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2019 Progress Report

Progress in Compliance with Sustainable Palm Oil Procurement Guidelines

Goal 1

Kao commits to purchase only sustainable palm oil that is traceable to the mill for use in Kao Group consumer products by the end of 2015.
【Completed traceability to palm oil mills (palm oil crushing plant), disclosure of the palm oil mills location map in 2017, and disclosure of the 2019 mill list.】

Goal 2

Kao commits to zero deforestation at the source of palm oil by the end of 2020, through cooperation with plantations, suppliers (mills and refineries) and third-party organizations. We will not purchase palm oil that contributes to development of any high conservation value (HCV*1 ) forests, high carbon stock (HCS*2 ) forests or peatlands, regardless of depth.
【Completed traceability to palm oil mills and the monitoring of deforestation in their surrounding areas. Continue investigation of high risk mills.】

Goal 3

Kao will purchase only sustainably sourced palm oil that is traceable to the plantation for use in Kao Group consumer products by end of 2020.
【Continue to switch palm oils for use in Kao Group consumer products to RSPO Certified oils by 100% in 2020 and will also expand its use for industrial purposes. Kao will also continue to achieve traceability to the plantations.】

Goal 4

Kao will work to obtain RSPO*3 SCCS*4 certification of Kao Group factories in order to build a traceable supply chain for the Kao Group by end of 2020.
【Achieved 100% RSPO SCCS Certification of all Kao Group factories (2018).】

Goals for 2020

  1. Reinforce activities to establish traceability to smallholder farms.
  2. Support zero deforestation at the source.
    ・Request and confirm suppliers to comply with NDPE*5 policy
    ・Prioritize purchases from suppliers that comply with HCSA*6
    ・Execute monitoring of palm oil mills and deforestation of their surrounding areas
  3. Use certified oil (RSPO etc.) which satisfies the above item 1 and 2 in Kao products positively.
  4. Coordinate with various stakeholders, including the suppliers, plantations, non-governmental organizations, specialists and third-party organizations* ) to carry out items 1, 2 and 3 above. We will notify all our suppliers that they should comply with Kao guidelines. If our suppliers are found in contravention of Kao guidelines, we will take appropriate action including third party audit of our suppliers.
    * ) Engage in dialogue with smallholder farms in partnership with NGOs and other organizations.
  5. Disclose progress of the above goals through the Web and the annual sustainability data book.

Terms

  • * 1 HCV : High Conservation Value
  • * 2 HCS : High Carbon Stock
  • * 3 RSPO : Roundtable on Sustainable Palm Oil
    http://www.rspo.org/
  • * 4 SCCS : Supply Chain Certification System
    A supply chain system designed to meet the strict requirements for biodiversity conservation,
    and to deliver products produced and sold by using sustainable palm oil harvested on RSPO-approved farms.
  • * 5 NDPE : No Deforestation, No Peat, No Exploitation
  • * 6 HCSA : High Carbon Stock Approach

Progress in Compliance with Sustainable Paper and Pulp Procurement Guidelines

By 2020, Kao aims to purchase only recycled paper or sustainably sourced paper for use in its products, including paper, pulp, packaging materials and office paper. When using pulp that is not recycled (i.e., virgin pulp), we aim by 2020 to purchase only pulp traceable to the source of wood fiber for raw materials.
Progress as of December 2019 is as follows.
Traceable paper and pulp: 100%*1
Of this, ratio of certified products: 91%*2

  • * 1 Paper and pulp used in Kao consumer products and packaging (Excluding some products)
  • * 2 With regard to cardboard use within Japan, calculations were based on procurement volumes for the first half and second half of FY 2019, and on the certified material usage rate for each half. The certified material usage rate for paper and pulp other than cardboard within Japan was calculated by aggregating the certified material usage rates by weight for each individual procurement item.

We have switched over to using sustainable paper (Green Purchasing items) for 98% of the copy paper used within Japan.
In addition, we are continuing to shift over to using FSC-certified products for the paper towels and toilet paper used at our offices in Japan. A total of 8 offices in Japan have already adopted FSC-certified paper towels, and 7 offices have adopted FSC-certified toilet paper.

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Monitoring of Suppliers

Assessment

We are encouraging suppliers to be Sedex members, respond to questionnaires, and set access rights to data.
As of the end of 2019, access rights to 1,812 sites of global suppliers were set, which covers 56% of the amount purchased. In Japan, access rights to 566 sites were set, which covers 66% of the amount purchased.
Further, we conducted risk assessments using the Sedex assessment tool for the suppliers that set access rights (as of November 2019).

Overall assessment SAQ response rate*1 SAQ risk
rating*2
Kao
evaluation
Ratio
S 80% or more Low Excellent 25%
A 80% or more Low Good 40%
B 80% or more Medium or High Needs improvement 15%
C*3 Less than 80% - Needs response 10%
-*4 - - 10%
  • * 1 Response rate to the Sedex supplier self-assessment questionnaire
  • * 2 The Sedex assessment tool assesses the probability of risk manifesting using the three levels of low, medium, and high
  • * 3 SAQ without a response are assessed as high risk, and therefore a SAQ response rate of less than 80% uniformly results in a C-grade assessment
  • * 4 Not yet assessed, as response results are not accessible

For suppliers who cannot feasibly join Sedex, we also use our original self-assessment questionnaire (Kao's SAQ) as a tool to supplement Sedex. We fully revised items pertaining to social responsibility including legal compliance, human rights, and trading practices as well as items pertaining to environmental conservation including environmental policy encompassing pollution prevention (air, water, etc.), environmental targets, and various management systems.Starting from 2018, we have begun monitoring operations for some direct materials suppliers that supply our overseas affiliates, and for machinery suppliers in Japan and indirect materials suppliers (firms engaged in the manufacture and sale of gift items) in Japan. In 2019, we expanded the scope of monitoring operations to include some direct materials suppliers within Japan.
When designating a new supplier, we conduct an equivalent assessment.

Engagement

In order to encourage suppliers to improve their sustainability, we have provided feedback on Sedex assessment results. We ask suppliers to make changes to the measures they are taking in relation to items where improved is needed, with the aim of helping them to secure an overall rating of A or higher. In the case of suppliers which are not linked to us and cannot undergo assessment, we ask them to link to us and reply to Sedex questionnaires. In 2019, we held meetings with 21 such suppliers in Japan, where we explained the important role that Sedex assessment plays in Kao's ESG strategy, and asked them to join Sedex and respond to the Sedex questionnaires.

CDP

CDP (Climate Change, Water and Forest)

Kao joined CDP programs for climate change, water and forest. We were evaluated by list A for climate change, A for water and A- for forest (Timber and Palm) in 2019.

CDP Supply Chain Program

In 2019, we participated in the CDP supply chain programs for climate change, water security and forests, and expanded our participation in the climate change program to include overseas affiliates.
The supplier response rate in 2019 reached 73% for climate change (239 companies responding out of requests to 327 companies), 70% for water (67 companies responding out of requests to 96 companies), and 85% for forests (28 companies responding out of requests to 33 companies).
We will continue these three programs in 2020 as well.

Vendor Summits

Some 239 suppliers participated in the 2019 vendor summit in Japan. We shared information about our business circumstances and requested their active cooperation in the CDP supply chain program promoting sustainable and responsible procurement as well as requested that they join Sedex. In addition, we started a supplier commendation system in 2016 and during the summit commended suppliers that excelled in quality, cost, delivery, information shearing and company management and sustainability.
We also held a vendor summit attended by 267 suppliers of Kao group companies outside Japan, and commended outstanding suppliers.

Changes in the number of companies that participated in the vendor summit

(Number of companies)

FY Held by Kao Japan Held by foreign affiliates Total
2015 214 285 499
2016 246 279 525
2017 245 258 503
2018 243 230 473
2019 239 267 506

Quality Improvement Meetings

In 2019, we hold quality improvement meetings with four packaging materials suppliers for the purpose of reduction of discrepant materials.
When a quality issue occurs, we take a corrective action and discuss a radical quality improvement with supplier in cooperation with our R&D division.

Supplier Satisfaction Surveys

These surveys are conducted every 3 years.
The supplier satisfaction survey was originally scheduled to be implemented in 2019. However, as we were engaged in restructuring the Procurement Division in 2019, it is now anticipated that the survey will be implemented in 2020 instead.

(Number of companies)

Year conducted Raw materials Packaging and container materials Equipment Total
2004 53 45 46 144
2007 48 37 44 129
2010 55 68 44 167
2013 71 59 45 175
2016 78 69 52 199

Employee Training

Procurement Division employees have taken the Certification Test for Environmental Specialists ("Eco Test") as the education to understand the relationship among our business, society and environment, and change their actions. The cumulative passing rate in 2019 for employees in the Procurement Division was 79% for the Eco Test.

Green Purchasing

We place high priority on purchasing environmentally conscious products, and achieved 90% of the levels set in the standards in 2019. We will promote our program with the aim of reaching 100% as soon as possible.

Region share of suppliers (Manufacturers)

Location of Manufacturers Raw Materials Packing Materials Finish Goods Total*7 Share of Amount
Japan Region*4 496 234 237 828 62%
Asia Region*5 580 336 53 949 24%
EMEA Region*6 439 50 47 521 8%
Americas Region 266 20 44 326 6%
Total 1,781 640 381 2,624
  • * 4 Japan Region consists of only Japan.
  • * 5 Asia Region includes Oceania region.
  • * 6 EMEA Region consists of Europe, Middle East and Africa regions.
  • * 7 Exclude duplicate categories
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