Responding to Climate Change

As a measure to mitigate climate change, one of the most serious global environmental risks, The CITIZEN Group is making Group-wide efforts to reduce greenhouse gas (GHG) emissions by conducting energy-saving activities at its factories and offices, introducing electricity derived from renewable energy sources, and improving the efficiency of energy use.

As an expression of our commitment to climate change mitigation, we have joined the Japan Climate Initiative and declared our support for the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in 2020. In 2022, we revised the Group's Scope 1, Scope 2, and Scope 3 CO₂ emission reduction targets, which were validated as science-based targets by the Science Based Targets initiative (SBTi) in 2023. Furthermore, in 2025, we joined RE100, an initiative to achieve 100% renewable electricity in members' business activities. In addition, measures to respond to large-scale disasters due to climate change are stipulated in our disaster Business Continuity Plan (BCP).

Climate Change Risks and Opportunities

Governance

The CITIZEN Group has established an environmental management structure to efficiently promote environmental management. Under the umbrella of the Sustainability Committee, chaired by the president of CITIZEN WATCH, we have put in place the Group Environmental Committee, chaired by an executive in charge of environmental affairs who has been appointed by the president.

Climate change issues are discussed by the Group Environmental Committee, followed by discussions by the Sustainability Committee, and are then deliberated and approved by the Management Committee. The content approved by the Management Committee is reported to the Board of Directors on a regular basis (twice a year) and is used for decision-making on environmental risks and environmental investments. In addition, the key performance indicators (KPIs) for performance-linked stock compensation for directors and executive officers (excluding directors who are audit and supervisory committee members, outside directors, and non-residents in Japan) include the rate of reduction in CO₂ emissions as a non-financial indicator related to ESG.

Scenario Analysis

Recognizing that the risks and opportunities associated with climate change will have a significant impact on its business strategy, The CITIZEN Group has identified the risks and opportunities associated with climate change through the following process, and the Sustainability Committee Secretariat took the lead in analyzing and assessing the significance of the 1.5°C and 4°C scenarios.

Process of Identifying Climate-Related Risks and Opportunities

Step 1

We comprehensively identified the risks and opportunities associated with climate change.

Step 2

We organized the identified risks and opportunities in relation to the four business segments of Watches and Clocks, Machine Tools, Devices, and Electronic Devices and Others, as well as in three time frames: short, medium, and long term.

Step 3

For each risk and opportunity identified, we used a 5-point scale to evaluate its impact on the company and likelihood of occurrence. As an overall evaluation, items with a high impact on the company and likelihood of occurrence were extracted, and important risks and opportunities were identified.

Selected Climate Change Scenarios

We analyzed and evaluated a 1.5°C scenario, which envisions transition toward a decarbonized society, and a 4°C scenario, which envisions increasing global warming.

SSP1-1.9^*1 was used as a 1.5°C scenario, and SSP5-8.5^*2 as a 4°C scenario.

• * SSP1-1.9: Assumes that warming is controlled to about 1.5°C above 1850-1900 levels by 2100 "after a slight overshoot" and that CO₂ is reduced to net zero around the middle of this century.
• * SSP5-8.5: High-level reference scenario for the situation without implementation of additional climate policies

• Source: Figure SPM.7 (a) in the Summary for Policymakers (SPM), Intergovernmental Panel on Climate Change Assessment Report 5 (IPCC AR5) – Working Group I (WGI)

Scenario Analysis Results

Financial Impact Analysis

Based on the results of the scenario analysis, we have identified financial impacts for the following two items that could significantly affect The CITIZEN Group’s finance.

Transition Risk

Cost increase due to the introduction and strengthening of new regulations

Transition Risk

Increase in the cost of raw materials, etc., supply shortages, and supply disruptions

Through the introduction of ICP, we will promote appropriate low-carbon investment and raise awareness among employees.

Impact of Introducing the Carbon Tax on Scope 1, 2, and 3 Emissions

The financial impact of the carbon tax was estimated based on the following calculation criteria.

We compared the International Energy Agency (IEA)'s carbon price projections for each scenario with the financial impact if The CITIZEN Group's CO₂ emissions reduction targets were achieved or not achieved. The cost of the carbon tax was calculated based on the carbon taxes in the countries where The CITIZEN Group emits CO₂ (Japan, Thailand, China, the Philippines, and Vietnam), as the amount varies from country to country.

Scope 1 and 2 emissions

We estimated the likely impact of any carbon tax on our production operations in 2030, 2040, and 2050.

The CITIZEN Group aims to achieve carbon neutrality by 2050 and has established a roadmap for reducing CO₂ emissions (CITIZEN Group Environmental Goals 2030). Taking these as a standard, we set the CO₂ emissions for each year and calculated the financial impact.

Scope 3 emissions

We estimated the financial impact of any carbon tax, using the bases of our Scope 3 Category 1 CO₂ emissions and material purchase costs, on the supposition that a cost increase due to the carbon tax will be passed on to the purchase prices.

Strategy (Measures and Policies of the Company)

We have formulated CITIZEN Group Environmental Vision 2050 with a view to achieving carbon neutrality by 2050. The CITIZEN Group aims to achieve virtually zero CO₂ emissions from its factories and offices by 2050. We are also working to identify climate-related risks throughout our supply chain.

The Group sees the transition to a low-carbon economy as an opportunity to invest in renewable energy and energy-saving equipment, and it is also working to promote low-carbon financing through the introduction of internal carbon pricing (ICP) and to improve product competitiveness through the development and production of environmentally friendly products.

1.5°C scenario,

This scenario envisions increased costs due to stricter regulations, including the introduction of a carbon tax, and the risk of higher prices for raw materials and other resources. In addition to promoting decarbonization initiatives to achieve CITIZEN Group Environmental Goals 2030 and CITIZEN Group Environmental Vision 2050, the Group is considering the introduction of an internal carbon price system to promote investment in GHG emissions reduction.

4°C scenario,

Under this scenario, in order to stably secure raw materials, we will promote diversified procurement sources and appropriate parts and materials procurement management. In addition, we are promoting BCP measures, including those for weather-related disasters, and investment related to disaster countermeasures.

Risk Management

The CITIZEN Group has established a Group risk and crisis management system to consolidate and promptly address risks with the aim of promoting sustainable management and ensuring the achievement of the Group-wide business goals and sustainable development. Of the significant risks, we regard environmental risks among the most significant, and we work to identify risks of this kind and strengthen countermeasures against them.

• Strengthening Risk Management

In accordance with ISO 14001, climate-related risks and opportunities are identified once a year by the environmental manager and the secretariat on a short- to long-term timeline, based on the environmental aspects, laws and regulations to be complied with, issues in the external and internal environments, and needs and expectations of stakeholders.

Climate-related risks are reflected in the Group's strategy as those among Group Significant Risks and are addressed under the supervision of the Board of Directors.

Specific measures to eliminate risks and opportunities are decided at the Management Committee attended by directors, after which each measure is implemented by relevant departments under the control of the director in charge of environmental affairs. For Group-wide themes, we utilize the established ISO14001 mechanisms and the environmental management system that conforms to the standard so that we can ensure efficient functioning of the PDCA (plan-do-check-act) cycle.

Indicators and Targets

The CITIZEN Group has set the following targets regarding climate change.

The CITIZEN Group has also set cost reductions through the promotion of energy conservation as an indicator for climate-related opportunities and the amount of capital investment in energy conservation and renewable energy as an indicator for capital allocation. We will continue to monitor these indicators.

Reduction of GHG Emissions

To achieve the 1.5°C scenario, we are promoting the reduction of GHGs, which are believed to cause global warming. In addition, we are preparing for the implementation of energy-saving activities at each of the Group's business sites, the introduction of energy-saving equipment and facilities, such as LED lighting, and capital investment to establish “sustainable factories” using manufacturing processes that are environmentally friendly.

In FY2024, we replaced 4,800 fluorescent lights with LED ones at the Tokorozawa Works, achieving a shift to 100% LED lighting at the site. In addition, all newly constructed Group factories are equipped with solar power generation systems to increase energy self-sufficiency and reduce CO₂ emissions. CITIZEN FINEDEVICE's headquarters and Kawaguchiko Factory, which started operation in January 2022, have reduced CO₂ emissions by 7.7 tons per year, and CITIZEN MACHINERY's Karuizawa Factory in Nagano Prefecture, which was constructed in April 2023, has reduced CO₂ emissions by 220 tons per year. CITIZEN WATCH MANUFACTURING's Miyota Saku Factory in Nagano Prefecture, which started operation in December 2023, is expected to contribute to a CO₂ emissions reduction of approximately 714.9 tons per year, the largest among the Group's business sites. Moreover, CITIZEN MICRO's Hidaka Factory, which started operation in August 2024, is expected to contribute to a CO₂ emissions reduction of approximately 41 tons per year.

We also calculated the overall Scope 3 emissions of The CITIZEN Group in order to reduce GHG emissions throughout the supply chain. We are working to create new sustainable products, represented by Eco-Drive watches in our watches business, taking advantage of the likely opportunity of expanded ethical consumption, which will contribute to solving environmental and social problems.

Scope 1 and 2 GHG emissions

Trends in The CITIZEN Group's GHG Emissions (CO₂ equivalent) from Non-Energy Sources

In FY2024, The CITIZEN Group's direct emissions of GHGs other than CO₂ from energy sources (i.e., nitrogen trifluoride, sulfur hexafluoride, perfluorocarbons, hydrofluorocarbons, dinitrogen monoxide, methane, and CO₂ from non-energy sources) totaled a CO₂ equivalent of 1,595 tons, which accounted for 10% of the Group's total Scope 1 emissions.

Calculation of Scope 3 GHG Emissions

In reducing GHG emissions, it is important to monitor not only the GHG emissions from a company's own manufacturing stage but also indirect GHG emissions from the entire supply chain (Scope 3 emissions). Therefore, we calculated the GHG emissions from all The CITIZEN Group operations in FY2024. Based on these calculations, the total indirect GHG emissions of the entire supply chain amounted to approximately 1,040,000 tons. Among these, emissions from purchased goods and services (Category 1) accounted for 49% of the total Scope 3 emissions, the largest share, followed by emissions from the use of sold products (Category 11) accounting for 40%, which together accounted for about 90% of the total.

In FY2025, we started close communication with our suppliers with the aim of reducing emissions throughout our supply chain, thereby achieving our SBTi-validated Scope 3 emissions reduction target. We will also have the Scope 1, 2, and 3 emissions of all CITIZEN Group businesses for FY2023 verified by a third party in August and September 2025. (A verification report will be published in December 2025.)

• Greenhouse Gas Emissions Verification Report

Initiatives for Greater Use of Renewable Energy