###### We have a company with a Nominating Committee, etc. system. The Board of Directors serves as a monitoring board, oversees the execution side, and deliberates and decides on important matters related to the management policies of the entire Group. The ESG Promotion Office proposes the Group's basic sustainability policies, including climate change countermeasures, materiality, and important measures such as TCFD and RE100, which are then deliberated and decided by the Board of Directors. In addition, the Board of Directors receives regular reports (twice) from the Chief Sustainability Officer (CSO) on the progress of the Group's response to climate change. Furthermore, the Board of Directors deliberate six times on climate change-related issues related to the activities of the business divisions and provides advice from various perspectives in FY2023.
Since management is conducted under a business division system through portfolio management, policies for responding to climate- related issues in each division are reflected in the management strategies, management plans, and annual budgets of each business, which are approved and resolved by the Board of Directors. Furthermore, the presidents of each business division appoints a team in charge of ESG, which develops measures for their KPIs established by each business division after consulting with CSO about KPIs that are consistent with group targets and supervises progress. KPIs set by individual divisions are monitored and supported by ESG Promotion Office at the global HQ. and the effectiveness of KPIs is enhanced by setting key items as annual incentive-assessment items for presidents of business divisions.
In addition, from FY2022, ESG indicators have been introduced in Performance Share Units (PSUs), the medium- to long-term incentives for Executive Officers' compensation, and targets have been set based on evaluations by external organizations and the status of initiatives on ESG themes (including climate change and human capital) that are important to the Company. Also, we have enhanced the effectiveness of annual incentives for presidents of business divisions by making important KPIs among ESG-related targets set by each business division an evaluation item (e.g., ratio of renewable energy use, henceforth \"renewable energy power ratio\") since FY2023. [...] ###### In March 2022, CSO was appointed and the ESG Promotion Office at the Group headquarters was established. The CSO and ESG Promotion Office play a central role in promoting activities related to HOYA Group-wide sustainability /ESG. In addition, HOYA has a fully independent business division structure. Each division was voluntarily engaged in initiatives related to sustainability /ESG, but in May 2022 we established ESG counterparts in each division to coordinate with ESG Promotion Office at the head quarters. Through collaboration between CSO, ESG Promotion Office and ESG counterparts of each business divisions, management discussions are also reflected in the promotion of integrated group-wide activities. These activities are also reported by CSO to the Board of Directors and monitored by the Board of Directors. [...] ###### The Group conducts portfolio management and responds to changes in the business environment by reviewing its portfolio through the development of new businesses, acquisitions from external sources, and business transfers. In addition, we have appointed a person in charge at the Group Head Quarters who is responsible for functions that we believe pose significant risks to us, such as compliance, regulatory compliance, cybersecurity, and health and safety. The person responsible for identifying and preventing risks through the person responsible for these functions in each division is reported to the Board of Directors once a year by the person responsible at the Group Head Office. Climate change risks are handled in an integrated manner with these and are reported to the Board of Directors by the CSO.
ESG Promotion Office under CSO monitors changes in circumstances surrounding climate change with the participation of outside experts and analyses them once a year.
In FY2022, we analyzed the risks and opportunities associated with our two business divisions' key operations, where GHG emissions are high and climate-change impacts are high. In FY2023, the analysis was expanded to include the OP Division, which has the third largest GHG emissions after these two business divisions.
In the event of a significant change in circumstances resulting from monitoring, the head office TCFD projects and business divisions, including the Head Office ESG Promotion Office, IR, and members of the Environment, Health, and Safety Department, collaborate to review physical risks related to climate change. Responses to these risks will be coordinated with appropriate divisions within the respective divisions (e.g., departments related to production, store development and procurement) under the supervision of the responsible persons in charge of each business division. The risks associated with changes in the business environment due to climate change (transition risks) will also be shared with the sustainability /ESG teams/staff in business divisions around the world based on the above analyses, as well as the environmental, quality assurance, and procurement-charge departments related to sustainability, and appropriate countermeasures will be formulated for each business division.