Consideration of Assessment Scope

Summary of Priority Locations and Nature Dependency/Impact for the Four Raw Materials

Assessment of Nature-related Dependencies and Impacts

Table 1. Assessment Results of Nature-Related Dependencies and Impacts in Priority Locations of the Assessment Scope’s Three Raw Materials (Terrestrial)

Quantitative Assessment

Fig. 2 shows the quantitative analysis of impact on biodiversity for the three terrestrial raw materials (palm oil, cacao, and wheat). As a result of analyzing the relationships between various variables (climate including annual rainfall, land use, soil variables, and species richness) and the impacts on biodiversity, for all of these raw materials, it was found that the higher the annual rainfall, the greater the impacts on biodiversity in that region. While we were unable to determine the detailed mechanisms, we think that cutting down forests to create farmlands in regions with high rainfall significantly changes the environment from moist forests to dry farmlands, resulting in a significant reduction in biodiversity. Therefore, this assessment suggests the need to pay attention to annual rainfall and impacts on biodiversity when evaluating procurement areas.

Fig. 2. Results of Quantitative Assessment of Impacts on Biodiversity in Three Terrestrial Raw Materials

Nature-related Risks and Opportunities in Palm Oil

Scenario Analysis Method

As stated in [Strategy A] and [Strategy B], first, we conducted a scenario analysis on palm oil—a commodity with significant nature-related dependencies and impacts and is vital to our business—and explored the risks, opportunities, and future actions. Next, to understand how impact drivers and dependencies on nature related to the Group affect regional biodiversity and our business continuity, we investigated the time-series changes in biodiversity metrics and palm oil yield under several scenarios.

This time, we predicted the trend from 2030 to 2070 using data for the period from 2000s to 2024. Comprehensively accounting for the perspectives of biodiversity and procurement volume, Malaysia’s state of Sabah (100 square kilometers) and the area around Riau in Indonesia (100 square kilometers) were selected as the regions for the scenario analysis. In the assessment, we considered climate scenarios (“business as usual” RCP2.6 and RCP8.5) that are key defining factors for the two indicators of biodiversity metrics and palm oil yield and also aligned with the climate change scenarios in TCFD. We also considered an action scenario (scenario of undertaking oil palm cultivation with consideration for biodiversity) to study the effectiveness of actions for key nature-related risks and opportunities.

Scenario Analysis Results

The scenario analysis results are given in Table 4 (Summary of Scenario Analysis Results) and Fig. 5 (Causal Diagram of Scenario Analysis Results).

Table 4. Summary of Scenario Analysis Results

• *RCP2.6 is a scenario that projects a possible temperature increase of approximately 1℃ against the period from 1986 to 2005, while RCP8.5 projects a possible increase of around 4℃.

Fig. 5. Causal Diagram of Scenario Analysis Results

• *Please refer to the following for details of the TNFD pilot analysis conducted in 2023
  2023 TNFD Pilot Analysis Results

Fig.5 (Causal Diagram of Scenario Analysis Results) uses arrows to show the respective relationships of causes and effects between external causes, the NISSIN FOODS Group’s dependencies and impact drivers on nature, impacts on biodiversity that arise from these impact drivers, impacts on business (risks) that arise from dependencies, as well as the relevant impacts on nature (opportunities) and actions. The circled arrows show whether the impact of these relationships is positive or negative.

Details of the Causes and Effects in Fig. 5 (Causal Diagram of Scenario Analysis Results) (❶ to ❽)

❶ Impact of Rising Temperatures on Palm Oil Yields

Fig. 6 (Relationship Between Annual Mean Temperature and Palm Oil Yield) and Fig. 7 (Palm Oil Yield Prediction Accounting for IPCC’s Temperature Predictions RCP2.6 and RCP8.5) show the relationship between rising temperatures and palm oil yields. It was found that yields significantly decrease after peaking at an annual mean temperature of 27.5℃. When climate change scenarios are applied to this relationship between temperatures and yields, under the RCP2.6 scenario, significant decrease in yields are not expected at either Sabah and Riau. Meanwhile, under the RCP8.5 scenario, Sabah is expected to see a slight decrease in 2050 and an approximately 30% decrease in 2070, while Riau is expected to see a decrease of approximately 25% in 2050 and approximately 40% in 2070.

Fig. 6. Relationship Between Annual Mean Temperature and Palm Oil Yield

Fig. 7. Palm Oil Yield Prediction Accounting for IPCC’s Temperature Predictions (RCP2.6 and RCP8.5)

Table 8. Expected Temperature by Year for Each Scenario

Area	Scenario	Temperature (℃)
		2050	2070
Sabah	RCP 2.6	26.27	26.24
	RCP 8.5	27.65	28.66
Riau	RCP 2.6	26.39	26.34
	RCP 8.5	27.72	28.72

❷ Relationship Between Oil Palm Age and Palm Oil Yield

Fig. 9 (Relationship Between Oil Palm Age and Palm Oil Yield) shows the relationship between oil palm age and palm oil yield. Yield increases linearly with the growth of oil palms until the age of 9 years, plateauing after reaching the age of 10 years, and shifting to a decrease from the age of 18 years.

Fig. 9. Relationship Between Oil Palm Age and Palm Oil Yield

Fig. 10 (Tree Age Distribution of Current Oil Palm Plantations) shows the tree ages of oil palm plantations in Sabah and Riau. As of 2023, Sabah has a high proportion of older plantations with trees aged 20 years or more, while Riau has predominantly younger plantations with trees aged 10 years or less.

Fig. 10. Tree Age Distribution of Current Oil Palm Plantations

❸ Relationship Between Oil Palm Tree Age and Disease Incidence

Fig. 11 (Relationship Between Oil Palm Tree Age and Basal Stem Rot Disease Incidence) and Fig. 12 (Trend of Basal Stem Rot Disease Incidence by Area) show the relationship between oil palm tree age and disease incidence, with the rate of basal stem rot increasing as oil palms grow older. In Sabah, as shown by ❷, there are many old plantations with tree ages of 20 years and older. Therefore, the basal stem rot disease incidence may increase exponentially in the future. In contrast, there is a growing number of new oil palm plantations in Riau, with many young oil palms. As such, the disease incidence is expected to increase at a lower rate compared to Sabah. Furthermore, as shown in Fig. 11, it is expected that the disease incidence will increase due to the repeated replanting of oil palms.

Fig. 11. Relationship Between Oil Palm Tree Age and Basal Stem Rot Disease Incidence

• *"Second-generation oil palm” and "Third-generation oil palm” refer respectively to the second and third cultivation cycle of new oil palms that were replanted after the end of the initial cultivation cycle (usually 25 to 30 years).

Fig. 12. Trend of Basal Stem Rot Disease Incidence by Area

❹ Impact of Oil Palm Tree Age and Disease Incidence on Yields

Fig. 13 (Trend of Palm Oil Yield Accounting for Tree Age and Basal Stem Rot Disease Incidence) shows the relationship in oil palms between tree age, disease incidence, and yields. In Sabah, considering the spread of diseases, yields in the area analyzed are decreasing after peaking in 2015. Furthermore, yields are predicted to decrease significantly (approximately 40%) as oil palm plantations become younger subsequently. Even for Riau, which has many young oil palms compared to Sabah, there is a high possibility that yields will gradually decrease from 2030 onward.

Fig. 13. Trend of Palm Oil Yield Accounting for Tree Age and Basal Stem Rot Disease Incidence

❺ Impact of Oil Palm Disease Incidence and Rising Temperatures on Yields

Fig. 14 (Trend of Palm Oil Yield Accounting for Basal Stem Rot Disease Incidence and Climate Change) shows the relationship in oil palms between disease incidence, rising temperatures, and yields. In Sabah, it is not possible to avoid a drastic decrease in yields from the replanting of oil palms. Furthermore, even from 2040 onward, when the oil palms have grown to around 10 years old where yields stabilize, the disease incidence will also increase due to continuous cropping as the number of replanting increases. Therefore, yields are expected to drastically decrease to around half of their peak. In Riau, production scale will continue to expand until around 2030, after which it is expected to go into decline. The gradient of decline is gradual under the RCP2.6 scenario, with the expectation that the same level will be maintained until around 2050.

Fig. 14. Trend of Palm Oil Yield Accounting for Basal Stem Rot Disease Incidence and Climate Change

❻ Improvement in Palm Oil Yields Due to Measures Against Diseases

Fig. 15 (Trend of Yields When Measures Are Implemented Against Climate Change and Diseases) shows effectiveness of disease control measures to combat lower palm oil yields caused by rising disease incidence. It was found that even if measures against diseases are applied to only 50% of the overall area of oil palm plantations, the effects would be close to implementing such measures at 90% of the overall area. When looking at the effects by area, yields in Sabah are expected to increase, while in Riau, the decline in yields can be effectively mitigated.

Fig. 15. Trend of Yields When Measures Are Implemented Against Climate Change and Diseases (Based on RCP2.6)

❼ Negative Impacts of Land Use Change on Local Biodiversity

Fig. 16 (Estimated Change in Biodiversity Across the Assessed Areas) shows the negative impacts on biodiversity due to land use change, in other words, the expansion of oil palm plantations. During our estimation process, based on information from document sources and such, we assumed the following hypothesis: from 1992 to 2023, species richness at oil palm plantations decreased by approximately 75%, by approximately 20% at other farmlands, by approximately 30% at urban areas with a lot of greenery, and approximately 3% at secondary forests that have naturally recovered after being destroyed once. These rates of species decline by land use were applied to land use at the assessed areas in Sabah and Riau (200 square kilometers) to estimate the degree that biodiversity has declined across the assessed areas.

At the assessed areas, more than 90% of biodiversity was maintained up to 1992, before oil palm plantations started to expand. However, with the expansion of oil palm plantations, by 2023, biodiversity is deemed to have decreased to approximately 85% in Sabah and approximately 65% in Riau.

Fig. 16. Estimated Change in Biodiversity Across the Assessed Areas

❽ Positive Impacts on Biodiversity from Reviewing Oil Palm Cultivation Methods

Fig. 17 (Predicted Impacts on Biodiversity from Reviewing Oil Palm Cultivation Methods) shows the positive impacts on biodiversity when oil palm cultivation methods are reviewed as an action against the negative impacts on biodiversity arising from the expansion of oil palm plantations (❼).Assuming that the biodiversity within oil palm plantations increases by 30% through the use of alley cropping for all new oil palm plantations planted in the future, we predicted the future changes in biodiversity.

Fig. 17. Predicted Impacts on Biodiversity from Reviewing Oil Palm Cultivation Methods

The development of oil palm plantations in Sabah has progressed to a stage where there is no room for further development. From this trend of a sudden increase in oil palm plantations, there are concerns about lower yields and spread of diseases when plantations reach the period for replanting en masse in the future. Therefore, in Sabah, it is important to aim to increase biodiversity within oil palm plantations, such as adopting alley cropping when replanting them.

Even now, deforestation continues to increase in Riau. In particular, oil palm cultivation at coastal peatlands with high biodiversity faces the risk of damage from high tides arising from rising sea levels. These are also areas with high disease incidence. Therefore, in Riau, preventing new deforestation, especially in terms of illegal logging expansion, is more important for biodiversity conservation than improving biodiversity within oil palm plantations.

Priority locations in the TNFD Recommendations are defined as locations that are either material locations (locations where a company has identified material nature-related dependencies, impacts, risks, and opportunities) or sensitive locations (locations adjacent areas important for biodiversity, areas of high ecosystem integrity, and other such areas).

As stated in Strategy A, when identifying the priority locations for the four raw materials (palm oil, cacao, wheat, and shrimp) selected as the scope of assessment, three metrics were considered comprehensively: the production area needed for the procurement of the raw material in question as a key metric for material locations, as well as biodiversity importance* and ecosystem integrity as key metrics for sensitive locations.

In addition, unlike the other three raw materials, progress is being made in ensuring the traceability of palm oil up to the oil mills that are upstream in the supply chain. As such, analysis at the oil mill level (area of 50 km radius centered on each oil mill) was also conducted.

• *This is the importance of biodiversity to the region undertaking production and catch of raw materials. It is a ranking of priority locations for conservation based on the distribution and rarity of each biological group.

Fig. 18. Priority Locations of Four Raw Materials (Representative Locations)

Confirmation of Areas with High Biodiversity Importance at the Oil Mill Level

Based on our list of oil mills consolidating the names and locations (location data) of suppliers that the Group may procure from, we confirmed the biodiversity importance of the terrestrial area spanning 50km around these oil mills. It was found that all of these areas have high biodiversity importance, with particularly high values observed in Sabah (northern Borneo), southern Peninsular Malaysia (e.g., Johor), and Sumatra.

Fig. 19. Biodiversity Importance in Malaysia and Indonesia