Legal Compliance and Fulfillment of Responsibilities in the International Community

This section contains information on the initiatives conducted by the LY Corporation Group (the “Group”) relating to legal compliance and fulfillment of its responsibilities in the international community, which are pursued in line with the following principles:

• The Group will place importance on environmental issues and strive to reduce risks.
• The Group will comply with domestic laws and regulations related to environmental conservation.
• The Group will support international environmental initiatives and work in collaboration with the international community to combat climate change.

TCFD and TNFD

Endorsement of TCFD Recommendations

The Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB), an international body participated by central banks and financial supervisory agencies of major countries and regions, issued a recommendations report stating to "support companies that disclose information on risks and opportunities relating to climate change" in June 2017. In June 2020, the LY Corporation Group (the former Z Holdings Group) declared that it supports the recommendations, and officially joined the supporters. Referring to these recommendations, the Group also undertook the analysis of possible scenarios and summarized the risks and opportunities identified. Moving on, the Group will continue to make disclosures on governance, strategies, risk management, and indices and targets relevant to climate-related risks and opportunities.

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Endorsement of TNFD Recommendations

The Task Force on Nature-related Financial Disclosures (TNFD) is an international organization that includes leading business corporations and financial institutions from major countries and regions. It was established to create a framework for the appropriate assessment and disclosure of risks, opportunities, dependencies, and impacts related to natural capital and biodiversity. The LY Corporation Group, agreeing to the philosophy of TNFD, joined the TNFD Forum in February 2023 and registered as a TNFD Early Adopter in November 2023. Moving forward, the Group will continue to actively disclose information based on the TNFD disclosure framework.

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Risk Management Structure and Process

LY Corporation has established an Enterprise Risk Management (ERM) system under the supervision of the Board of Directors, with the President and Representative Director, CEO, being the Chief Executive of Risk Management. It has set in place a comprehensive company-wide risk management system to accurately identify and respond to management and business-related risks at LY Corporation and its group companies.
Risks related to climate change and natural capital are integrated into the ERM system, and the ESG Management Department is in charge of these risks in cooperation with the Risk Management Committee and the Risk Management Office. The ESG Management Department identifies, evaluates, prioritizes, and monitors said risks based on risk assessment results collected from business divisions and group companies and reports to the Environment Working Group and Human Rights Working Group that are established under the Sustainability Committee. 
Furthermore, in the process of discussing materiality issues, each group company and division identifies opportunities from studies made based on the characteristics of their businesses and services. The Group will continue to improve the accuracy of its risk assessments by using a variety of indicators, not only for direct operations, but for supply chains and other business domains at each country and region where the Group conducts its business.

Scenarios and Methodology

The LY Corporation Group believes it is important to properly understand the risks and opportunities posed by climate change and to develop business strategies that reduce risks and expand opportunities. Since risks and opportunities in environmental issues have the potential to affect the business activities of the Group over an extended period, risks and opportunities have been identified according to time periods (short-term: 2022-2025, medium-term: 2025-2030, and long-term: 2030-2050) and considered based on scenario analysis.
In analyzing the scenarios, the Group refers to scenarios developed by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) considering their international recognition and credibility. For scenarios that limit the temperature increase from pre-industrial times to within +1.5℃, the Group has adopted the Net Zero Emissions by 2050 (NZE) and SSP1-1.9 scenarios. Furthermore, the Announced Pledges Scenario (APS) and SSP1-2.6 were used as scenarios equivalent to +2℃, and the Stated Policies Scenario (STEPS) and SSP5-8.5 were used as scenarios that exceed +4℃.
While the 2℃ scenarios assume no acute or chronic physical risks from climate change at a level that would affect its business, the Group also recognizes the risk of increased costs from increased electricity use, as energy prices are expected to rise due to the introduction of carbon taxes and the elimination of thermal power generation. In the 1.5℃ scenario, this risk may accelerate even faster. On the other hand, the Group also recognizes important opportunities for its services, as an increase in the number of users who value sustainability due to the expansion of environmentally conscious behavior and the sustainability market will lead to changes in consumer selection, such as increases in sales of low-carbon emission products and services.
As climate change and natural capital are inextricably linked issues that impact each other interdependently, it is necessary to consider the nexus between the two in an integrated manner rather than examining each one separately. Therefore, while analysis results of climate change scenarios are being used to analyze scenarios for natural capital, items related to natural capital, such as waste and water use, are being identified as risks and opportunities. Going forward, in addition to keeping a close eye on the release of internationally reliable natural capital scenarios, the Group will continue to develop scenarios that integrate climate change and natural capital while updating its scenario analysis results.

Risks and Opportunities

*Short-term: 2022 - 2025, medium-term: 2025 - 2030, long-term: 2030 - 2050

Categorization of Risks and Opportunities Based on TCFD Recommendations			Expected Major Risks and Opportunities Items with * are those that are of high importance.	Time Frame
Risks	Transition risks	Legal risks	* Introduction of carbon tax/emissions trading LY Corporation Group's Risks Cost increase due to introduction of carbon tax and emissions trading	Short to medium-term
		Technology risks	Transition in electricity/energy prices LY Corporation Group's Risks Power shortages due to the abolition of thermal power generation and cost increase due to soaring electricity prices	Short to medium-term
			* Increase in electricity/energy consumption LY Corporation Group's Risks Cost increase due to increased power and energy consumption Cost increase due to increased need for emergency power resources Cost increase due to shift to carbon-neutralized vehicles	Short to medium-term
		Market risks	* Voluntary restraint of businesses and slowdown in consumer sentiment LY Corporation Group's Risks Revenue decrease especially in advertising Decreased consumer purchasing e.g., in commerce domain Revenue decrease due to frequent cancellation of events	Short to medium-term
			Change in customer behavior LY Corporation Group's Risks Risk of loss of normal distribution of daily necessities, etc. Increased operation costs as a platform operator	Short to medium-term
		Reputation risks	Delay in addressing climate change LY Corporation Group's Risks Decline in stakeholder trust and brand strength Decreased revenue due to lower chances of being selected as a business partner Increased difficulty in attracting future generations of climate change-conscious employees	Short-term
			Transaction with companies that are behind in addressing climate change issues LY Corporation Group's Risks Decline in stakeholder trust and brand strength Revenue decrease due to termination of transaction with said companies	Short-term
	Physical risks	Acute risks	* Intensification of extreme weather LY Corporation Group's Risks Lowered functionality or loss of data due to data center outage Risk of increased frequency of access overload and concentrations Service termination due to outages of offices or data centers Relocation of offices or data centers to high locations or high latitudes Cost incurred for repairs due to damaged facilities Increase in cooling water consumption in data centers Risk of outage of logistics services Risk of business termination of business partners	Short to medium-term
		Chronic risks	Changes in climate patterns Rise in average temperature LY Corporation Group's Risks Risk of having to reduce or cease outdoor activities Decentralization of personnel in key services such as Media Impact on business execution due to increased number of injured and sick employees Impact of commuting restrictions on operations Rise in supply chain procurement costs Rise in land prices in areas suitable for living Risks related to water resource procurement and discharge Increase in scale/frequency of disaster scenario	Medium to long-term
Opportunities		Resource efficiency	* Technological innovation LY Corporation Group's Opportunities Cost reduction through energy conservation, reduction of water usage, and improvement of resource efficiency (e.g., waste disposal)	Long-term
			* Environmental consideration LY Corporation Group's Opportunities Promotion of eco-friendly transportation measures in logistics and packing materials	Short to medium-term
		Energy	Technological innovation LY Corporation Group's Opportunities Promotion of businesses related to power generation Securing of renewable energy sources in-house	Long-term
		Products and services	Big data LY Corporation Group's Opportunities Big Data/IT × Climate change businesses Big Data/IT × Biodiversity Big Data/IT × Home healthcare services, etc. Existing Internet services × Provision of climate change countermeasure functions Inventory optimization and reduction of inventory disposal through the use of data and AI Improvement of recommendation accuracy through revision of legislation of personal information	Medium-term
			Supply chain LY Corporation Group's Opportunities Expansion of self-supplied areas in the supply chain Securement and sales of water resources Reduction of CO2 emissions as a result of initiatives that take advantage of the Group's scale	Medium-term
			* Services LY Corporation Group's Opportunities Changes in sales trends in Commerce Strengthening of disaster response services Increase in ads from environmentally friendly companies Establishment of new resource recycling service that realizes collection scheme	Short to medium-term
		Market	Technological innovation LY Corporation Group's Opportunities Mechanization of labor Virtualization of events Climate-neutral crop cultivation and sales, or their support Progress in underground development	Long-term
			* Lifestyle LY Corporation Group's Opportunities Increased demand for insurance (life, non-life) business Health and productivity management Increased demand for home delivery in Commerce Social contribution through Media, e.g., fundraising and donations	Short to medium-term
			Change in behavior LY Corporation Group's Opportunities Acquisition of buyers who choose products and services incorporating climate change measures Culture that values human connections Increased residential mobility Businesses that analyze local risks Lifestyle centered on indoor activities	Medium to long-term
		Resilience	Stable business operation LY Corporation Group's Opportunities Stabilization of business through diversity in services	Short to medium-term

Dependencies and Impacts

LY Corporation Group's business activities both depend on and impact natural capital, either directly or indirectly through the supply chain. As a result, both these dependencies and impacts give rise to the aforementioned risks and opportunities related to natural capital.
Considering the nexus between climate change and natural capital, the Group has recognized the importance of managing and addressing its dependence on water resources and wastewater impacts in the natural capital agenda.
The Group will continue to monitor and disclose the status of water resources and other natural capital to reduce dependence, enhance positive impacts, and reduce negative impacts.

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Scenario-Based Strategy Resilience

-Start of Carbon Tax/Emissions Trading
The LY Corporation Group expects the introduction of carbon tax, which is being considered also in Japan, to be an important risk. The introduction of carbon tax based on CO₂ emissions as well as stricter regulations and penalties can have a financial impact on the Group, including an increase in future tax burden.
As an operator of diverse internet services across Media, Commerce, strategic business that creates new revenue sources mainly in the fintech field, and various other business domains, the Group uses electricity for its business operations at locations including data centers, offices, and logistic centers. Data centers constitute most of the Group’s entire electricity consumption, thus improved efficiency and conversion to renewable energy at data centers will contribute to risk avoidance. To accelerate carbon neutral measures, and as a means of funding businesses that contribute to the solving of environmental problems, LY Corporation (the former Z Holdings Corporation) issued a green bond in 2021, a first in the internet sector in Japan. The amount procured (JPY20 billion) is used to invest in data centers, such as the construction and refurbishment of data centers that have high energy efficiency (PUE of less than 1.5), and to procure renewable energy necessary for data center operations.
By achieving carbon neutrality at an early stage, the LY Corporation Group believes that it can avert the burden of carbon tax arising from the transition risk.

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-Business Restraint and Downturn in Consumer Sentiment
If damage derived from climate change has a wide-spread impact on the society and economy, the Group's mainstay advertising business may be affected by business restraints and downturns in consumer sentiment. Furthermore, the Commerce business may be financially impacted (in terms of revenue and profits, etc.) due to market transition risks such as changes in selling trends. In addition, inadequate responses to the risk of climate change could result in a decline in brand value and service users due to negative publicity.
To reduce such risks, the Group will continue to promote the following measures that it considers effective:
-Manage the Group based on a more diversified business portfolio and increase resilience
-Address climate change risks with society, and provide disaster prevention/mitigation services and services essential to the lifestyles of the society
-Proactively promote measures to realize a carbon neutral society

-Intensification of Extreme Weather
If global warming becomes more severe with climate change, the risk of damage to data centers and distribution centers will increase in Japan due to the intensification of natural disasters caused by typhoons and torrential rains. As a provider of diverse internet services across Media, Commerce, strategic business that creates new revenue sources mainly in the fintech field, and various other business domains, the LY Corporation Group assumes various risks. For example, if its data center is damaged, it may not be able provide its major services due to functional degradation or shutdown caused by destruction of buildings or failures in telecommunication lines, and this may affect revenue and operating income. If its logistics center is damaged, risks of reduced or suspended functions, such as procurement and delivery from suppliers, may be expected, and this can also affect revenue and operating income. To mitigate the impact of functional degradation or suspension of data centers due to natural disasters, the Group promotes the construction of an environment that includes system redundancy and the multiplexing and decentralization of data centers, including locating data centers outside of Japan. In addition, to mitigate the impact of natural disasters on logistics centers, such as functional degradation or suspension, decentralization of functions is being promoted, for example, by establishing new logistics centers in other locations within the same distribution area. Through these alternative measures, the LY Corporation Group considers that the risk of business suspension is adequately hedged, and that the impact is small.

- Upstream and Downstream Tracking and Confirmation of Water Use
Recognizing that water resources are an important item for the conservation of natural capital, which also relates to climate change issues and biodiversity conservation, the Group will strive to reduce water consumption in its business activities, conserve water resources, and manage and address water risks.
For details, please refer to the “Protection of Water Resources” section in the webpage listed under Related Links below.

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CDP

The LY Corporation Group discloses information on its environmental impact to CDP, an international NGO that runs a global information disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.
LY Corporation has been included for the first time in the Climate Change A List, a top rating, in the FY2024 survey by CDP.

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IFRS Sustainability Disclosure Standards

The International Sustainability Standards Board (ISSB), a body of the International Accounting Standards (IFRS) Foundation, has issued sustainability disclosure standards for global capital markets. This is to provide investors with globally comparable information on sustainability-related risks and opportunities that entities face in the short, medium, and long term, based on the IFRS Sustainability Disclosure Standards, in order to enhance the credibility and trustworthiness of the information disclosed and to help investors make investment decisions.

LY Corporation endorses the adoption and use of the IFRS Sustainability Disclosure Standards.

SBTi

SBTi is a joint initiative of four organizations, CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). The initiative calls for companies to set science-based targets (SBTs), which are greenhouse gas emission reduction targets aligned with the Paris Agreement.

LY Corporation, as one of the companies of the SoftBank Group, is committed to the “Net Zero” commitment of SoftBank Corp. that builds on SoftBank's existing initiatives to eliminate greenhouse gas (GHG) emissions from its own business processes and energy consumption (Scope 1 and Scope 2) as well as its supply chain (Scope 3) to achieve virtually Net Zero GHG emissions by 2050. ASKUL Corporation declared its "2030 CO₂ Zero Challenge" and its greenhouse gas emission reduction targets were certified by SBTi in August 2018.

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RE100

RE100 is a global initiative that aims to procure 100% of the electricity consumed in business activities from renewable energy sources.

LY Corporation Group joined RE100 in June 2022 and is steadily implementing the "2030 Carbon Neutrality Declaration" to reduce greenhouse gas emissions from its Group-wide business activities to virtually zero by FY2030.

ASKUL Corporation joined RE100 in November 2017 and has declared its commitment to achieve the following two targets.
- Medium-term target: Complete a shift to 100% renewable energy at its headquarters and logistics centers by 2025
- Target: Complete a shift to 100% renewable energy across its group including subsidiaries by 2030

RE100 Members, Including LY Corporation, Submit 'RE100 Japan Policy Recommendations' for Japan's Energy Policy in June 2024. Through this policy message, we hope for an acceleration in the efforts on renewable energy, such as increasing Japan’s renewable energy capacities and technological investments.

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The Japan Climate Initiative (JCI)

The Japan Climate Initiative (JCI) is a network bringing together organizations such as companies, local governments, and NGOs that agree to the declaration "Joining the front line of global push for decarbonization from Japan" and actively pursue climate action. It aims to strengthen dissemination of information and exchange of opinions on the climate change agenda.
The LY Corporation Group (the former Z Holdings Group) has been a member since December 2020.

Japan Climate Leaders' Partnership (JCLP)

The Japan Climate Leaders' Partnership (JCLP) is a coalition of Japanese companies that was established in 2009 with the recognition that industries must have a sound sense of urgency and initiate proactive action to achieve a sustainable and decarbonized society. By leading the transition to a decarbonized society, JCLP members aim to become a company that is sought after by the public.
The LY Corporation Group (the former Z Holdings Group) has been a member since April 2023.

30by30 Alliance

30by30 is a target aiming to effectively conserve at least 30% of land and sea as healthy ecosystems by 2030 in order to achieve the Nature Positive goal of halting and reversing biodiversity loss by 2023.
The LY Corporation Group has been participating in this alliance since October 2023.

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GX League

The GX League is a framework that takes on the challenge of transitioning to carbon neutrality and leads GX (Green Transformation).
LY Corporation has been participating in this alliance since February 2024.

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Addressing Laws and Regulations Related to the Environment

With regard to the Tokyo Cap-and-Trade Program (a scheme for mandatory reduction in overall emissions and trading of emissions) that the Tokyo Metropolitan Government imposes on large-scale facilities, LY Corporation (former Yahoo Japan) achieved a reduction of 14,565t-CO₂ in excess of its target for the 1st period (FY2010-2014) at two of its data centers in Tokyo. The carbon credits from the extra amount reduced were presented to the Tokyo Metropolitan Government as part of its cooperation with the "Zero Emission Tokyo" initiative undertaken by the government. For the 2nd period (FY2015-2019), the company achieved a reduction of 26,654 t-CO₂ in excess of its target, by pursuing measures such as reducing the use of less energy-efficient data centers and switching to more efficient data centers. In addition, Tokyo Garden Terrace Kioicho (in Akasaka, Chiyoda Ward of Japan), where the company’s head office is located, has been certified by the Tokyo Metropolitan Government's Bureau of Environment as a Top-Level Facility (a “specified business facilities implementing excellent global warming countermeasures”), a rating given to facilities that have established an outstanding system for implementing measures against global warming.