Concept of Sustainable Management

The CITIZEN Group’s Sustainable Management

The CITIZEN Group has been operating for over 100 years based on its corporate philosophy of “Loved by Citizens, Working for Citizens.” Starting in FY2019, our 101st year in business, we are promoting "Sustainable Management" to solve social issues through our business. Sustainable management means not only providing good products and services, but also expanding our business while earning the trust of our stakeholders and continuously improving our corporate value through management that takes into consideration social issues such as human rights and the global environment throughout the value chain.

In light of the medium and long-term changes in the environment, the CITIZEN Group will leverage the Group's strengths and capital to address materiality in both its business activities and business infrastructure. By creating social, environmental, and economic value that contributes to solving social issues, we aim to be loved by and work for citizens, as well as contribute to the achievement of the SDGs (Sustainable Development Goals).

Sustainable Products

The CITIZEN Group has set its sights on developing sustainable products by 2030, tailored to address critical global challenges within each business segment of the Group. Sustainable products are products and services that contribute to business growth while helping solve social issues linked to the CITIZEN Group's materiality.

Out of the five materiality issues identified by The CITIZEN Group, the following three need to be addressed through its products and services: “responding to climate change and contributing to a recycling-oriented society,” “contributing to better quality of life” and “providing solutions in the industrial sector. The Group has set its criteria for certification as an essential requirement for all Group companies to meet one or more of these materiality issues, taking into consideration the uniqueness and superiority of business strategies, products, and services in each business.

The Sustainable Products Certification System and the certification criteria for each business were approved by the Group Management Committee in 2023 after discussions at the Sustainability Committee, based on the opinions of external experts. In the future, the certification criteria will be reviewed as necessary in response to changes in social conditions, and any changes to the criteria shall be discussed and approved by the Sustainability Committee.

We plan to disclose the ratio of sustainable products to total sales in FY2025.

Sustainable Products Certification System

The Sustainable Products Certification System is an in-house system common to the CITIZEN Group, under the supervision of external experts in the formulation of certification criteria and the appropriateness of the items to be evaluated. Based on the corporate philosophy, we certify products and services that are consistent with our business strategy, including our past sustainable initiatives, and our materiality* as sustainable products.

Sustainable Products Certification Criteria

The certification criteria consist of contributing factors linked to materiality. Specific certification criteria have been set for each business and are judged objectively.

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Materiality	Classification	Contributing factors (e.g.)	Related SDGs
Responding to climate change and contributing to a recycling-oriented society	Response to climate change	Energy saving and longer product life Design and service systems that enable product disassembly and repair Use of sustainable raw materials, etc.
	Contribution to a recycling-oriented society
Contributing to better quality of life	Contribution to diverse lifestyles	Products that are easy to use for all people, including those with disabilities Health care support, etc.
	Contribution to medical and healthcare
Providing solutions in the industrial sector	Provision of labor-saving and automation solutions	Addressing labor shortages through labor-saving and automation solutions Responding to the challenge of passing on skills through digitization Remote maintenance support, etc.
	Contribution to next-generation communication technology
	Contribution to mobility

Introduction of Sustainable Products

[Case Study] A Sustainable Watch as Beautiful as the Earth – CITIZEN L

CITIZEN WATCH

CITIZEN L, with designs inspired by the beauty of nature, has positioned sustainability at the core of its brand since 2016, offering “sustainable watches as beautiful as the Earth” with a commitment to the global environment and people. All watches are equipped with the photovoltaic Eco-Drive, which does not require regular battery replacements, and some watches are made of materials selected based on the criteria of “not sacrificing anyone” and “sustainability.” In this manner, we are committed to making the future of the earth more sustainable. In April 2024, a model from the ARCLY Collection was launched with the design theme of a sunrise signaling a new beginning. The rich red dial with indexes and facets expressing the radiation of light is made of 100% recycled polycarbonate in consideration of the global environment. In addition, the included replacement band is made of apple material, which is made from the peels and residues discarded during the apple processing process. By using these upcycled materials, we promote the sustainable use of resources and contribute to the development of a circular economy and the realization of a recycling-oriented society. As an LCA (Life Cycle Assessment) initiative, CITIZEN WATCH converts GHG emissions over the lifetime of CITIZEN L, from material procurement to production, disposal, and recycling, into CO₂, and has acquired CFP program certification from the Sustainable Management Promotion Organization. We will continue to make watches that contribute to the realization of a recycling-oriented society by reducing waste batteries through our photovoltaic Eco-Drive system and actively adopting sustainable materials such as recycled materials.

[Case Study] Joined the Leather Working Group (LWG) to Promote the Use of Sustainable Leather

CITIZEN WATCH

As of April 1, 2023, CITIZEN WATCH became the first Japanese watch manufacturer to become a member of the Leather Working Group (hereinafter LWG), an international non-profit organization dedicated to protecting the global environment and providing consumers with safe and reliable leather.

The LWG is a global environmental protection organization composed of leather manufacturers, traders, suppliers, and technical experts, as well as brands and retailers.

Currently, 60% of the leather used in CITIZEN brand watches is sourced from LWG-certified leather tanneries, and we are aiming to increase this ratio to more than 90% in the future. By joining the LWG, we will also contribute to the promotion of sustainability in the leather industry as a whole.

Reference page

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[Case Study] Contributing to the SDGs with Low-frequency Vibration (LFV) Technology

CITIZEN MACHINERY

Low-frequency vibration (LFV) technology is a method of cutting by using CITIZEN MACHINERY's proprietary control technology to vibrate the X and Z servo axes*¹ in the cutting direction and synchronize the vibration with the spindle rotation. In this method, chips are broken up into small pieces while processing by setting up a “non-cutting time” during which the blade does not strike the workpiece.

In conventional parts processing, there is a risk of long chips being generated and becoming entangled in processed parts and blades, and many problems have been reported, such as the generation of defective products and damage to cutting tools. Machine tools equipped with LFV technology can reduce the occurrence of the above problems caused by chip entanglement and are expected to contribute to improvement in production efficiency and reduce the power required to cut each part.

By breaking up the chips, we were able to lower the frequency of chip collection from the machine, lessen the workload, and furthermore, reduce the volume of its waste. This also contributes to solving issues in our customers' manufacturing processes, such as reducing the environmental impact of transportation sites.

The lineup of CNC automated lathes equipped with LFV technology includes 13 models under the Cincom and Miyano brands, with cumulative shipments to domestic and overseas markets surpassing 6,000 units*².

1. Servo axle: Feed mechanism section consisting of motor, guide, etc.
2. As of December 2023

Sustainable Factories

The CITIZEN Group is advancing its business endeavors guided by the principle of "sustainable factories," which encompasses not only the final products and services but also the manufacturing processes. A sustainable factory is a production facility or office (or business process) that takes a comprehensive approach, encompassing compliance, human rights, labor practices, business continuity planning (BCP)*, and productivity enhancement, in addition to environmental considerations.

To evaluate our progress, we've distributed the Self-Assessment Questionnaire (SAQ), the same one that are distributed to our suppliers, to the Group’s domestic business sites. Collating their responses allows us to monitor our advancement. Starting from FY2023, the SAQ has been extended to all sites, including our international business locations, to solicit their insights. Through these ongoing initiatives, the entirety of The CITIZEN Group aims to realize the vision of "sustainable factories" by 2030.

Recognizing the critical importance of supplier collaboration and the entire value chain, we are actively fostering engagement with stakeholders. In FY2019, we established a roadmap and vision for our 2030 aspirations across key domains such as "addressing climate change and fostering a recycling-centered society," "commitment to quality compliance," "upholding human rights and labor practices," and "promotion of sustainable procurement." These collective efforts are being propagated throughout the Group, with regular updates as deemed necessary. For further details and progress, please refer to the pertinent page on Materiality (linked in the table below).

• * BCP (Business Continuity Plan): A business continuity plan is formulated during normal times of operation to prepare for the possible effects of large-scale disasters on business activities. Such a plan stipulates the systems, functions, and procedures necessary to continue supplying products and services, and to enable early recovery.

Sustainability Promotion Structure

Sustainability Committee

In April 2020, The CITIZEN Group established the Sustainability Committee, which is chaired by the president and representative director of CITIZEN WATCH and includes full-time directors of CITIZEN WATCH and the presidents of business management companies as members. The committee meets once a quarter, mainly to discuss materiality, check the progress of activities, and hold study sessions with external lecturers. The CSR Department, Corporate Planning Department, and Environmental Department of CITIZEN WATCH, which serve as the committee secretariat, also operate the Sustainability Secretariat Meeting in collaboration with each committee secretariat related to materiality and the CSR departments, environmental departments, corporate planning departments of each Group company. Through this process, the Committee regularly verifies the sustainability issues and progress of activities at each company. The activities of the Sustainability Committee are reported semi-annually to the Board of Directors.

Sustainability Promotion Structure

As the subcommittees of the Sustainability Committee, we have established the Group Quality Compliance Committee, the Group HR Committee, the Group Environmental Committee, and the Group Sustainable Procurement Committee.

In addition, the Sustainability Committee Secretariat and the Sustainability Committee Meeting, consisting of the corporate planning departments and the CSR departments of each Group company, ensure that the content of the deliberations by the Sustainability Committee is shared with the organizations promoting each business.
We also established CITZEN-SIRT, the Group Information Governance Committee, the Group Legal/Compliance Committee, and the Group Business Continuity Management Committee to address matters related to the handling of management-related risks and making the Group’s management base more resilient. These committees addressing risks related to the management base have been established under the Management Committee, which meets monthly, as a structure that enables the swift detection of and deliberation on problems as well as prompt responses to them.

Raising Awareness of Sustainable Management Among Employees

To implement sustainable management throughout the Group, The CITIZEN Group promotes initiatives centered on the Sustainability Committee, to raise understanding and awareness of the materiality and the connection between the SDGs and our business activities among all employees. Specific initiatives include study sessions and e-learning programs as well as activities including messages from the CEO and the use of in-house newsletters, which have been ongoing since FY2019 to raise awareness among employees.

Lecture Meetings

The CITIZEN Group arranged lecture sessions targeting key personnel responsible for driving materiality initiatives, with the aim of ensuring their accurate grasp of societal trends. In FY2023, a lecture on resource recycling was held for Group executives, and e-learning study sessions on the circular economy were provided for all employees of Group companies in August. In September, in response to a series of quality fraud incidents uncovered at domestic manufacturers, a lecture on auditing from a quality compliance perspective was given by a quality compliance risk management specialist to directors in charge of quality and heads of quality divisions at Group companies. The lecture provided an opportunity to learn about the causes of quality fraud and viewpoints for detecting such fraud. In addition, the Sustainable Procurement Committee held a study session on “Environment Surrounding the Supply Chain and Practical Points of Supplier Audits” with an outside lecturer.

CSR Awareness Survey

Every year, the CITIZEN Group conducts a CSR awareness survey of the management and employees including temporary employees of its operating companies (15 companies in Japan in FY2021) to ascertain the level of evaluation and penetration of CSR and corporate ethics, as well as to identify and address future CSR issues.
87% of the respondents answered that they “know” about the compliance hotline in Q2, and 52% answered that they “will use” it in Q3, exceeding 50% for the first time since the survey began. On the other hand, the number of respondents who answered that they “will not use” the compliance hotline was on a declining trend, at 10%, but the reason for this was “concern about whether confidentiality will be protected,” which accounted for 24% of the responses. This may be due to a lack of understanding of the system regarding the protection of whistleblowers, and it became clear that continued awareness raising is needed.

Q1: Do you think that CSR activities enhance the group’s corporate value?

Q2: Do you know about the Compliance Hotline?

Q3: If you detect a violation of the Code of Conduct that you think it will be difficult to
consult your superior about, will you use the Compliance Hotline?

[ Number of Respondents ]

• FY2019: 7,253 out of 8,749 employees (20 subsidiaries targeted: response rate of 82.2%)
• FY2020: 7,291 out of 8,200 employees (17 subsidiaries targeted: response rate of 88.9%)
• FY2021: 6,262 out of 6,938 employees (15 subsidiaries targeted: response rate of 90.3%)
• FY2022: 6,580 out of 6,964 employees (15 subsidiaries targeted: response rate of 94.5%)
• FY2023: 6,080 out of 6,497 employees (15 subsidiaries targeted: response rate of 93.6%)