooted in these scenarios and internal and external information, we assess the business and financial impact of climate-related risks and opportunities.

Scope: Auto Auction business and its entire supply chain
Target period: Now until 2050

Overview of scenario

Reference Scenarios

Notes:
<Timing of occurrence>
Short term (S): Within 5 years; Medium term (M): 5 to 10 years; Long term (L): 10 to more than 30 years
<Possibility of Occurrence>
High (H): High potential; Medium (M): 50-50; Low (L): Low potential
<Financial Impact>
Small (S): ¥100 million or less; Medium (M): ¥100 to ¥5,000 million; Large (L): More than ¥5,000 million
<Definition of Significant Impact>
High potential and Medium(¥100 to ¥5,000 million) or Large(More than ¥5,000 million) Financial Impact

Risks and Opportunities

Impact Assessments and Response Strategies

1. Impact assessment of carbon tax introduction (Risk)

1-1) Increasing Businesses Costs Due to Carbon Taxes and Pricing

In order to achieve the Paris Agreement, Japan has made an international commitment to reduce greenhouse gas emissions by 46% by 2030 and to achieve carbon neutrality by 2050, and in order to achieve these goals, "The Basic Policy for the Realization of GX" has been announced. In the policy, the introduction of a levy on carbon has been announced, and there is a possibility of expanding the scope of the levy and increasing the level of burden in the future.

1-2) Financial Impact

USS has calculated the potential financial impact of carbon taxes (carbon pricing). The 1.5°C Scenario has a potential financial impact of ¥350 million by 2030 and ¥620 million by 2050. The Business-as-Usual Scenario has a potential financial impact of ¥300 million by 2030 and ¥330 million by 2050.

<1>Important parameters (indicators) taking into account the financial impact in 2030 and 2050

(Prerequisites)
The calculation presumes Japan will put in place a carbon tax with carbon pricing equivalent to nations committed to the IEA WEO 2023 NZE net-zero pledge as well as EU STEPS.
Conversion: Scope 1 & 2 Emissions for the Fiscal Year Ending March 31, 2022 × Carbon Tax Price
Note: Currency converted at US$1 to ¥150

1-3) Response Strategy

Promoting Solar Power and Other Renewable Energy On-site

USS will employ several response strategies to address the potential impact of carbon taxes. These initiatives have been put in place to not only achieve our CO2 emission reduction targets but also promote on-site renewable energies. These efforts will mitigate our future tax burden. We will continue to devise plans with the highest benefit to the entire Group to achieve swift results.

<2>List of Solar Power Generation Facilities Installed

2.  Evaluation of effects of increasing EV sales worldwide (Risk, Opportunity)

2-1) USS forecast for the growth of EV utilization

If the use of car sharing services increases as part of measures to achieve a circular economy, there may be a decline in the number of people who own electric vehicles (EV). Another possibility is the decision of EV manufacturers to buy and sell these vehicles within their own supply chains. Either one of these events could reduce the number of vehicles consigned at USS auctions. 
However, if various measures are implemented based on the goal set by the Japanese government in its "Green Growth Strategy Through Achieving Carbon Neutrality in 2050 "to achieve 100% electric vehicles in new passenger car sales by 2035, a large increase in new car sales (car replacement sales) will lead to a large increase in the number of cars auctioned at the USS auction which will likely have a significant positive impact on our earnings.

2-2) Strategic actions for combating climate change

（Assumptions for these activities）

• The following reference data were used.
  IEA Global EV Outlook 2023 (https://www.iea.org/reports/global-ev-outlook-2023)
  Global EV Data Explorer (https://www.iea.org/articles/global-ev-data-explorer)
• For the 1.5˚C temperature increase scenario, calculations use the IEA NZE (net zero emission) scenario for determining the share of EV sales based on the premise that the total number of vehicles sold is the same as in IEA STEPS (Stated Policies Scenario).
• Figures for future years other than 2025 and 2030 are calculated using the assumption that changes will occur evenly across all years.

Transition Plan concerning Climate Change

The USS Group has established a Transition Plan (Roadmap)  for measures to combat climate change. The implementation of this plan started in June 2023 following discussions and approval by the Board of Directors. To increase the accuracy of the transition plan, the road map that is the key element of the plan will be updated as necessary based on changes in the internal and external environment for the operations of the USS Group.
Furthermore, the Board of Directors will receive progress reports about the transition plan in order to allow the directors to supervise activities involving the plan properly.

Scope 1 + 2 emissions reductions

Two activities will be required for lowering GHG emissions that result directly from operations of the USS Group: energy conservation and the use of renewable energy.
For energy conservation, USS is promoting the introduction of high-efficiency energy-saving equipment for air conditioning, etc. For renewable energy, the USS Group is installing solar power facilities at its business sites because new sources of renewable energy contribute to progress involving the decarbonization of society. Solar panels are placed on the roofs of auction buildings and use power purchase agreements. As of March 2024, solar power generation has installed 7 auction sites out of all 19 auction sites. We will actively promote the installation of solar power generation equipment at the remaining auction sites.

Scope 3 emissions reduction

Approximately 95% of the GHG emissions across the USS Group's value chain are classified as Scope 3. Consequently, lowering these emissions will require the cooperation of a large number of stakeholders outside the group.
The GHG Protocol defines 15 categories of Scope 3 emissions. At the USS Group, emissions associated with the use of products sold, which is category 11, account for about half of all Scope 3 emissions. Furthermore, the share of emissions from products and services that are purchased, which is category 1, is about 30%. As a result, emission reduction measures will focus on these two categories.
The reduction of Scope 3 emissions is an important issue for the USS Group and society. Lowering these emissions will therefore require engagement with customers and suppliers. Activities have started for collecting emissions data from suppliers in some categories. There will also be educational activities and engagement campaigns accompanied by the sharing of information about various issues with customers and suppliers.

◆Transition plan (Roadmap) to achieve goals

III. Risk management

Framework to identify and evaluate climate-related risks and opportunities

As the manager in charge of climate-related matters, the president and representative director leads relevant departments and Group companies in identifying and understanding climate-related risks and opportunities. Our approach leverages a defined risk management framework to make headway. The president and representative director shares this progress with the Board of Directors at annual and extraordinary meetings. The Board of Directors uses these reports to monitor risk management progress as well as the initiatives and targets set to overcome various challenges.

Climate-related risk management framework

As the manager in charge of climate-related risks, the president and representative director reports and advocates initiatives to combat climate change to the Board of Directors. This includes the planning, proposal, and oversight of a risk management framework to identify, evaluate, and address its Group-wide impact. The Board of Directors has the duty to deliberate on and assess the overall risks presented by climate change using what has been learned from the reports and proposals presented by the president and representative director at these annual and extraordinary meetings. The Board of Directors will also create risk management policies and strategies to minimize risks from a Group-wide perspective. It will also properly incorporate those policies and strategies into plans, budgets, and targets.

IV. Indicators and targets

The USS Group has set a CO2 emissions reduction target equivalent to the SBT standard as a goal to be used in managing climate-related risks and opportunities, and has obtained SBT certification in October 2023

To achieve this goal, we have set a target for the ratio of electricity derived from renewable energy sources and are working to reduce GHG emissions by introducing on-site solar power generation equipment, switching to CO2-free electricity, and installing high-efficiency energy-saving equipment.

GHG emissions

Electricity consumption & Ratio of electricity derived from renewable energy sources

Third-party Assurance

Independent Assurance Report

To enhance the reliability of the ESG data disclosed, CO2 Emissions data have obtained third-party assurance.

Other Data on Climate Change