Toyota Boshoku : Value creation story

Value creation story

Putting sustainability at the core of management

19 Value creation process

1. Sustainability management

1. Materiality

1. Initiatives to achieve the 2050 Environmental Vision

1. 2025 Mid-Term Business Plan

1. Mid-termManagement Hoshin (Policy)

1. Follow-upthrough KPIs

1. Strengthening monitoring of KPIs

TOYOTA BOSHOKU REPORT 2023		18

Value creation process

To realize our Vision, we have drawn up our desired status for 2030 and we will steadily implement plans.

In order to realize our Vision and be the company we aim to become, the Toyota Boshoku group has clarified its materiality (the approach we adopt to resolve the important issues we have identified to be prioritized through our business operations from among a variety of social issues), as well as our 2025 target and our desired status for 2030. Then, in 2020, we formulated the 2025 Mid-Term Business Plan, an action plan to achieve this materiality. We will implement this plan while maximizing our underlying philosophy and the strengths we have developed over our 100-year history.

	R&D
	The
	identity of
Philosophy	the Toyota
Boshoku
HITO	group	MONO
(p. 39)
ZUKURI	ZUKURI

2025 Target	Economic
Value

As an interior system supplier, become

a company that serves as "Home"* and secures competitiveness that can surpass global suppliers

2025

Mid-Term Business Plan

p. 27

Five-year action plan starting in fiscal 2022 aimed at achieving materiality

Principles of Toyoda

(p. 01)

Corporate

Philosophy

Toyota

Boshoku Group

Guiding

Principles

Seat Business

Interior & Exterior

Business

Unit Components

Business

Formulation of the 2025 Mid-Term Business Plan to resolve issues identified through a review of the 2020 Business Plan and analysis of the current situation, and to realize materiality.

Mid-term Management Hoshin (policy unchanged until 2025)

Secure MONOZUKURI

1 competitiveness to be a trusted and chosen supplier

Social

Value

Backcasting

TB Way

2	Acquire the R&D capabilities to
	respond to future changes

Acquire the sales capabilities

3 that allow us to make proposals to customers around the world

Establish a management

4 foundation to support sustainable growth

* "Home" means a business or region that is capable of creating added value on a Genchi-Genbutsu (go, see & study) basis and has competitive advantage compared to competitors.

19 TOYOTA BOSHOKU REPORT 2023

		Management resources and			Supplementary
Messages	Value creation story	strengthening them	Business portfolio	Governance	materials & data

Putting sustainability at the core of management

Looking into the future,

we will create tomorrow's automobile

interior space that will inspire our customers the world over.

Our desired status for 2030

To become a sustainable, leading global company

by enhancing corporate value

Creating new value as

an Interior Space Creator

Materiality

p. 23

The Toyota Boshoku group defines as our materiality the identification of important issues to be resolved through our business operations from among a variety of social issues and the approach we adopt to resolve them.

Issues Relating to Safety, Environment, and

Comfort to Resolve through Our Business Operations

As an Interior Space Creator, we will contribute to

1 people's quality of life, creating comfort, safety, and reassurance through innovation

Using our established technical capability, we will

2 contribute to realize a society with no traffic casualties

through providing products that assure safety

Together with our business partners, we will realize

3 MONOZUKURI innovations that minimize environmental stress

Issues Relating to the People and Organizations that are Our Sources for Exercising Competitiveness

We will develop people capable of contributing to

4 society, who have diverse values, a challenging spirit and understand the value of strong teamwork

We will continue to be a company of integrity trusted

5 by all our stakeholders, inheriting our tradition of fairness and moral behavior to the next generation

Offer "QUALITY OF TIME AND SPACE" in all mobility

Vision

TOYOTA BOSHOKU REPORT 2023

20

Sustainability management

Management framework for enhancing corporate value

Management Concept

Principles

of Toyoda

Corporate Philosophy

Toyota

Boshoku Group TB Way

Guiding Principles

Vision

Toyota Boshoku Group's Materiality

Mid-term Business Plan
Business Plan	Revenue Plan	Resources Plan
Annual Global	Annual	Annual
Hoshin (Policy)	Profit Plan	Resources Plan

Principles of Toyoda

Toyota Boshoku's company belief, which stipulates the founding spirit of Sakichi Toyoda, "for the world and for people," as our daily motto

Corporate Philosophy

Our philosophy, which has been converted into easily understood phrases in order to ensure that the Principles of Toyoda are widely practiced among our company members and clarified as the value provided to our stakeholders

Toyota Boshoku Group Guiding Principles

A guide to the basic conduct we expect in our business activities

TB Way

Our management beliefs, values, and behavioral principles in concrete terms

Vision

The company we aim to become, based on our values and philosophy

Toyota Boshoku Group's Materiality

In order to realize the Vision, the approach we adopt to resolve the important issues we have identified to be prioritized through our business operations from among a variety of social issues

Mid-term Business Plan

A plan that shows in detail how we will work toward realizing our materiality

Achieving sustainable growth in terms of both social and economic value

In order for the Toyota Boshoku group to realize its Vision and achieve sustainable growth, we believe it is essential to respond to the needs of society and solve social issues, thereby enhancing our social value while at the same time increasing our economic value.

The Toyota Boshoku group has organized this approach as "the management structure we aim to become," and we are striving to offer multi-dimensional value to customers and society and to expand our business fields while strengthening our management foundation and competitive advantage. We aim to enhance our corporate value over the medium to long term by maximizing the economic value generated by our group through our business activities, reinvesting the results for future growth, and returning them to our stakeholders.

Organizing a Business Management Structure and following up on KPI progress

In order to realize the management structure we aim to become, we have developed the Business Management Structure, which is a system for effectively utilizing and controlling management resources, and we follow up on progress using KPIs. While strengthening the monitoring of management, we measure the degree of achievement of our mid-term business plan and implement the PDCA cycle, as necessary, to get back on track.

We aim to enhance both economic and social value, and control them with the Management KPI, Financial KPI, Operational KPI, Competitiveness KPI, and ESG KPI.

21 TOYOTA BOSHOKU REPORT 2023

		Management resources and			Supplementary
Messages	Value creation story	strengthening them	Business portfolio	Governance	materials & data

Putting sustainability at the core of management

The management structure we aim to become

		Enhance
		economic value
Invest in growth			Distribute
			what we achieve

			Sustainable growth
valuecorporate	valueEconomic			Expand business	Shareholders/	Customers
				investors
				fields
					International/Local
			Offer multi-dimensional value	communities
					Company	Business
Enhance			Strengthen competitiveness	members	partners
			Strengthen management foundation

Social value

Coporate growth while
Contribute toward
fulfilling our responsibility
social value
in harmony with society

CSR

To realize the management structure we aim to become

Enhance social value through

our business operations

CSV

Business Management Structure

Corporate value	value Economic value
	Social

Board of Directors

Corporate Management Meeting

Functional meetings

(reports once a year)

(reports every month)

(reports at each meeting)

Management KPI

Financial KPI

Operational KPI

Competitiveness KPI

Overall indicators

Financial

Earnings by

Contribution

• Net asset

results

business

to earnings

• ROE

• Revenue

• Manufacturing

Demonstration

Sources of

Growth potential

Project

of

• Operating profit

productivity

competitiveness

Profitability

• Fixed costs,

management

• Development

competitiveness

etc.

efficiency

• Quality

• People

Productivity

• Materials cost

Earnings by

reduction

• Delivery

*

• Systems

Safety

region

• Safety

• Information

• R&D

• Infrastructure

Shareholder

development

returns

The identify of

CSV Promotion Meeting (twice a year)

the Toyota Boshoku group

(R&D, MONOZUKURI,

HITOZUKURI)

(p. 39)

ESG

ESG KPI

Materiality

• Reported at Corporate Management Meeting

TOYOTA BOSHOKU REPORT 2023		22

Materiality

Important issues to be prioritized by 2030 and penetration measures by region

Issues relating to safety, environment, and comfort to resolve through our business operations

Materiality	The meaning and concepts of materiality	Related SDGs

1

As an Interior Space Creator, we will contribute to people's quality of life, creating comfort, safety, and reassurance through innovation

Comfortable spaces

Promotion of innovation

Toyota Boshoku group has consistently developed its operations "for the world and for people," expanding from textiles into automotive interiors and contributing to the enhancement of safety and reassurance in people's daily lives. We are evolving into an Interior Space Creator, providing products and services such as those employing sensor-based biometric information to achieve comfort, which means enabling people to live with confidence while staying true to themselves (realization of smart cities).

2

Using our established technical capability,	To contribute to the ambitious target of a
we will contribute to realize a society with	society of "zero traffic casualties," we will
no traffic casualties through providing	continue to offer high-quality,high-safety
products (integrated seats, seatbelts, airbags,
products that assure safety
and other such products) and services that
Product safety Reduction of traffic accidents	optimize Toyota Boshoku's strengths in R&D
that is part of Toyota Boshoku's identity.
Aging society

3

Together with our business partners,

we will realize MONOZUKURI innovations that minimize environmental stress

Reduction of environmental loads

Productivity improvement

Climate change

Energy and resource conservation

Cooperation with business partners

Aiming for a sustainable global environment in which children can live happily with smiles on their faces, we will make effective use of business resources and achieve the targets set out in our 2050 Environmental Vision, including zero CO2 emissions, zero wastewater from production processes, and minimal volumes of natural resources used and waste produced. To accomplish this, we will work with our business partners to realize innovation and improve productivity in MONOZUKURI (and all manufacturing- related processes), utilizing the latest leading-edge technologies.

Issues relating to the people and organizations that are our sources for exercising competitiveness

Materiality	The meaning and concepts of materiality	Related SDGs

4

We will develop people capable of contributing	To continue challenging ourselves to find
to society, who have diverse values, a challenging	solutions for the world's problems, we will
spirit and understand the value of strong teamwork	develop autonomous human resources by
bringing together talented individuals from
Ensuring diversity Workstyle innovation	around the world, who understand different
Respect for human rights	ideas and ways of thinking, respect one
another, and think together.
Company-member health and work safety

5

We will continue to be a company of integrity trusted by all our stakeholders, inheriting our tradition of fairness and moral behavior to the next generation

Governance Compliance

Strengthened information security

Fair and equitable procurement

To continue being a company that is trusted by all stakeholders and grows together with them, we will continue to practice "ensuring that our corporate activities are fair and transparent," as enshrined in our Corporate Philosophy and the Principles of Toyoda that embody the concepts of Sakichi Toyoda, while "doing what is right" as laid down in the TB Way.

23 TOYOTA BOSHOKU REPORT 2023

Messages	Value creation story	Management resources and			Supplementary
strengthening them	Business portfolio	Governance	materials & data

Putting sustainability at the core of management

Materiality formulation and penetration initiatives

In July 2020, we defined as our materiality the identification of important issues to be prioritized through our business operations from among a variety of social issues and the approach we adopt to resolve them. (p. 87)

In addition, in order for our company members-the main actors of the initiatives-to understand their meaning and take ownership, we are implementing various penetration measures in each region, centering on the Regional Management & Collaboration Hubs.

Initiatives for materiality penetration in each region

(FY2023 results)

Management of materiality progress

In addition to the financial targets established in the 2025 Mid-Term Business Plan, in December 2021 we established ESG KPIs, which measure social value.

The ESG KPIs consist of seven environmental, 10 social, and eight governance items, with a responsible person assigned for each item and targets set for each fiscal year through fiscal 2026, as well as targets set for fiscal 2031.

(p. 33)

THE AMERICAS

JAPAN

• Sent out TBA Executive Message for Materiality

• Created training tools andstarted training for allToyota BoshokuAmerica company members

FY2024 Plans

• Translatingtraining toolsintoSpanish

and Portuguese and startingtraining in

non-English-speaking regions

• Developing and implementing

sustainability policy and ESGKPIs

CHINA

•Continued internal

dissemination of materiality

through Chinese language

versionof materialityvideo

• Creating materialityposters and deploying them within the region

• Monthly delivery of messages and quizzes concerning sustainability, including materiality,on the PC startup screen

• Conducting lectures on

sustainability,including

materiality,in newcompany

member trainingandposition-basedtraining

• Proactive communicationof materiality through PRactivities

such as motor shows

FY2024 Plans
• Implementing training for new
company members
• Implementing surveys to gauge
degree of understanding of
materiality	ASIA & OCEANIA
EUROPE & AFRICA
• Continued viewing of
• Designating every May as	materiality videos at monthly
orientations
"Materiality Month," interactive	• Continued display of materiality
seminars are held with the
on all company members' PC
participation of all regional
screen-savers
entities. The introduction of
FY2024 Plans
specific activities stimulates
sustainability awareness and	• Strengthening penetration
action.	activities by utilizing regional
• Implementing sustainability	CSR meetings
management using ESG KPIs
within the region

FY2024 Plans

• Review of ESG KPIs within the region to comply with the Corporate Sustainability Reporting Directive (CSRD) introduced in Europe

TOYOTA BOSHOKU REPORT 2023		24

Initiatives to achieve the 2050 Environmental Vision

Accelerating environmental management to achieve a sustainable society

In 2016, the Toyota Boshoku group formulated the 2050 Environmental Vision, and we have been striving to conserve and preserve the global environment by working to reduce our environmental impact from various angles.

However, global environmental issues such as climate change, natural resource depletion, and the biodiversity crisis are becoming more serious as each year passes.

Against this backdrop, in order to further focus on solving environmental issues and contribute to the conservation and preservation of the global environment, we reviewed the Toyota Boshoku group's past activities and our future target, based on the Toyota Boshoku Basic Policy of Biodiversity formulated in 2011, and in July 2023 drew up three priority actions. We aim to further contribute to global environmental conservation by promoting these three key initiatives: measures to prevent global warming in response to climate change, resource circulation in response to the depletion of natural resources, and co-existence with nature in response to the biodiversity crisis.

Additionally, with the formulation of the priority actions, we extended the scope of our activities and revised our Stretch Environmental Goals to Challenge 6. The whole group is working together to address environmental issues through our business activities and contribute to the realization of a sustainable global environment.

Vision

We will work together with all stakeholders with the aim of creating a sustainable global environment where children can lead their lives with a smile.

Priority actions

		Resource
		circulation
		Global	Co-existence
		warming
		with nature
		prevention
Challenge 6	Environmental management
Global warming prevention
1	GHG Net-zero1		2	GHG Net-zero
in the product life cycle		in the plant
Resource circulation
3	Sustainable		4	Waste
	resource circulation			minimization
Co-existence with nature
5	Water resource impact		6	Conservation and
	regeneration of
minimization
				natural capital

1 To achieve net zero greenhouse gas emissions

25 TOYOTA BOSHOKU REPORT 2023

		Management resources and			Supplementary
Messages	Value creation story	strengthening them	Business portfolio	Governance	materials & data

Putting sustainability at the core of management

Initiatives for the TCFD recommendations

In April 2020, we endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). By extensively analyzing the impact of climate change on our business and the risks and opportunities that result from it based on scenarios, we are reviewing the applicable costs and reflecting them in our management strategy. Based on the results of scenario analysis, we will continue to strengthen our response to risks and opportunities and work on further information disclosure.

				Response cost2
Causes	Risks / Opportunities	Assessment	Actions	(FY2024)
			• Survey of suppliers (CO2 emissions, efforts to
		Risk	reduce CO2 emissions, etc.), Promotion of activities
	• Increase in procurement costs by		for setting CO2 emission reduction targets	-
	introducing carbon prices, etc.		• Support for suppliers (Sharing of energy saving
			cases, joint development of new materials and new
			methods, joint purchase of renewable energy, etc.)

Enhancement of climate change policies, including carbon pricing

		• Introduction of highly efficient equipment to
• Increase in operating costs due to the	Risk	promote further energy saving and promotion of
the development of new methods
direct impact of the introduction of
	• Promotion of the introduction of renewable energy
carbon prices or its indirect impact on
	• Optimization of logistics (Reduction of CO2 emissions
energy prices
	associated with transportation through the promotion
		of local production for local consumption)

4.5 billion yen

Transition risks and opportunities (1.5 to 2°C3)

	• Increase in cost due to investment in	Risk	• Optimization of investment by introducing ICP	-
	energy saving and renewable energy
		(Internal Carbon Pricing)5
	for decarbonization
Enhancement of	• Expansion of business in new fields	Opportunity	• Expansion of new business domains and	1.3 billion
through collaboration between Toyota		diversification of provided value	yen
efforts to promote	group companies
vehicle	• Increase in demand for electrified	Opportunity	• Further planning and development of electrified	2.9 billion
electrification	products		products	yen

	Change in	• Decrease in sales due to lower	Risk
	demand for products with insufficent
	evaluation by	low-carbon technology		• Planning and development of products to further
	customers and the			reduce carbon emissions
	• Increase in sales by developing		3.2 billion
	consumer value		• Planning and development of plant-derived
	low-carbon products	Opportunity	products and lightweight products	yen
	standard (raised	• Expansion of demand for plant-derived
	• Improvement of recyclability and promotion of
	environmental	products and lightweight products		simple disassembly design
	• Enhancement of competitiveness by
	awareness, etc.)	developing technology to improve
		recyclability
	Worsening of		Risk	• Risk management using a system to manage the
	• Decrease in sales due to the impact of	range of supplier impact	-
Physical risks and	extreme weather,	supply chain disruption on production		• Selection of logistics routes that minimize the
opportunities	including heavy rain			impact of disaster
(4°C4)	and subsequent	• Decrease in sales due to factory	Risk	• Enhancement of the BCP system (Creation of	-
	flooding		manuals and establishment of an information
	shutdown
				collection/sharing system)

Commitment to SBT certification

In October 2022, we submitted a commitment letter to SBTi, an organization that certifies Science Based Targets (SBT), which are greenhouse gas emission reduction targets consistent with the levels required by the Paris Agreement, and have made a commitment to working toward obtaining SBT certification.

Participation in the Ministry of Economy, Trade and Industry's GX League

In May 2023, we participated in the Ministry of Economy, Trade and Industry's Green Transformation (GX) League.6

Toyota Boshoku joins 30by30 Alliance for Biodiversity

In October 2022, we joined the 30by307 Alliance for Biodiversity led by Japan's Ministry of the Environment, and endorse the Alliance's objectives.

2 The response costs will be updated in accordance with the next mid-term business plan

3 1.5°C scenario: NZE (IEA World Energy Outlook 2021); 2°C scenario: SDS (IEA World Energy Outlook 2021)

4 RCP 8.5 (IPCC 5th Assessment Report)

5 Putting a price on the amount of carbon dioxide emitted by a company in the course of its business

6 A collaborative platform where industry, the government, academia, and financial institutions take on the challenge of rapidly achieving carbon neutrality and promote the transformation of the overall economic and social system, including stakeholders other than themselves

7 The objective is to effectively conserve at least 30% of terrestrial and marine areas as healthy ecosystems toward the goal of halting and restoring biodiversity loss by 2030

TOYOTA BOSHOKU REPORT 2023		26

2025 Mid-Term Business Plan

Overview of the mid-term business plan and initiatives to achieve goals

The 2025 Mid-Term Business Plan, which began in fiscal 2022, reached its second anniversary in March 2023. Having first reassessed the current situation and fleshed out our 2025 target, we are promoting activities to achieve our goals.

In order to realize our 2025 target, namely, "As an interior system supplier, become a company that serves as 'Home'* and secures competitiveness that can surpass global suppliers," we aim to secure a world-leading competitive advantage for each product and become the supplier of choice for customers around the world.

On the other hand, we recognize that there is a gap between our goals and the current situation, in terms of factors such as scope for further improvements in cost and quality, the speed of expanding the fields where we operate as an interior system supplier, and activities to expand sales to non-Japanese auto manufacturers.

Therefore, by rolling out the 2025 Mid-Term Business Plan in December 2022 and clarifying our management issues, based on changes in the environment, we formulated

1. Mid-termManagement Hoshin (policy) to achieve the 2025 Mid-Term Business Plan. The Mid-term Management Hoshin replaces the previous "priority actions," and will remain unchanged until 2025, with measures tied to each fiscal year.

• "Home" means a business or region that is capable of creating added value on a Genchi-Genbutsu (go, see & study) basis and has competitive advantage compared to competitors

Overview of the 2025 Mid-Term Business Plan

Mid-term Management Hoshin	Details of
(policy unchanged until 2025)	initiatives	Fiscal year measures (FY2024)

1

2

3

4

Secure MONOZUKURI competitiveness to be a trusted and chosen supplier

Acquire the R&D capabilities to respond to future changes

Acquire the sales capabilities that allow us to make proposals to customers around the world

Establish a management foundation to support sustainable growth

p. 30

p. 31

p. 32

• Design and manufacturing quality improvement
• Cost planning that outperforms competitors
• Reduction of lead time from planning/development to production/delivery
• Promotion of technology roadmap
• Acquisition of technological capabilities as an interior system supplier
• Automobile interior space solutions system
• Generating the seeds of new business and sowing them in society
• Promotion of activities to win orders with our sights on 2030
• Strengthening of proposal capabilities
• Gaining the trust of customers
• Decision-makingprocess improvement
• Visualization of management information (p. 35)
• Creating an open workplace culture
• Encouraging company members to take on new challenges
• Formulation of a human resources portfolio for 2030
• Enhanced disclosure of human capital

27 TOYOTA BOSHOKU REPORT 2023