3 Resolution of ESG issues through growth strategies

Resolution of ESG issues through growth strategies

Based on its Sustainability Policy, Komatsu strives to contribute to society through its business in the next 100 years. The Company has defined six material issues (materiality)-environment, customers, employees, ethics and governance, human rights, and communities-that were deemed to have material importance in terms of their impact on sustainability and their business importance. By addressing these material issues, we aim to generate a positive cycle for resolving ESG issues and improving earnings to achieve sustainable growth by creating value for customers.

(Disclosure based on TCFD recommendations)

―Message from President, Mining Business Division Partner message (Rio Tinto)

―Special feature: Global human resource development

3 Resolution of ESG issues through growth strategies

(Disclosure based on TCFD recommendations)

Komatsu established the Komatsu Earth Environment Charter (currently known as the Komatsu Earth and Environment Policy) in 1992, launching proactive initiatives for addressing climate change and other environmental issues a step ahead of its peers. In April 2019, Komatsu announced its endorsement of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Through climate change risk and opportunity assessments and scenario analyses based on these recommendations, we will pursue increases in our resilience toward climate change impacts. At the same time, we will advance climate change response measures through a healthy dialogue with stakeholders.

A total of 16 climate change-related risks and opportunities

We then assessed internal factors, which impact sales and

were identified for Komatsu, primarily in relation to construc-

earnings, and external factors, which are projected by the

tion and mining equipment business, based on the examples of

selected scenarios. Through this process, the 16 risks and

risks and opportunities included in the final report by the TCFD.

opportunities were grouped into four major themes.

At the 26th United Nations Climate Change Conference held in the United Kingdom (COP26), an agreement was reached to work toward limiting the average rise in global temperatures to 1.5ºC above pre-industrial levels in November 2021. In the past, scenario analyses have only been based on scenarios projecting average rises of 2ºC or 4ºC. However, based on this agreement and following discussions by the Sustainability Promotion Committee and the Strategy Review Committee, with reports to the

Risks and opportunities and groupings

Board of Directors, it was decided to also select a scenario projecting rises of 1.5ºC for analyses beginning in 2022.

• Changes in reputation among customers and investors

• Trend toward electric equipment

• Increased resource demand related to

Komatsu views climate change as an important management issue, and targets for combating climate change have been incorporated into its business strategies.

Discussions regarding climate change are held at meetings of the following committees, and these committees report to the Board of Directors, thereby furnishing a system of appropriate oversight.

Climate change-related reporting and deliberation system

• Subsidiaries for renewable energy and energy

• Next-generation technical services (new market)

• Popularization of renewable energy technologies

• More frequent abnormal weather events

• Increased precipitation amounts and weather patterns

• More stringent fuel regulations

• Progress in electrification and

• Rising manufacturing costs due to

* CO2 taxation measures for reducing emissions

Major discussion items related to climate change

Major discussion items related to climate change

• Discussions regarding goal of achieving

• Reports from research, development, and

product planning divisions and the Chief

• Establishment of Sustainability Policy

• Formulation of new mid-term management plan

• Reports from production and

• Reports from the Sustainability Promotion

Business risks and opportunities based on climate change scenarios

• Mid-term management plan progress report

• Low-carbon product development strategies

• Growth strategies for major production bases

• Mining business growth strategies

• Forestry machinery business growth strategies

• Smart Construction growth strategies

• Progress in product development (including climate change-related KPIs)

Major discussion items related to climate change

• Initiatives for addressing ESG issues

• Deliberations and reports regarding important environ-

mental matters and key performance indicators (KPIs)

• Revision of environmental policies

• Reports on responses to natural disaster risks

To gauge the potential impacts of climate change-related risks and opportunities on Komatsu's business, we performed scenario analyses of the Company's four major risk and opportunity themes.

For these scenario analyses, we selected a 1.5°C scenario, a 2°C scenario, and a 4°C scenario based on the Fifth Assessment Report (Representative Concentration Pathways

2.6 and 8.5) and the Sixth Assessment Report (Shared

Socioeconomic Pathways 5-8.5) of the Intergovernmental Panel on Climate Change, and the Sustainable Development Scenario, the Stated Policies Scenario, and the Net Zero by 2050 scenario of the International Energy Agency (IEA).

The risks and opportunities associated with changes in resource demand, the transition to low-carbon products, and manufacturing costs were the greatest in the 1.5°C and 2°C scenarios whereas the risks and opportunities associated with natural disasters were the greatest in the 4°C scenario. Information on the risks and opportunities related to each of the four major themes, as well as Komatsu's response to these risks and opportunities, is displayed on the following page. The 1.5°C scenario projects particularly large fluctuations in resource demand. Accordingly, we have chosen to quantify resource demand as it relates to Komatsu's business.

3 Resolution of ESG issues through growth strategies

Resource demand forecast based on 1.5ºC scenario

• Regulation of power generation using fossil fuels

• Rapid transition from fossil fuel-powered equipment to electric equipment

• Higher demand for copper and other resources necessary for electric equipment

• Massive reductions in coal production volumes

(motors, batteries, fuel cells, etc.)

• Reduced sales to coal-related customers by Komatsu

• Increased sales to copper and other relevant mining-related customers by Komatsu in

Under the Net Zero by 2050 scenario (1.5ºC scenario) of the International Energy Agency (IEA) it is projected that, as a result of the decarbonization trend, demand for coal, a soft rock resource, will decline to an even greater degree than predicted by the 2ºC scenario. Conversely, demand is expected to grow for the critical minerals that are indispensable to clean energy tech- nologies. In addition, demand for iron, copper, gold, and other hard rock resources is anticipated to remain strong due to

increased demand related to the global trend toward electrified equipment. There may be temporary fluctuations in mineral demand due to global conditions, but the aforementioned trend is expected to be a more or less consistent fixture under the 1.5ºC scenario. It can therefore be projected that the sales of Komatsu mining equipment to mining companies excavating mineral resources will mirror this trend.

• Reduced appetite for investment in coal mines

conjunction with trend toward electric equipment

• Increased investment for improving the efficiency of mining operations

By advancing initiatives based on the three pillars of growth strategies of the mid-term management

plan-accelerate growth by means of innovation, maximize earnings power, and enhance corporate

resilience-Komatsu will capitalize on opportunities created by changes in resource demand to achieve sustainable growth.​

Expansion of hard rock mining equipment business

Komatsu concluded an agreement with CODELCO (Corporacion Nacional del Cobre de Chile) to conduct a trial for promoting the Company's Mining Tunnel Boring Machine (TBM) for use in a new tunnel excavation method for hard rock mining (announced in July 2022).

Resource demand projections of IEA's 1.5ºC scenario (Monetary value basis)*1

(Billions of U.S. dollars)

*1 Source: Based on IEA data from the IEA (2021), Net Zero by 2050: A Roadmap for the Global Energy Sector, https://www.iea.org/data-and-statistics. All rights reserved.​

(Reference) Critical chemical demand by application*2

*2 Source: Based on IEA data from the IEA (2021), World Energy Outlook 2021. https://www.iea.org/data-and-statistics. All rights reserved.​

Komatsu will propose this product together with new excavation method, aims to realize the transforming customers' operations.

In addition, in July 2022 the Company acquired Australia-based Mine Site Technologies Pty Ltd, a provider of operational optimization platforms for

underground mining that leverage communication devices and position tracking systems. Together with this company, we will promote the automation and remote operation of mining equipment for underground mining.

Revisions to business portfolio (Changes to ratios of sales by mineral)

Komatsu has continued to flexibly revise its business portfolio

We are committed to taking advantage of the changes to

in response to changes in the external environment and in

mineral demand spurred by the trend toward electrified equip-

markets. Reorganizations to our coal mining equipment pro-

ment in order to expand our hard rock mining business and

duction and support operations over the years have resulted

achieve ongoing growth in our overall mining equipment business.

in a gradual decrease in the ratio of sales from thermal coal.

Promotion of mining equipment automation and remote operation and open technology platforms

Growth of Komatsu's mining equipment business

Ratio of sales of Komatsu mining equipment

business by target mineral (FY2018 vs. FY2021)​

Komatsu seeks to promote optimized, high-productivity operations through the automation and remote operation of mining equipment.

By developing open technology platforms for this purpose, we aim to boost productivity by linking all of our customers' processes. This heightened productivity is anticipated to contribute to reductions in fuel use and CO2 emissions and subsequently to the realization of carbon neutrality.

■ Thermal coal ■ Coking coal ■ Copper ■ Other

3 Resolution of ESG issues through growth strategies

• Higher development and capital investment costs due to emissions

• Rising demand for electrified equipment, fuel-efficient equipment, and biomass

fuel-powered equipment; ability to respond swiftly to impending changes in

• Reduced sales due to inability to cater to customer

strategic markets fostered through adaptation in traditional markets

• Growth of equipment restoration (Reman) operations driven by transition to

• Substantial changes in technology development and competitive

climate including market entry by new competitors

• Increased demand for solutions businesses with emissions-reducing benefits

• Long-term diminishment of technological edge as customers begin

• Increased product reliability due to securing stable supply sources for high-

leading the drive in component development and manufacturing projects

quality components for storage batteries and others

Komatsu is advancing initiatives aimed at achieving carbon neutrality while facilitating the transition to

the low-carbon products the world demands.

Development of construction and mining equipment using various power sources together with partners

Cyclical businesses-Forestry machinery and reman businesses

• Taxation of fossil fuels and CO2 emissions

• Increased competitiveness through production

• Transfer of higher product purchase prices to Komatsu

technologies that reduce CO2 emissions

• Rising power fees and energy costs following investment in power generation facilities with low CO2 emissions

Komatsu will work to mitigate cost increases by achieving its CO2 reduction and renewable energy targets

while developing production bases with low environmental impacts.

*1 Green building certification program for evaluating strategies and approaches for creating outstanding building environments developed by NPO U.S. Green Building Council with certification screening performed by Green Business Certification Inc.

*2 Framework for increasing the priority of environmental investments through assessments of capital investment returns that position CO2 reduction benefits as a value similar to cost reduction benefits

• Increased frequency of heavy rain and floods due to abnormal weather

• Increased demand for flood-control works

• Risks of disaster damages to Komatsu plants at high risk of flooding

• Component supply delays following damages to suppliers from disasters

Komatsu will implement countermeasures against heavy rains and flooding across the value chain

Build production and procurement systems that are resilient to changes in the operating environment (expand ratio of items procured from multiple sources)

Please refer to page 74 for information on the Company's risk management systems.

Climate change-related indicators and targets

Komatsu is conducting investments that are appropriate for accomplishing the aforementioned objectives. Please refer to the

following website for information on environmental investments in FY2021.

https://komatsu.disclosure.site/en/themes/143

Become carbon neutral by 2050 (challenging goal)

Increase to 50% of total energy use by 2030

3 Resolution of ESG issues through growth strategies

Message from President, Mining Business Division

Komatsu will lead the mining

equipment industry by creating the safe, highly productive,

smart and clean workplaces of the future

businesses in light of the changing trends in underground mining.

Moreover, we look to aid customers in realizing zero-emissions operations by expanding partnerships through the Komatsu GHG Alliance, which was founded in 2021. Other efforts to this end will include a focus on developing electrified mining equipment and power agnostic concept trucks that can run on a variety of power sources. Through these efforts, we will work toward the challenging goal of achieving carbon neutrality by 2050 described in the mid-term management plan.

Looking ahead, Komatsu will continue its quest to create the safe, highly productive, smart and clean workplaces of the future by partnering with customers to resolve the issues they face in their workplaces. This will be done while monitoring trends in the operating environment and in markets worldwide. We are committed to thereby leading the mining equipment industry and achieving ongoing growth.

Senior Executive Officer President, Mining Business Division

continued partnership with Komatsu underscores our shared commitment to actively collaborate on product planning, development, testing, and deployment of the next generation of zero-emission mining equipment and infrastructure as we look to decarbonize our business. Decarbonizing mining operations is one of the

biggest challenges for our industry. Addressing climate

The recent rise in concern for climate change is inspiring global change in pursuit of carbon neutrality. This is also true for the mining companies we serve, which are faced with the important management issue of working toward zero emissions in mining operations. At the same time, global resource demand is growing. We therefore anticipate increased demand for hard rock mining of copper, nickel, and other resources in conjunction with population growth, urbanization, and the trend toward electrified equipment as part of decarbonization efforts. Demand for soft rock mining of coal, meanwhile, is projected to decline.

Komatsu has continued to adjust its business portfolio flexibly in response to such changes in the operating environment and market trends. For example, we reorganized our production and support systems for mining equipment used for underground mining of coal. We are also supplying new equipment and solutions for mining of copper, iron ore, and nickel.

Customers are currently faced with the need to

address two tasks that seem to be in opposition to one another: catering to higher demand and achieving zero-emissions operations.

The robust resource demand is prompting deeper and deeper drilling at existing mines. Meanwhile, concern for environmental issues and impacts on communities are expected to lengthen the amount of time required to get permits for developing new mines. Customers are thus being forced to mine in increasingly remote locations and at even greater depths. This situation is creating new issues for customers, issues that Komatsu, as a partner, will need to help resolve through innovations in the automation, remote opera- tion, and electrification of equipment.

The new mid-term management plan launched in 2022 calls on us to promote mine-wide optimization through digital linkage of Komatsu mining equipment to address the operation needs of more remote and deeper mines. Measures toward this goal include enhancing our Autonomous Haulage System for operating unmanned dump trucks; producing drills, hydraulic excavators, bulldozers, and other equipment compatible with remote and automatic operation; and developing and launching our open mining technology platform. At the same time, we will be expanding our range of hard rock mining equipment products and

Komatsu has been and continues to be a key collaborator in solving our challenges, including decarbonization.

To achieve our decarbonization ambitions, Rio Tinto is working with key partners like Komatsu.

Rio Tinto and Komatsu share a long history of partnership on innovation going back to when we built the world's largest Komatsu autonomous haulage fleet in 2008.

Since early August 2021, we have partnered with Komatsu to fast-track the development and implementation of zero-emission mining haulage solutions, including haul trucks. We will conduct a pre-production trial of the new equipment at a Rio Tinto site, and we look forward to successful collaboration, development, and deployment of energy-efficient trucks that will operate safely at our sites.

At Rio Tinto, we are always excited to work with like-minded partners to identify opportunities to improve our operations and to excel together. Our

change effectively requires businesses, governments, and society to work together. Our collaboration with Komatsu recognizes the role zero-emission haul trucks will play in meeting the emission reduction goals of not only Rio Tinto but the entire mining industry.

We are also proud to be one of the first companies to join Komatsu's Greenhouse Gas (GHG) Alliance. Being part of the Alliance gives us the opportunity to contribute to innovation and the scaling up of industry-wide sustainable solutions. Through regular engagement, sharing of knowledge, and identifying operational opportunities, we are optimistic that the Alliance will collectively accelerate decarbonization efforts.

Our partnership with Komatsu has also extended to a collaborative educational support, in the form of

10-yearKomatsu-Rio Tinto Scholarship Program. For

10 years between 2011 and 2021, we supported 333 students who were affected by the disastrous Great East Japan Earthquake and had challenges continuing their studies for financial reasons.

We are grateful for the long-standing and multi-­ faceted partnership with Komatsu and look forward to continued success.

Komatsu Ltd. published this content on 09 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 September 2022 07:59:03 UTC.