VI. Supply Chain
Supply Chain Initiatives
Our Basic Approach
Fulfilling social responsibilities together withcustomers and partners
Based on its Group philosophy and Code of Conduct, theazbil Group is proactive in its efforts to achieve a sustainable
society, including conservation of the environment, throughits business activity. In particular, addressing climate change
and human rights issues has become increasingly importantin recent years.
For this reason, in our procurement activities, we
continue to strengthen our supply chain initiatives to fulfill
our responsibilities to society more proactively in response
to growing demand from the international community,including the SDGs, based on the principle of building
long-term relationships of trust with our business partners
and enhancing added value for both the azbil Group andour business partners.

Focus areas in the supply chain
To fulfill our responsibilities to society across the supply
chain, in 2021 the azbil Group reviewed and amended its
essential goals of the azbil Group for the SDGs andestablished 10 target areas (intermediate categories),making reference to the way in which ESG initiatives areevaluated by external institutions.
We are encouraging our business partners in theseareas, utilizing the knowledge the Group has built up overmany years concerning the environment, quality, compliance,and health and well-being management. We are proceedingwith CSR initiatives concerned with evaluating the initiativesof the azbil Group and its business partners.
Broadcategory

Intermediate
category
Climate change(GHG, energy)

Pollution &resources(Air pollution, waterpollution,hazardous waste,waste reduction,(Environmental raw materials, etc.)
supply chain)

EWater security &water risks
Biodiversity
Environmentalmanagement
Labor practices

SubcategoryInitiatives to address CO2/GHG emissions andother climate change issues
Green procurement
Management of chemical substances in products ess use of resources
LLess industrial waste
Reuse of resources
Use of renewable energyLess use of water, less wastewater
Biodiversity conservation
 nvironmental management in conformity withE
ISO 14001

Health andsafety(Social supplychain)

Human rights

Prohibition of discrimination, equal opportunity

81

azbil report 2023

Health and safety management
New ways of working, work-life balance espect for fundamental human rights
R(including rejection of antisocial forces anddealing with conflict minerals)

Community ction that encourages local development orA
contributes to society

Quality &customers

Fair trade (including legal compliance)(local communities)

Supply Chain
Working with our business partners on achieving theSDGs as a common goal and creating shared CSR
value across the supply chain

PDCA cycle

Quality management

Evaluation

Encouragementof the supply
chain,cooperation

Disclosure
to externalparties

1 The azbil Group’sself-evaluation
2 Business partner’s
self-evaluation

Feedback: requests and opinionsfrom investors and shareholders

By working together with our business partners on
initiatives that comply with the four actions below, we aim
to steadily improve the entire supply chain sociallyand environmentally.
Policies &strategies

Systems &structures

Initiatives

Evaluation ofeffectivenessEstablishment
and thoroughdisseminationof the azbil
Group Basic
Policy onProcurement,
etc.

Establishmentof systems,structuresand IT
environments
within theazbil Group

Encouragementof business
partnersEvaluation by
the azbil Groupof the effects
of initiatives
andencouragement

Business
partner’s selfevaluations
Survey ofbusiness
partners toverify series ofactions

Evaluation
The azbil Group carries out a self-evaluation based on four
items in 10 target areas (intermediate categories). Selfevaluations from business partners are added to this to create
a comprehensive evaluation based on a total of five items.
Based on the results of this evaluation, we visualize
the strengths and weaknesses of the azbil Group’s initiatives
and of our business partners and feed that into planningmeasures for the following fiscal year.
Broadcategory

Intermediate
category

The azbil Group’s self-evaluation
BusinessPolicies & Systems & Initiatives Evaluation of partners’
strategies structures
effectiveness self-evaluation

Climate changeElimination of child labor and forced labor,
reduction of overwork
Promotion of diversity

S

The azbil Group’s Essential Goal III for the SDGs (for FY2030)(GHG, energy)

E

Pollution &(Environ- resources
mental (Air pollution, waterpollution, hazardous
supply waste, waste
chain) reduction, rawmaterials, etc.)

Water security &water risks
Other, omitted(Notes) 1. Evaluation is performed on a 10-point scale for each red frame .
2. See p. 83 for the results of business partners’ self-evaluation (FY2022).

Priority Themes for FY2022 and Beyond
The azbil Group, in response to demand from society toact through the supply chain, has selected humanrights due diligence from a societal perspective andCO2 emissions reduction from an environmental
perspective as priority themes for FY2022 and beyond,and has begun working with its business partners.

Human rights due diligence in the supply chain:
Strategies to solidify “defense”
To ensure appropriate corporate conduct from a humanrights perspective within our supply chain, the azbil Group
conducts risk assessments related to human rights
violations and strives to promptly correct any risks that may
have occurred.
We have established criteria for human rights due
diligence in our supply chain with reference to the UN Guiding
Principles on Business and Human Rights. We have also
taken into consideration the frequency and impact of humanrights violations in azbil Group’s operations, while referring tocase studies of other leading companies.
As of the end of December 2022, we completed
confirmation with about 300 of our major business partners
that there is no risk of major human rights violations. At
present, we are working to expand the scope of coverage.

CO2 emissions reduction in the supply chain:
Strategies to strengthen “offense”
The azbil Group is working to reduce CO2 emissions at its
business partners to achieve a 20% GHG emission reduction
across our entire supply chain (compared to FY2017). As ofthe end of December 2022, we have completed assessing
the CO2 emissions of approximately 300 major business
partners and their current CO2 reduction initiatives, and areimplementing measures for further CO2 emission reduction
according to the status of each business partner.
Through communication with our business partners,
we will share issues to be addressed, knowledge and knowhow, and jointly promote initiatives to solve problems, thereby
promoting independent initiatives toward carbon neutrality.
Status at about 300 business partners
1%(4) SBT targets set, specificreduction strategies implemented8%(3) CO2 reduction targets set

48%(2) Responded with
GHG emission data

43%(1) GHG emissions not known(Note) Includes companies
that have not responded

Human rights due diligence process
Evaluation ofhuman rights
risks in the
supply chain

Requests tobusiness
partners forcorrective action

Continuous improvement
through PDCA cycle

Externaldisclosure

Confirmation andevaluation ofcompletion ofcorrective action(follow-up survey)

Steps for realizing carbon neutrality(4) Strategy making,
PDCA setup• Support for planning a reduction system• Sharing of reduction prototype systems• Sharing of policy-related information(3) Analysis, settingof targets• Sharing of target value setting methods• Sharing of issues in setting target values andsupport for consideration(2) Understanding
GHG emissions• Sharing of methods for measuring
GHG emissions• Sharing of issues for understanding
GHG emissions, support for study(1) Promote
understanding ofcarbon neutrality• Sharing of decarbonization-related information• Sharing of status of decarbonization efforts

Key human rights criteria• Elimination of child labor• Elimination of forced labor• Reduction of overwork• Wages (appropriate, duly paid)• Migrant labor/foreign workers

azbil report 2023

82

VI. Supply Chain
Supply Chain Initiatives

Encouraging our Business Partners
Based on the azbil Group Basic Policy on Procurement,
we promote SDG initiatives in the supply chain. We also
encourage our business partners through careful
communication in order to build a foundation for
effective collaboration.

The azbil Group Basic Policy on Procurement
In keeping with the azbil Group philosophy and the azbil Group
Guiding Principles, the azbil Group undertakes fair and honest
purchasing activities in Japan and abroad, understanding andcomplying with legal regulations and acting with consideration
for human rights and the environment. We ensure that ourbusiness partners understand the azbil Group Basic Policyon Procurement as we endeavor to carry out purchasing
throughout the supply chain with an awareness of ourcorporate social responsibilities.

1. The public nature of the company and thefulfillment of our responsibilities to society
2. Fairness in commercial transactions
3. Respect for human rights
4. Protection of the environment
webThe azbil Group Basic Policy on Procurement
https://www.azbil.com/corporate/procurement/policy/

Revisions to the azbil Group Basic Policyon Procurement
In June 2022, in light of internal and external requirements(such as the SDGs) the azbil Group Basic Policy onProcurement was revised based partly on policies of theUnited Nations Global Compact.

Points revised• For supply chain management policy, items were added
about climate change, prohibition of discrimination,
elimination of excessive overtime, prohibition of forcedlabor, and saving water.
• An item about human rights was added in line withemphasis by the United Nations Global Compact, which
we signed in April 2021.
• We added an item about environmentally conscious
design, which is related to the azbil Group’s SDG target ofdesigning all new products to be 100% recyclable.
• An item on the management of chemical substances inproducts was added. This is an important means forconserving biodiversity, one of our environmental
protection targets.
• An item was added about strengthened checking ofcompliance with laws and regulations regarding
relationships with antisocial forces when selecting business
partners and renewing contracts.

83azbil report 2023

Briefings on the CSR Procurement Guidelines
for the azbil GroupIn order to motivate business partners to work towardachieving the SDGs and to promote specific initiatives, in2022 briefing sessions were held by each azbil Group
company for business partners on the Group’s essential SDG
goals and the CSR Procurement Guidelines for the azbil
Group. After the briefings, we conducted a survey and 90%
of our business partners responded that they would be willingto cooperate with the themes covered by the guidelines.
webCSR Procurement Guidelines for the azbil Grouphttps://www.azbil.com/corporate/procurement/policy/csr_guideline/index.html

Business partner self-assessment andfeedback to business partners
Every year, the azbil Group asks its business partners tocarry out a self-evaluation of their organization’s efforts fromthe perspective of the SDGs. Partners had been asked tomake improvements at weak points as a result of theFY2021 evaluation, and the FY2022 self-evaluation showedthat improvements had been made. This kind of feedback
will be continued in the future.
Also, in the self-evaluation of business partners,
when broken down by capitalization, the larger the size
(capitalization) of the company, the more advanced theefforts. Accordingly, we will strengthen our efforts to reachout to small and medium-sized business partners.
Status of business partners’ efforts by capitalization
2122

110.0

2

38.0

20

46.0

19

4.0

18

2.0

5
60.0

17716

815

914

¥300 million or more
1 CO2/GHG emissions
2 Green procurement
3 Management ofchemical substancesin products
4 Reuse of resources
5 Less industrial waste
6 Less use of water
7 Biodiversity
conservation
8 Environmentalmanagement

131211

10¥50 million–< ¥300 million

9 Reduction of overwork
10 Prohibition of forced labor
11 Elimination of child labor
12 Prohibition ofdiscrimination
13 Prohibition of inhumane
treatment
14 Diversity
15 Health and safety
management
16 Work-life balance< ¥50 million

17 Respect for
fundamental humanrights
18 Rejection ofantisocial forces
19 Conflict minerals
20 Action thatencourages local
development orcontributes to society
21 Fair trade
22 Quality management

Evaluation for FY2022 and Future Plans
Overall evaluation of activities in FY2022

Initiatives for FY2023

Based on the azbil Group’s self-evaluation criteria, the azbil
Group conducts an annual comprehensive evaluation of its
initiatives in 10 target areas (intermediate categories),
including self-evaluation by its business partners.
In FY2022, the various strategies were successful,with each criterion in the environmental/social supply chain
generally increasing by about 2 points compared to theprevious fiscal year.

In FY2023, we will continue to pursue even greater resultsby focusing on human rights due diligence as a “defensive”
strategy and CO2 emissions reduction as an “offensive”
strategy, with the entire azbil Group working together.
In FY2023, we will also expand our visits, interviews,
and dialogues with individual business partners. By
gathering information on a wide range of social andenvironmental topics other than human rights due diligence
and CO2 emission reduction, we plan to incorporate theintentions and requirements of our business partners andbuild a consensus to make our outreach and collaboration
with them even more effective than ever before.

Environmental supply chain
FY2022

Climate change
10.0

FY2021

FY2021

FY20222.9 points

4.7 points

8.0
6.0
4.0

Environmental
management

Pollution & resources

2.0

web0.0

Biodiversity

SDG Supply Chain Annual Reporthttps://www.azbil.com/corporate/procurement/supplychainannualreport/

Water security & water risksSocial supply chain
FY2022
FY2021

Labor practices
10.0

FY2021

FY20223.2 points

5.2 points

8.0
6.0

Quality & customers

4.0

Health and safety

2.0
0.0

Community(local communities)

Human rights

Message from a business partner

Yoshitaka Murata, Director, MURATA YOUHAKU & CO.,LTDA trading company primarily engaged in sales and export ofnonferrous metal materials and processed components.
It delivers stainless steel and other materials to the azbil Group.

The azbil Group has established a medium- to long-term plan
based on a solid promotion system for the advancement of
SDG themes, and we have gained an in-depth understandingof the azbil Group’s activities through a detailed explanation.
Our company has also been aiming to add value to our corebusiness in terms of the environment, and we are very much inagreement with the azbil Group’s initiatives and will continue tocooperate with them as much as possible. We also received
advice on initiatives for human rights from them, which webelieve can be applied to our company’s management, andwe hope to continue to work on these issues going forward.

azbil report 202384