Our Strategy for Climate-related Risks and Opportunities -TCFD Scenario Analysis-

Given the international community’s commitment to achieve the long-term goals of the Paris Agreement, Nippon Steel recognizes climate change as one of the most critical global challenges. We support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and, in line with these recommendations, are advancing the disclosure of information on the impacts of climate change on our business activities.

Scenario analysis

For each transition factor and physical factor, we have identified risks and opportunities that may have a significant impact on our business in the areas of upstream procurement, direct operations, and downstream demand for products and services. We have then considered strategies for each scenario.

In conducting the scenario analysis, we have used the climate change scenarios of the International Energy Agency (IEA) as a base, and evaluated medium- to long-term risks and opportunities up to 2050, by referring to the IEA’s 1.5°C scenario (NZE2050) and the below 2°C scenario (B2DS) in transitional aspects and the 4°C scenario (NPS) in the aspects of physical impacts.

Reference scenario

1.5°C/2°C scenario: IEA "Global Electric Vehicle Outlook 2025"／IEA WEO2022　NZE2050／IPCC Special Report on the impacts of global warming of 1.5°C／IEA WEO2018 SDS／IEA ETP 2017 B2DS

4°C scenario: IEA WEO2018 NPS/IPCC AR5 RCP

TCFD scenario analysis

1.5℃/2℃ scenario

Factors (risks and opportunities)	Events (expectations and concerns of stakeholders)	Impact on Nippon Steel (risks and opportunities)	Nippon Steel’s strategy (including future responses)
Transition factor 1 Advance in electric vehicles (EVs)	World annual EV sales: 40 million units, 42% market share in 2030 (vs. 6.6 million units, 9.0% market share in 2021)^*1	Opportunities in demand growth for our steel products (opportunity) Increase in the global total number of cars and resultant increase in steel demand despite a decline in the share of steel demand for cars equipped with internal combustion engines due to the growth of EVs’ share of the new car market (opportunity) Increase in demand for high-performance steel products — our area of strengths, such as electrical steel sheets for EVs	Capture growing demand by strengthening the global supply of electrical steel sheets
Transition factor 2 Shift to other lightweight materials, prompted by tighter fuel efficiency regulations, etc. (multi materials)	Shift to other lightweight materials, prompted by tighter fuel efficiency regulations, etc.	Opportunities in demand growth for high-strength steel and capturing of demand for other materials (risk) Some possibility of switching to other lightweight materials but little prospect for significant progress since steel excels in environmental evaluation from the LCA perspective, including the production stage and material recycling, and automakers increasingly emphasize the evaluation from the LCA perspective (opportunity) Increase in demand for high-tensile steel, carbon fiber-reinforced plastic (CFRP), titanium, etc.	Strive to further popularize the LCA concept through activities to raise customers’ understanding and lobby the government for regulatory change Further increase the high-tensile strength of steel and provide the lightweight steel structure technology by proposing a comprehensive automotive solution (NSafe™ - AutoConcept) Capture demand for CFRP and other products in cooperation with a Group company (Nippon Steel Chemical & Material Co.)
Transition factor 3 Shift to low-carbon steel (steel that generates low CO₂ emissions in production)	Accelerating shift to low-carbon steel due to change in customers’ demand	Opportunities in demand growth for low-carbon steel (risk) Some shift from converter steel to EAF steel with low CO₂ emissions in production (opportunity) Continued increase in demand for BF steel and converter steel due to insufficient increase in EAF steel to satisfy growing worldwide demand, caused by the limited supply of scrap	Acquire the SuMPO EPD (former EcoLeaf) environmental label for more products Accelerate the Carbon Neutral Vision (innovative technology development, including high-grade steel production in large-sized EAFs and hydrogen steelmaking) Promote the use of direct reduced iron and other measures to reduce CO₂ emissions in existing processes Provide low-CO₂ steel NSCarbolex™ Neutral
	Higher needs for decarbonization in steelmaking process	Fundamental review of steelmaking process is necessary to achieve decarbonization (opportunity) Potential to gain a great competitiveness against global peers if we can advance technological development and investments for realization of the process (risk) Increase in investment burden and operating cost for the introduction of super innovative technologies	Facilitate the development and implementation of innovative technologies by utilizing government support such as the Green Innovation Fund, the GX Economy Transition Bonds as part of “investment promotion measures,” and the strategic materials and production base tax system. Strengthening initiatives for the formation of the GX steel market (with costs shared across society)
Transition factor 4 Higher needs for energyefficient products and technology	Eco-friendly technology solution to boost demand	Opportunities in demand growth for eco-friendly technology (opportunity) Increased demand for products that realize energy savings in the processing by customers (opportunity) Increased demand for products that contribute to energy savings in use of end products (opportunity) Increase in profits through the provision of the Group’s technology solutions that enable energy saving in steelmaking process	Expansion of NSCarbolex Solution, a brand that offers products that realize energy conservation in customers’ manufacturing processes, products that contribute to energy conservation in using their end products, and products that contribute to energy transformation in society Government-private cooperation, technologies customized list, and steelworks diagnosis to provide energy-saving technologies to emerging countries (contribution to the global value chain), e.g., dissemination of CDQ, all of which are handled by a group company (Nippon Steel Engineering), into emerging countries
Transition factor 5 Higher needs for products and solutions associated with a society based on renewable energy and hydrogen	Ratio of renewable energy in world power generation: 88% in 2050 (vs. 28% in 2020) World production of hydrogen: 490 mn tons in 2050 (vs. 90 mn tons in 2020)^*2	Opportunities in demand growth for products of our Group (opportunity) Profit growth by provision of the Group’s products and solutions that support a renewable-energy-oriented society (opportunity) Profit growth by provision of the Group’s products and solutions that support a hydrogen-oriented society	Enhance the Group’s product menu for the renewable-energy society and expand sales in Japan and overseas, e.g., high corrosion-resistant steel sheets for solar power generation mounts, steel plates and steel anchor chains for offshore wind power generation, and steel pipes for geothermal and biomass power generation Enhance the Group’s product menu for the hydrogen society and expand sales in Japan and overseas, e.g., HYDREXEL™ stainless steel for high-pressure hydrogen environments
Transition factor 6 Increase in cost caused by adoption of carbon pricing (CP)	Incremental introduction of carbon pricing (CP) measures	Increasing burdens on our cost due to CP introduction (risk) The GX Promotion Act requires companies to introduce CP while securing time required to work on technology development and capital investment for decarbonization. Although the impact of CP is not expected to be so significant for the time being, our cost burden will increase depending on the design of the emissions trading system (GX-ETS) and the circumstance of shifting the burden of CP to purchasing electricity charges, etc.	Reduce CO₂ emissions through the expanded usage of direct reduced iron, the production of high-grade steel using large EAFs, the advancement of reduction in CO₂ emissions in existing processes, and the advancement and implementation of innovative technologies such as hydrogen steelmaking Continue to request the government to take measures to support heavy emissionproducing industries, which have few options for decarbonization, and measures to support narrowing product price increases due to the rise in energy costs Request the government to design the GX-ETS in a manner that takes into account the circumstances of the steel industry, including measures such as free allocations and responses to carbon leakage

*1For source for EV-related data, refer to the IEA Global Electric Vehicle Outlook 2025. EVs include battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHVs).
*2For data on renewable energy and hydrogen, refer to the IEA World Energy Outlook 2025 NZE2050 Scenario.

4℃ scenario

Factors (risks and opportunities)	Events (expectations and concerns of stakeholders)	Impact on Nippon Steel (risks and opportunities)	Nippon Steel’s strategy (including future responses)
Physical factor 1 Abnormal weather to suspend raw material suppliers’ operation	Difficulty in procuring raw materials, caused by abnormal weather	Limited impact by taking measures for risks (risk) Limited assumed risk in securing stable procurement of raw materials by taking the following measures: Material sourcing from multiple regions in the world Keeping raw material inventories in steelworks and ships	Continue multiple sourcing Appropriately manage days of inventory and risks
Physical factor 2 Abnormal weather to suspend operation and shipment	Difficulty in operation, caused by a natural disaster	Limited impact by taking appropriate measures (risk) Systematic adoption of BCP measures. Limited risks in production disruption caused by natural disaster. Excessively abnormal weather may result in suspension of operation, etc.	Continually adapt measures in consideration of long-term trends Measures against typhoons and heavy rain, measures to prevent crane overturns, measures against earthquakes and tsunamis (securing emergency evacuation places, embankment reinforcement, etc.)
Physical factor 3 Heightened needs for solutions for ‘national resilience’ against natural disasters	Natural disasters caused by abnormal weather	Demand growth of steel for national land resilience (opportunity) Profit growth by providing Group’s products and solutions for national resilience against earthquakes, tsunamis, heavy rain, typhoons, etc.	Enhance the Group’s product menu and expand sales in Japan and overseas, e.g., steelslit dams and NS ECO-PILE™ method