Third Party Opinion Report

The Sustainability Collaborative
Senior Advisor
MS. Sachiko Takami

Personal
She is residence in Sweden since 1974.
In 1999, she was involved in the establishment of the Japan office of The Natural Step, a
Swedish international NGO that provides environmental education for business andmunicipalities. She was chief executive of The Natural Step Japan from 2000 until 2011.
Since 2012, she has been an associate of Natural Step Sweden. She was a member of the
Recycling Association Committee of the Clean Japan Centre Foundation, member of theRoundtable on the Development of Technology for Sea Area Utilization, Ports and Harbours
Bureau, Ministry of Land, Infrastructure, Transport and Tourism, and member of the Nagano
Prefecture Forest Ordinance Review Committee. She was a member of the Industrial
Structure Council for 3R Upgrading, Ministry of Economy, Trade and Industry, and a memberof the Development Bank of Japan's Round-Table Committee.
She is currently a Senior Advisor to The Sustainability Collaborative, an office of The Natural
Step Sweden.
Introduction
Although the world has finally overcome the coronavirus pandemic, it is currently facing
multiple crises: the climate crisis, the biodiversity crisis and the energy and economic crisis
caused by the war in Ukraine. Hitachi Zosen Group, hereinafter referred to as HZ-Group, hasdecided to promote sustainability in the medium to long term, as it sees the rapid changes in
its surrounding business environment as a management issue. However, the Group's
diversified business made it difficult to get a comprehensive overview of its business
policies, measures, and activities. Therefore, the Group set a new Sustainable Vision in 2022
and developed measures and a roadmap to address sustainability promotion. This time, athird party opinion was requested to evaluate both the process and the content, and to
guide the implementation of concrete strategies and measures in the future.
This third party opinion was based on the Group's business overview, organizational chart,sustainability promotion project overview document, sustainable vision, roadmap of successpillars and key measures, Natural Step sustainability analysis questionnaire responses,
interviews with the President and Senior Managing Executive Officer, Sustainability
Promotion Office manager, the website, and a tour of the water electrolysis equipment andmethanation facilities in the Chikko plant.

11. Evaluation of the process
The process of setting a sustainable vision and developing a roadmap is excellent in thefollowing aspects.
 Top management's strategic thinking and commitment
Successful promotion of sustainability requires conviction and commitment to change at the
top level. The President and Senior Managing Executive Officer of the HZ-Group expressed ininterviews their willingness to commit the vision set by the Board of Directors for thecompany to exist sustainably and become a sustainable company. The vision and goals areambitious, but the management team is committed to achieving them. This is a highly
ambitious vision and goal, and the top management is strongly committed to ensuring that itis achieved since the accumulated technological know-how. The president also spoke of theneed to learn from best practice around the world and promote initiatives in collaboration
with each other. I highly praised the company's awareness as a global company and its solid
strategic thinking and commitment.
 Sustainable vision, backcasting and roadmap
The mission within the HZ-Group's Sustainable Vision is 'Using the power of technology toachieve harmony between mankind and nature'. The visions are 'Reduce environmental
impact to zero' and 'Maximize people's happiness' - appropriate visions for a company thathas been supporting economic growth and social development with technology for 140
years, and at the same time is facing global environmental degradation and a range of social
problems in the world.
In the process of identifying seven 'pillars of success' (materiality) to achieve these visions,the following three points are highly commended.
The first is the identification of challenges through backcasting, based on The Natural
Step's "Four Principles of Sustainability "*, as well as an awareness of the external
environment from a long-term perspective.

Second, the pillars of success were identified from the perspective of impact on
business continuity, society, and stakeholders, as well as the degree of difficulty inachieving them. In particular, the fact that The Natural Step's 'four sustainability
principles' are based on science means that Hitz Group has a compass to guide themin the right direction in solving the highly complex and transformative challenges ofsustainability. You cannot negotiate with the laws of physics and nature. It is highly
commendable that the four principles of sustainability are recognized as the ultimate
goal, backcasting from there, and that the company's vision and mission is to achieve
the goal.

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Third, in order to promote the Group's strategy on sustainability in general, aSustainability Promotion Committee has been established directly under the Board of
Directors and a promotion system has been established to achieve overallsustainability management. The biggest challenge in corporate sustainability
measures is often the lack of a system to promote strategies and action plans. For
example, there is often a lack of understanding of why, who and when to do what
within the company. I think the HZ-Group's sustainability project is an excellent
process for establishing the prerequisites for involving the entire company andmoving forward as one.
*Four principles of Sustainability
We will have achieved full sustainability when we no longer contribute to…
...systematically increasing concentrations in nature of
substances from the Earth's crust... systematically increasing concentrations in nature of
substances produced by society...systematically increasing degradation of nature by physicalmeans...conditions that systematically undermine people’s ability tomeet their needs(barriers to health, influence, competence, impartiality andmeaning)
Source: The Natural Step

Suggestions for future processes
Carbon neutrality is at the top of the priority list of the seven pillars of success. This third
party opinon report makes recommendations for future processes with a focus on the
carbon neutrality roadmap.

1. Follow-up and review needed
The HZ-Group plans to review KPIs from April 2023 onwards, based on the roadmap of
key measures developed by the Sustainability Strategy Committee. The roadmap will
also be followed up by the Sustainability Promotion Committee and the Sustainability
Strategy Committee, which will review progress at least twice a year. It is also a goodstructure that the pillars of success will be reviewed regularly, e.g. every three years.
3With regard to 'carbon neutrality', which is the most important of the seven pillars ofsuccess, the climate change situation has been deteriorating rapidly in recent years. IPCC
report warns that the current pace of global greenhouse gas reductions is inefficient andthat we are losing the opportunity to limit the temperature rise to below 1.5°C. We need to
drastically reduce carbon dioxide emissions by 2030. Therefore, I believe that a system isneeded to ensure that the roadmap of measures can be followed, reviewed and, if
necessary, revised based on science.
In addition, as sustainability demands are expected to have a significant impact on all
businesses in the future, and the role of the head of the Sustainability Office will become
increasingly important, I propose that the head of the Sustainability Office be placed in aposition closer to the overall decision-making authority for the business.

2. Proposal for a carbon neutral strategy for the HZ-Group as a whole
It is excellent that a roadmap has now been drawn up for each business, with backcasting
and analysis of the current situation. As a next step, I would like to propose the direction andstrategic planning of measures for the whole group. The reason for this is that if the strategy
as a whole is clarified, you can expect more active collaboration among the businesses andcompanies in the group, which will increase the achievement of the carbon-neutral
roadmap. Three reasons for this are as follows:(i) There are prerequisites for putting carbon-free products on the market.
There are two preconditions for the spread of carbon-free products in society with economic
rationality in each project. One is access to electricity from renewable energy sources.
The second is that the electricity must be priced to be competitive with fossil power.
For example, for methane from methanation, which is expected to contribute to the market
as a carbon-free product, the raw material, carbon dioxide, must be recovered fromrenewable energy power plants, and the electricity to produce the other raw material,hydrogen, by water electrolysis, must come from renewable energy. In addition, to makeeconomic sense, the electricity must be at a lower price than the price of fossil power
generation. At this point, it would be advantageous if the electricity from fossil power ismore expensive by carbon pricing. Here is a major obstacle that Japanese companies
currently face. Since Japan has very little access to renewable energy, as it accounts for avery small proportion of the electricity it generates, while in the European Union (EU)countries the share of renewable energy is increasing rapidly. Thanks to the EU has a system
for trading emission rights - ETS (European Union Emissions Trading Scheme), wind and solar
power are becoming competitive with fossil power. Japan does not yet have a carbon tax oremissions trading system.
The success of the HZ-Group in achieving carbon neutrality is based on the background that
renewable energy production will increase significantly in the near future and that carbon
pricing and policy support for carbon neutrality is needed.

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(ii) Full use of renewable energy technologies within the HZ-GroupI think the Hitz Group is to be in a very strong position compared to its competitors in Japan.
This is because the HZ-Group has a wide range of renewable energy production technologies
within the Group, from onshore and offshore wind power to biomass power, biogas andsolar power. First, as a stepping stone, I propose to invest in renewable energy technologies
within the Group and use them fully as measures for carbon-free electricity use within theGroup. In other words, to use it as a Scope 1 and 2 measure and offer it to the market as a
product while utilising own technology and experience. And I believe that thecommercialisation of methanation will proceed smoothly if more renewable energy isavailable and accessible, the government introduces carbon pricing and the price ofelectricity is lower. In this way, if the group collaborates and accelerates energy
transformation, this will increase HZ-Group's chances of achieving carbon neutrality.
I believe that by becoming carbon-free first and setting an example in society, the HZ-Groupwill also gain the trust of society. If the HZ-Group can't do it, which company can?

Source:Ministry of the Environment.
https://www.env.go.jp/earth/ondanka/supply_chain/gvc/estimate.html, (reference 2023-0329)(iii) Collaboration with suppliers, same and different industries
Increased collaboration with Scope 3 suppliers is also needed: in order for Hitachi Zosen’s
products to be completely carbon-free, the raw steel products iron must also be carbonfree. Collaboration with suppliers is needed to ensure that they supply carbon-free steel.
In this sense, I believe that in the future it will be necessary to select suppliers who
understand the HZ-Group's new vision, mission and roadmap and who are willing tocollaborate. It is hopeful that both the President and Managing Director of the HZ-Group
expressed the willingness to work towards sustainable procurement as most recent target.
Furthermore, it is necessary to encourage governments to remove regulations/obstacles oncarbon pricing in order to be able to move to carbon neutrality. To do this, lobbying in
partnership with other companies in the same or different industries, or with environmental
NGOs, is more effective than a single company doing it on its own. I also believe that new
innovations in the future will require collaboration with completely different industries.

53. Improving efficiency in the use of energy resources
The Waste to Energy concept in particular is an excellent concept that will create jobs inJapan and make a significant contribution to the country's economy and security. In Japan,
there are still many cases where waste is not utilised as a useful resource. For example,
sludge from sewage treatment plants, food waste from food processing plants andhouseholds, and livestock manure can be fermented into biogas. Biogas can be used as fuelfor city buses, taxis, passenger cars and ships, replacing petrol, diesel and natural gas.
The HZ-Group already has the technology and has examples. It should be spread to society
on a larger scale.
Even in the field of waste-to-energy power generation, which is the most advanced in Waste
to Energy concept, there is a need to backcast from a sustainable picture. In a futuresustainable society, resources are fully recycled. This means that recycling is advanced andwaste is drastically reduced. In a sustainable society, there is only the waste that cannot berecycled is incinerated and thermally recycled. As the amount of waste is drastically reduced,
the number of facilities is reduced, but they are larger in scale to increase efficiency, and theheat is used for district heating and other purposes and is 100% utilised. Backcasting fromthis picture, I propose that measures should be taken to introduce both recycling ofresources and efficient systems of heat use from waste incineration in Japan, as well as indeveloping countries in the coming market. First of all, I propose that measures should
include increasing the efficiency of energy resource use, as currently more than 70% of theheat from incinerating waste is not utilised.

4. No product or service is sustainable from the beginning. They need to be managed
sustainably!
The four principles of sustainability of the Natural Step can be used when creating a vision,
but also when prioritising measures and how to manage sustainably. No product or service issustainable from the start. For example, if paper is made from trees from rainforests thathave been overexploited, it violates the third principle of sustainability. Similarly, wind andsolar power cannot be said to be sustainable energy just because they are wind and solar
power. For example, overexploiting farmland or forests with nature conservation value
when installing them violates Principle 3. It also violates Principle 4 if there is no agreementwith residents. Renewable energy can only be sustainable if it is managed in such a way thatall principles are not violated. It is necessary to compare measures with the four principles
and to manage them in such a way that even renewable energy does not violate them.

65. Communication to raise social and consumer awareness.
There is another necessary condition for carbon neutrality to be successful. It is that
consumers are willing to buy new carbon-free products in order to avoid increasing theclimate crisis even if the price is a little higher. This is especially necessary in the early stagesof market introduction. The reason why EU companies are now seriously investing in for
example carbon-free steel, EV vehicles, etc. is because consumers are demanding it. In otherwords, consumer awareness is necessary. Japanese companies need to actively
communicate with consumers to change their mindset. This can be done by communicatingon the web site why the HZ-Group is committed to sustainability, their sustainable vision,
mission and roadmap, and how this is partly achieved by collaborating with local authorities
and environmental NGOs to provide energy education for citizens. There are many
possibilities, such as providing education on the environment and energy in primary andsecondary schools. For example, I think the HZ-Group's work in Laos producing picture books
to educate children about waste recycling and resource recycling is an excellent activity. In
this way, together with consumers, we can build a sustainable future.

Conclusion
The world is changing rapidly, and carbon neutrality is now a matter of survival for thepeople of Japan, just as top managements are aware that it is a matter of survival for theircompanies. In this reality, the Hitz Group can provide technologies that use wind, solar,
waste, sewage sludge, biomass and other energy sources that can be procured in Japan.
The HZ-Group can thereby make a significant contribution to Japan's transition to carbon
neutrality by eliminating its dependence on fossil fuels. In particular, the Waste to Energy
concept could play an important role in creating jobs in Japan, in helping the country's
economy and in promoting security. In Waste to Energy, energy could be used more
efficiently if methods or systems could be developed to use heat, of which currently morethan 70% is not utilized, as in district heating. Furthermore, I propose that energy efficiency
should also be included in the measures.
The road to carbon neutrality is not easy. However, the HZ-Group is a company whose spiritof facing challenges has been handed down in its DNA over its 140-year history. Thus, the
HZ-Group has great potential to succeed in the social transformation of the world to becomecarbon neutral. In addition, the Group has now established a structure to promotesustainability within the Group. Here, using the four principles of sustainability as a compass,
I hope that Hitz Group will show leadership in this greatest challenge of mankind.
29 March 2023

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