Materiality and progress

Materiality
Key Sustainability Topics, KPI, and FY2022 Results
Deciding Materiality

Materiality

Epson sees achieving sustainability in a circular economy, advancing the frontiers of industry, improving the quality of life and Fulfill our social Responsibility as key themes for solving societal issues.

Key Sustainability Topics, KPI, and FY2022 Results

Key Sustainability Topics

In the 2021 fiscal year, Epson selected 12 key sustainability topics to enable us to address four newly identified priority issues (materialities). Epson has incorporated these topics in its mid-range action plans and is driving initiatives to address societal issues and contribute to the SDGs.

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Key Sustainability Topics, KPI, and FY2022 Results

There are 12 key sustainability topics. The table below summarizes the initiative topics, key performance indicators (KPI), and FY2022 results for two of the ESG-related materialities that emphasize corporate sustainability (achieve sustainability in a circular economy and fulfill our social responsibility).
The KPIs for the other two materialities (advance the frontiers of industry and improve the quality of life) are announced in FY2023 as table below.

1. Materiality: Achieve sustainability in a circular economy

Key Sustainability Topics	LTI ¹	Initiative Topics	Key Performance Indicators (KPI)	FY2022 Targets	FY2022 Results	FY2023 Targets
Decarbonization initiatives	●	Using energy-saving equipment and facilities, removing greenhouse gases, engaging suppliers, and pursuing carbon-free logistics to become carbon negative by 2050	Scopes 1 and 2 GHG emissions reduction ratio	Reduced by 21% compared to FY2017	Reduced by 60% compared to FY2017	Reduced by 65% compared to FY2017 (SBT: FY2025 target 34%)
	●		Scope 3 GHG emissions (per unit of business profit) reduction ratio	Reduced by 30% compared to FY2017	Reduced by 45% compared to FY2017	Reduced by 45% compared to FY2017 (SBT: FY2025 target 44%)
		Using renewable electricity to achieve RE100	Renewable electricity adoption ratio	Maintain at 100% domestically	Maintained at 100% domestically Achieved 79% globally	Global 100%
Closed resource-loop initiatives		Becoming underground resource2 free by 2050: Using resources efficiently by reducing size and weight, using recycled materials, etc. Establishing closed-loop production systems that minimize production losses	Closed-loop materials usage ratio (until FY2022) Sustainable resource ratio³ (from FT2023)	≥20%	21%	Sustainable resource ratio 27% (Defined and started applying from FY2023)
Closed resource-loop initiatives			Final landfilled ratio⁴	≤1%	0.79%	≤1%
Customer environmental impact mitigation		Maximizing avoided emissions with products and services that have a lower environmental impact⁵	Emissions avoided through products & services	≥The previous year	297,000 tonnes-CO₂e A 107% YoY	Start calculation using a new logic and set a target
Environmental technology development		Eliminating virgin plastics and closing resource loops by using Dry Fiber Technology to produce recycled materials and natural materials. Packaging materials Housing materials	Progress of development process	Packaging: Verify practical use for Epson products Housings: Begin technology verification for practical use	Packaging: Achieved practical application to watches (cotton scraps) Housings: Improved the impact resistance of cellulose composite biomass plastic	Expand the scope of practical use
Environmental technology development		Establishing high-added-value recycling technology for used metal	Progress of development process	Develop technology for expanding the types of materials recycled	Higher performance of Epson Atmix's powder: Developed a high-voltage-resistant insulating film	Make practicable use of technology that adds value to metal powder (molding materials)

¹ Compensation evaluation indicator
² Non-renewable resources such as oil and metals
³ Ratio of sustainable resources (renewable resources + closed loop resources + less-depletable resources) to raw materials
⁴ Ratio of landfilled amount of production resources against the volume of resources injected
⁵ Quantified the contribution of products and services toward GHG emissions reductions

2. Materiality: Advance the frontiers of industry

Key Sustainability Topics	Initiative Topics	Key Performance Indicators (KPI)	FY2022 Targets	FY2022 Results	FY2023 Targets
Improving productivity through digitization and automation	Leading the digitization of commercial and industrial printing with inkjet technology and diverse solutions, to create clean, space-efficient workplaces, reduce environmental impact, and improve productivity	Average sales growth rate of commercial and industrial inkjet printers compared to the previous year	- ⁶	- ⁶	10%
Improving working environment and educational environment	Reducing environmental impact and improving productivity with inkjet technology and open solutions, to lead the evolution of home study and distributed office printing	Average sales growth rate of high-capacity inkjet printers for SOHO and home users compared to the previous year	- ⁶	- ⁶	5%
	Eliminating labor shortages through automation using robots	Number of labor shortages eliminated⁷	- ⁶	- ⁶	28,000 people
	Providing a fair, natural, and comfortable communication environment without boundaries, combining the real and remote, with both a sense of presence and information content	Number of co-creation and collaboration projects, or number of partners	- ⁶	- ⁶	Co-creation / collaboration project: 1
	Creating homogeneous learning opportunities through smart, portable displays that enable large-screen communication in a compact form, to mitigate learning disparities stemming from differences in regional and social conditions	Number of local demonstration programs through co-creation and collaboration	- ⁶	- ⁶	Number of value demonstration program: 20

¹ Compensation evaluation indicator
⁶ Materialities of "Advance the frontiers of industry" and "Improve the quality of life" as well as their targets were adopted in FY2023.
⁷ Converted based on the effect of Epson's internal projects

3. Materiality: Improve the quality of life

Key Sustainability Topics	LTI ¹	Initiative Topics	Key Performance Indicators (KPI)	FY2022 Targets	FY2022 Results	FY2023 Targets
Proposing diverse lifestyles		Enriching the diverse lifestyles of people through lifestyle-related disease prevention and helping people improve their sports performance by providing personalized value in an easy-to-understand visual manner using proprietary sensing technology and algorithms	Percentage of revenue that the data business in support services ⁸ accounts for	- ⁶	- ⁶	30%
Realizing an abundant and colorful life		Providing attractive and high-quality products with our efficient, compact, and precision technologies and our artisanal skills, to enrich the diverse lifestyles of our customers	Sales growth rate of attractive, high-quality products compared to the previous year	- ⁶	- ⁶	4%

¹ Compensation evaluation indicator
⁶ Materialities of "Advance the frontiers of industry" and "Improve the quality of life" as well as their targets were adopted in FY2023.
⁸ A business model that transforms data into algorithms and provides value

4. Materiality: Fulfil our Social Responsibility

Key Sustainability Topics	LTI ¹	Initiative Topics	Key Performance Indicators (KPI)	FY2022 Targets	FY2022 Results	FY2023 Targets
Increasing stakeholder engagement		Responding to needs and social demands by strengthening dialogue with stakeholders	Social support activities, monetary value of support	≥0.1% of sales	0.1% of sales	≥0.1% of sales
			Number of dialogs with shareholders and investors and reflecting opinions on management	≥200 meetings with shareholders & investors	269 times	≥200 times
			Evaluation indices of external evaluation agencies	Acquired high recognition⁹	Acquired high recognition	Acquire high recognition
Realizing responsible supply chains		Reinforcing supply chain BCM	Impact on customers due to disruption and stagnation in supply chain (Aiming to have no impact on sales in FY2024)	Impact on sales Half that compared to FY2021	Impact of supply chain disruption on sales was limited to certain businesses Significantly cleared the target	Minimize the impact of supply chain disruption on sales to zero
	●	Realizing responsible supply chains	CSR risk levels of suppliers	CSR risk rank of main suppliers (direct materials): 0% high risk, ≤ 6% middle risk	High risk: 0% Middle risk: 9%	CSR risk rank of main suppliers (direct materials): 0% high risk, ≤ 4% middle risk Main suppliers (indirect materials): 0% high risk
		Realizing responsible sourcing of minerals	Conflict-free (CF) ratio of products	Release CF information for CF strategic products	Smelter confirmation of CF strategic products	Release CF information for CF strategic products
		Realizing responsible sourcing of minerals	Survey response ratio¹⁰	100% survey response ratio	Survey response collection ratio: 99.6%	100% survey response collection ratio
Respecting human rights and promoting diversity		Creating a free and open organizational culture	Organizational climate assessment score for "strength to work in teams"	Reset KPI due to change10 in assessment method with introduction of the motivation cloud (employee engagement survey)	The targets for FY2025 were set as follows Engagement rating: A (score of 58.0 or higher) Number of workplaces with D rating: zero	Motivation Cloud Engagement rating: BB (score of 54.0 or higher) Number of workplaces with D rating: 31
			Number of high risk workplaces with "general health risk" in the mental health check¹¹	Reduce the number of high risk workplaces with "general health risk" from the previous year, heading toward zero	Reduced the number of high-risk workplaces compared to FY2021	Fewer than FY2022
			Implementation of harassment prevention measures (education and training, case sharing, appointment process, etc.), ensuring to report cases to the head office	Plan & conduct new training course for managers & for general staff	Revised training content based on social trends, sanction cases, etc.	Revise training content based on social trends, sanction cases, and common issues. Periodically provide training for help desk personnel
				Strengthen primary point of contact for harassment consultations & strengthen coordination with the post-report process	Identified company-wide issues in response to common activities of the contact points Confirmed standard response at each contact point	Identify company-wide issues Specify standard operations, verify the possibility of outsourcing part of contact point operations to reduce load
		Respect for human rights through dissemination of the new "Human Rights Policy" within the Group	Embedding and improving the commitment for respecting human rights, human rights due diligence (DD) and relief mechanism	Announce the Human Rights Policy and assess and improve the state of human rights DD & remediation mechanisms	Disseminated the Human Rights Policy by launching training and identified the current status and areas for improvement of human rights DD and relief mechanism	Embed and improve a PDCA cycle for respecting human rights Japan: Establish a system for cooperation with various help desks Overseas: Establish a system for gathering information and understanding the situation by clarifying rules for receiving reports from help desks of overseas affiliates
	●	Utilizing human resources in a way that respects diversity	Female management position ratio (the Company)	Female manager ratio: 5%	Female manager ratio: 4.1%	Female manager ratio: 5% Female assistant manager (senior staff) ratio: 8%
	●	Utilizing human resources in a way that respects diversity	1 or more female executive officers by FY2025 (in Japan)	Promote the participation of woman training	Two managers participated in external training
Fulfil our Social Responsibility	●	Reinforcement of compliance management platform	Number of serious compliance violations¹²	No serious compliance violations	No serious compliance violations	Serious compliance violations: 0
		Enhancement of Group compliance level	Implementation ratio of compliance training (e-learning) to all Group employees¹³	Completion rate in Epson Group: 100%	In Japan: 99.0% Overseas: 98.5%	Completion rate in Epson Group: 100%
		Maintenance and strengthening of governance structure to realize transparent, fair, prompt and decisive decision-making	Ratio of outside directors on the board of directors	Maintain the ratio of outside directors on the board at ≥ 1/3	Ratio of outside directors on the board of directors:: Maintained 1/3 or more	Maintain the ratio of outside directors on the board at ≥ 1/3
			Ratio of outside directors on the nomination & compensation committees	Maintain the ratio of Outside Directors on the Nomination & Compensation Committees at ≥80%	Ratio of outside directors on the nomination & compensation committees: Maintained 80% or more	Maintain the ratio of outside directors on the nomination & compensation committees at ≥ 80%
		Strengthening information security	Number of serious information security incidents	0	2	0

¹ Compensation evaluation indicator
⁹ Sustainalytics: Low; FTSE: 4 or higher; Top 50 or higher in "Toyo Keizai CSR ranking"
¹⁰ Ratio of suppliers who submitted answers to supplier survey requests
¹¹ The scope of target management is workplaces to which at least 10
¹² Cases of violation that correspond to timely disclosure matters
¹³ Scope: Epson and its global subsidiaries

Deciding Materiality

When establishing the Epson 25 Renewed corporate vision in 2021, Epson referenced the societal issues and megatrends described in SDGs, ISO 26000 and other sources, evaluated them from both a company perspective and a social perspective, and identified the high-priority issues (materialities) that Epson should address to solve societal issues.

Material Trends and Frameworks Referenced

- The Sustainable Development Goals (SDGs)
- Task Force on Climate-related Financial Disclosures (TCFD)
- Macro trends in the social and economic fields, including climate change (European Green Deal Policy, Paris Agreement, etc.)
- Global Japan: 2050 Simulations and Strategies
- GRI Standard
- SASB Standard
- ISO 26000
- Socially Responsible Investing (SRI) survey items
- Responsible Business Alliance (RBA) Code of Conduct