DMG Mori : Climate-related disclosure based on TCFD-recommendations

Climate-related disclosure based on TCFD-recommendations

DMG MORI COMPANY LIMITED intends to proactively disclose climate change-related risks and opportunities in accordance with the recommendations of The Task Force on Climate-related Financial Disclosures (TCFD), and hereby expresses its support for the recommendations.

The outline of TCFD is as follows:

• At the request of the G20, the Financial Stability Board (FSB) established the industry- led Task Force in December 2015 to design a set of recommendations for consistent disclosure on climate-related information.
• In June 2017, TCFD proposed a disclosure framework specializing in climate-related information as its final report.
• In 2018, the Ministry of Economy, Trade and Industry has confirmed the recommendations and published a guideline in Japan.

Governance

DMG MORI COMPANY LIMITED (hereinafter referred to as CO), and its fully owned German holding company DMG MORI AKTIENGESELLSCHAFT (hereinafter referred to as AG) have each established the "Carbon Neutral Promotion Office" as the department in charge of assessing climate change risks and opportunities, and then planning, implementing and monitoring associated countermeasures. While the ultimate responsibility of the entire Group's climate-related issues lies with Dr. Mori, President & Group CEO, the department is under the direct supervision of Mr. Tamai, Executive Vice President for CO and Mr. Thönes, CEO and Dr. Eschwe iler, Chief Representative, for AG, respectively. The department regularly reports the calculation results of the Company's CO2 emissions to the Board of Directors, and requests approval of the CO2 emissions reduction plan and important capital expenditures related to it. In addition, the department has already completed calculation of CO2 emissions by group companies from Scope 1 to Scope 3 upstream categories for 2020 and established a CO2 emissions reduction plan until 2030. The department monitors progress continuously and reports at the monthly operating officers' meeting.

In quantifying greenhouse gas (GHG) emissions, we have contracted with Germany- based specialist Fokus Zukunft GmbH & Co. KG who supports us comprehensively regarding our group-wide greenhouse gas (GHG) assessment and mitigation process. Since January 2021, we have shipped our machines labeled as "GREENMACHINE", as they are climate-neutrally produced from the procurement of components up to machine shipment from our factories by utilizing internationally accepted emission certificates. The climate-neutrality was assessed and confirmed by independent auditor, PricewaterhouseCoopers GmbH.

1

Figure 1 Climate-related Governance Structure at DMG MORI

Board Meeting

DecisionProposal

Operating Officers Meeting
Reporting
Environmental Issue	Reporting
Committee

Administration office

DMG MORI CO		DMG MORI AG
Carbon Neutral		Carbon Neutral
Promotion Office		Promotion Office

Table 1 Role of Climate-related Organizations at DMG MORI

Organization	Role	Frequency to discuss
		climate-related matters
Board Meeting	Both assessing and monitoring	At least once per quarter
	climate-related issues, and	(Board meeting itself is
	making investment decisions	generally held once per
	as necessary	month)
Operating Officers Meeting	Assessing climate-related risks	Once per month
	and opportunities and
	examining alternative
	measures to deal with
	assessed issues
Environmental Issue	Implementing and monitoring
Committee	group-wideclimate-related
(sub-committee of	measures, such as GHG
Operating Officers Meeting)	emissions reduction actions

Strategy

Regarding climate change, we believe that our machine tool business itself will contribute to protecting the environment. Process integration machines such as 5-axis machines and mill-turn centers save various resources, including electric power by replacing multiple machine tools by one. In addition, the superior processing accuracy, geometric accuracy, and volumetric accuracy offered by our company contributes to the effective use of resources through optimizing the bonding between parts by improving the friction coefficient, which will lead to reduction of energy loss during product use and to prolonged product life. Furthermore, by promoting automation and digitization, we will maximize the resource management of our customers and our own factories by streamlining the entire machining process from work production planning to actual processing, measurement, and maintenance services. Since a machine tool has a usage period of 10 to 20 years or more, the year-by-year improvement of our "GREEN mode" technology, which saves

2

power consumption of the machine tools, contributes to the cumulative reduction of power consumption over the equipment usage period.

Risk & Opportunity

Regarding climate-related risks and opportunities in our machine tool business, we examined both "transition" risks and opportunities caused by changes in policies, regulations or social demands of customers and other stakeholders, and "physical" risks caused by natural disasters and rising temperatures.

1. Transition risks

• Introduction of emissions trading and carbon taxes are planned or discussed by the governments around the world, and associated costs would directly and indirectly increase the procurement costs of materials and fuels if they are introduced. In reaction to these trends, we have already introduced green electricity procurement, and at the same time, we are promoting the reduction of CO2 emissions by installing solar power generation and biomass thermo-electric supply system in our own facilities, as well as compensating remaining emissions by means of certified and internationally recognized climate protection projects such as hydropower plant in Brazil and solar power generation project in India. We believe that such measures mitigate our transition risks.
• Regarding business risks, customer needs are changing, such as a shift from internal combustion engine (ICE) vehicles to electric vehicles (EVs). There is a view that machine tool demand will therefore decrease since the number of parts per EV is reduced to two-thirds compared to an internal combustion engine car. At the same time however, the shift to EV is creating new demand for higher precision parts and lightweight parts to reduce battery consumption, and this development can hence be a great opportunity for such machine tool manufacturers that can meet the emerging demand.
• Another example is a reputational risk due to a shift in investors' perceived corporate value. Currently, there is no unified evaluation standard and disclosure framework for climate-related issues, and there is a risk that related efforts of a company will not be properly evaluated from the outside. For the time being, we will disclose our response to climate change based on TCFD recommendations and through CDP.

2. Transition opportunities

As mentioned above, the transition to a decarbonized and energy-saving society requires high-precision machining, so we expect an increase in demand for ultra-high-precision and high-speed machine tools with single-chucking process such as 5-axis machines and mill-turn centers. We also expect increased demand for automation and digitization to improve the efficiency of machining production processes.

The shift to EVs is progressing rapidly in Europe and the United States. Associated changes not only appear in drive trains and battery-related parts. Model changes, architectural changes, changes in used materials are also leading to an increase in

3

demand for additive manufacturing machines, ultrasonic machines as well as conventional cutting machine tools.

In addition, an increased demand for machine tools can be expected from changes in power generation systems. According to the World Energy Outlook 2019 published by the IEA (International Energy Agency), the share of wind power, including offshore wind power, in global electricity generation will increase to about 13% in the so-called Stated Policies scenario or to about 21% in the so-called Sustainable Development scenario by 2040 (from about 5% in 2018). Offshore and onshore wind power generation systems consist of about 20,000 parts per unit and require a lot of metal processing.

Last, industries such as ships, trucks, buses, construction machinery, and agricultural machinery, that use diesel engines, are being equipped with more energy-efficient engines, due to the tightening of GHG emission regulations, which should be another factor for increasing demand for machine tools.

3. Physical risk

We operate 14 factories and 137 offices in 43 countries around the world (as of December 31, 2020). Floods caused by rising sea levels due to rising average temperatures, increased severity of cyclones, floods, etc. may affect our production facilities. At this point, we believe that the risks from rising sea levels are extremely low because most of our factories are located inland. We have been expanding local procurement, while considering mutual supply between regions in the event of supply chain interruptions, which will mitigate risks associated with extreme weather events. We recognize that it is a future task that these risks should be evaluated objectively with third-party experts. We plan to carefully examine physical risks in the process of reviewing our BCP (Business Continuity Plan).

4

Table 2 Climate-related Risks at DMG MORI

Type	Climate-Related	Potential	Magnitude of	Specific description	CDP 2021
	Risks	Financial Impacts	impact		reported
Transition Risks	Increased pricing of	Increased direct	Medium	Increased procurement costs due to	Yes
	GHG emissions	costs		the introduction of carbon taxes
	(e.g. carbon taxes)
	Enhanced	Higher compliance	Medium-Low		Yes
	emissions-reporting	costs
	obligations
	Increased cost of	Increased	Medium-Low	In particular, renewable-sourced	No
	raw materials and	production costs		electricity prices may rise due to the
	energy	due to changing		increased demand for such energy
		input prices (e.g.
		energy, water) and
		output
		requirements (e.g.
		waste treatment)
	Changing customer	Reduced demand	Medium	Manufacturers may choose climate-	Yes
	behavior	for goods and		neutrally produced capital goods in
		services due to		the efforts to achieve climate-
		shift in consumer		neutrality throughout their supply
		preferences		chain. In case the company fails to
				respond to such trends, it may lose
				the competitive advantage.
	Increased	Reduction in capital	Low	Since our business is not a carbon-	Yes
	stakeholder	availability or		intensive industry, we assume that the
	concern or negative	increased equity		risk of being subject to divestment is
	stakeholder	cost		relatively low.
	feedback
Physical Risks	Increased severity	 Reduced	Low	Most of our production facilities are	No
	of extreme weather	revenue due to		not located in "high-risk" locations.
	events	supply chain
		interruptions
		 Write-offs of
		existing assets
		due to
		damages to

5