In the "Strategy", the TCFD recommends disclosure on the actual and potential impacts of climate-related risks and opportunities on the organization's business, strategy, and financial planning. The Group is proceeding with information disclosure in line with this.

Recognition of Climate-Related Risks

The Group conducts qualitative analysis based on climate change scenarios and categorizes examples of risks that could have a negative impact on the Group's businesses, financial performance and position (refer to Figure 3-1). After discussions in the Sustainability Promotion Committee, reports and deliberations are conducted in the Executive Committee and Board of Directors. Please see "Recognition of climate-related opportunities" (Figure 3-2) for examples of opportunities that could have a positive impact, and please see "Resilience assessment of our strategy based on climate-related risks" for the envisioned scenarios used in the analysis.

Climate-related risks can be broadly divided into risks accompanying the transition to a carbon-neutral society (transition risk) and risks stemming from physical damage (physical risk). The former includes the introduction of and changes to laws and regulations such as carbon pricing and energy policy (policy and legal), changes in society and industry due to rapid technological innovation (technology), changes in the corporate business environments and price fluctuations of products and assets, etc. (market), and deterioration in reputation of companies and organizations related to measures to address climate change (reputation). The latter includes health damage caused by abnormally high temperatures (chronic) and natural disasters such as heavy rains and large typhoons (acute).

Transition Risks

Examples of the Group's major transition risks include a decrease in various earning opportunities from the deterioration in the economy and corporate performance associated with measures such as increased carbon pricing to climate change measures (policy and legal), decrease in the value of held assets due to the decline in the performance of invested companies resulting from energy-related technological innovation (technology), a decline in underwriting business from various industry sectors as significantly affected during the transition period, a decline in the value of assets held by the Group due to delays in response to structural change in industries (market), deterioration in the Group’s reputation associated with a lack of initiatives to deal with climate change and investment and underwriting related to businesses with a heavy environmental load and a decrease in extensive business opportunities (reputation).

Physical Risks

Examples of the Group's main physical risks include constraints on employment and business execution of employees subject to health hazards due to abnormally high temperatures (chronic) and deterioration in power generation efficiency of solar and wind generation facilities due to an increase in torrential rain and powerful typhoons as well as each office being struck by disaster (acute).

Note that the time frames for risks and opportunities is defined with consideration to the alignment with the Group's management plan. Specifically, the short-term refers to the fact that the medium-term management plan is three years, the medium-term refers to 2030, which is the target year for "Vision 2030" and aims for the company's net zero GHG emissions, and the long-term considers aiming for net zero GHG emissions in the investment and loan portfolio by 2050, taking into account that the short-term is assumed to be 3-5 years, the medium-term is 5-10 years, and the long-term is 10-30 years.

Figure 3-1 Examples of climate-related risks

Type Climate-related risks Main impacts on the Group Time frame Expected main risk categories
Transition risks Policy and legal risks Increased carbon pricing related to climate change measures

Consideration of climate change in financial policies
  • Decrease in various earning opportunities from the detorioration in the economy and corporate performance
  • Decrease in business opportunities due to changes in corporate funding needs caused by increased uncertainty in interest rate fluctuations
  • Increase in costs due to carbon pricing of our group and investee companies
Short to long term Market risk Credit risk
Technology risk Changes in technology such as energy-related innovations and transitions
  • Decrease in the value of our group's owned assets and decrease in business opportunities due to delayed responses or business performance deterioration of our investment companies
Medium to long term Credit risk
Market risk Changes in markets such as economic and industrial structure transitions

Asset price fluctuations
  • Decline in underwriting business from various industry sectors significantly affected during the transition period
  • Decline in the value and balance of assets held by the Group
  • Decrease in value of our group's owned assets and properties and decrease in opportunities for sales
Short to long term Market risk
Credit risk
Reputation risk Corporate evaluation of climate change mitigation efforts
  • Deterioration in the Group's reputation associated with a lack of initiatives to deal with climate change and investment and underwriting related to businesses with a heavy environmental load
  • This reputation damage has led to a decrease in business opportunities and an increase in funding costs
Short to long term Reputational risk
Liquidity risk
Physical risks Chronic risk/
Acute risk
(Continuous) Temperature rise, heavy rain, increased disasters, etc.

(Temporary, localized) Heavy rain, massive typhoons, floods, abnormally high temperatures, etc
  • Increase in health hazards to customers and employees of the Group due to heat waves, restrictions on work, and a decrease in business opportunities
  • Decreased efficiency of solar/wind power generation facilities due to the increase in heavy rain and massive typhoons
  • Damage to investment destinations and equipment deterioration due to floods and an increase in recovery costs
  • Increased costs for repairing and restoring important bases such as business locations and data centers of the company group that have been affected by disasters
Medium to long term/Short to long term Operational risk
Credit risk

Recognition of Climate-Related Opportunities

The government's "Basic Policy for the Realization of GX" refers to realization of more than 150 trillion yen in green transformation (GX*1) investment, including public-private blended finance*2, over the next ten years to realize a carbon-neutral society. For the Group, we believe there are business opportunities as a financial institution to undertake GX investment-related product design, structuring, and operational support. From this perspective, the Group conducts qualitative analysis based on climate change scenarios and lists the following examples by business division of opportunities that could have a positive impact on the Group's business and management (see Figure 3-2).

  • *1Transformation of the entire socio-economic system to reduce GHG emissions and increase industrial competitiveness
  • *2A financial method that combines public and private sector funds

Figure 3-2 Examples of climate-related opportunities by business division

Climate-related opportunities Examples of business division Time frames
Increase in opportunities to provide new financial products related to SDGs/ESG driven by customers' increasing interest in sustainability Retail Division Short to long-term
Increased underwriting for the fundraising required for green projects and the transition to a carbon-neutral society Wholesale Division Short to long-term
Increased M&A in the carbon-neutral field including renewable energy Wholesale Division Short to long-term
Inflow of funds into investment trusts that consider the impact of climate change and into investment trusts that include companies proactively investing in their climate change response Asset management Division Short to long-term
Structuring and managing investment corporations and private funds with underlying assets that are real estate and real assets with high environmental performance Asset management Division Short to long-term
Greater investment opportunities into new industries and companies that contribute to the transition to a carbon-neutral society Investment Division Medium to long-term
Investment into renewable energy such as solar power generation facilities and greater investment opportunities through the introduction of external capital Investment Division Short to long-term
Greater opportunities for solution businesses that support the transition to a carbon-neutral society Other (Think Tank) Short to long-term
Expansion in business opportunities resulting from improvement in reputation through net-zero initiatives Group-wide Short to long-term

Retail Division

In the retail division, due to the growing interest in customer sustainability, there is recognition of certain business opportunities in the field of SDGs/ESG-related new financial products, which can be expected to increase.

Wholesale Division

The market for green finance, which raises funds for green projects both domestically and internationally, is rapidly expanding. In addition, there is an increasing number of companies that are actively working on decarbonization and technological innovation, even in sectors with high GHG emissions, leading to an increase in the need for transition finance. Although there is a limit to the demand for funds for green finance, the potential need for transition finance, which is used to fund decarbonization efforts by issuers, is considered to be very large.

Therefore, the wholesale division recognizes business opportunities for underwriting such as raising funds for green projects and for the greenification of core businesses aimed at transitioning to a low-carbon society. In addition, as companies that prioritize decarbonization are expected to rebuild their business portfolios, there is a growing need for organizational restructuring and business integration, including M&A in the sustainability field such as renewable energy, which is recognized as a business opportunity in the renewable energy sector.

Asset Management Division

In the Asset Management Division (Securities Asset Management), since there is exposure to a wide range of sectors, the entire portfolio may be affected positively or negatively by various risks. On the other hand, when viewed individually, there is a growing social awareness of climate change issues, and investor interest in investment trusts that consider the impact of climate change is also increasing, and we recognize the business opportunity to offer such investment trusts.

In the Asset Management Division (Real Estate Asset Management), as there is a growing investor demand for financial products that consider sustainability, we recognize the business opportunity to create and manage investment trusts and private funds with real estate and tangible assets with high environmental performance as underlying assets.

Investment Department

In the investment department, there are business opportunities for fund formation and management aimed at investors with investment needs in related assets, as well as investments in new industries and companies that contribute to the transition to a carbon-neutral society, particularly in the field of renewable energy, such as solar power plants (both domestically and overseas).

Other (Think Tank, etc.)

At Daiwa Institute of Research, we recognize that there is an increasing opportunity in the solution business that supports the transition towards a carbon-neutral society in our research and consulting services.

In addition, we recognize that improving our reputation through our efforts towards net-zero will lead to an expansion of business opportunities throughout the Group (refer to "Transition plan towards carbon neutrality").

Strategic Climate Change Initiatives

As a countermeasure to the climate-related risks (particularly the transition risk) and opportunities identified in each business division, we will advance the following initiatives (see Figure 3-3). Furthermore, in terms of our response to physical risks, we have formulated a business continuity plan (BCP), to prioritize the resumption and continuation of important operations from the perspective of maintaining the functioning of the securities market and our customers' economic activities in the event that our headquarters, branches, or data centers are halted due to a shutdown in social infrastructure caused by abnormal weather or natural disasters. This allows us to build a system that can continue important operations even if our headquarters functions are disrupted. In response to transition risks, there are various initiatives depending on the characteristics, and the relevant departments will change accordingly. However, executing these initiatives steadily is expected to enhance our reputation as a company that is proactive in addressing climate change and have positive effects on a wide range of businesses

Figure 3-3 Climate-related response strategies (strategic initiatives)

Strategic initiatives for climate-related responses Examples of business divisions
Developing and providing products and services that contribute to the realization of a carbon-neutral society Retail Division
Asset management Division
Promoting and enhancing sustainable finance Wholesale Division
Enhancing M&A advisory in the sustainability field Wholesale Division
Sourcing and investment promotion focused on sustainability Investment Division
Providing sustainability-related solutions Other (Think tank)
Realizing carbon-neutrality Group-wide
Strengthening engagement with stakeholders Group-wide

Developing and Providing Products and Services that Contribute to the Realization of a Carbon-Neutral Society

Based on opportunities presented in the retail and asset management divisions, such as climate-conscious investment trusts, the Group will further strengthen our development and provision of products and services that contribute to the realization of a carbon-neutral society. Furthermore, as part of such strategy, we will focus on expanding funds and ETFs related to solving social issues, including funds that invest into companies that provide solutions to realize a carbon-neutral society. These initiatives are consistent with the key issue of "development and provision of new financial products and services that contribute to the realization of a sustainable society" in the "Green & Social" priority area of "Vision 2030".

Daiwa Asset Management, a division of the asset management department, selects and invests in solution companies that contribute to realizing a carbon-neutral society, and has developed and offered a fund called "Carbon Neutral Equity Fund (nickname: Carbon ZERO)" with the aim of achieving carbon neutrality as a fund. This initiative was recognized and awarded the "Governor's Special Prize for Green Finance in the ESG Investment Category " of "Tokyo Financial Award 2021" hosted by the Tokyo Metropolitan Government.

  • *As a fund, it aims to achieve carbon neutrality by calculating the CO2 emissions of the invested companies and contributing funds to green projects that can absorb the emitted CO2.

Promoting and Enhancing of Sustainable Finance

Based on opportunities in the wholesale division such as underwriting for green projects and transition, the Group will continue to promote and enhance sustainable finance. This initiative is in line with the key issue "Promotion of green finance to support the realization of a carbon-Neutral Society" in the priority area "Green & Social" of "Vision 2030," as well as the "the Daiwa Securities Group Net Zero Carbon Declaration" in the transition plan, which aims to support the smooth transition to a carbon-neutral society through financial businesses ("Transition Plan for Achieving Carbon Neutrality"). Additionally, at ESG Research, Equity Research Department, we conduct ESG-related surveys and analyses for institutional investors and will continue to focus on providing a broad scope of information.

Daiwa Securities has been an early adopter of sustainable finance and in 2008, it sold the first impact investment bond for individuals in Japan, called the "Vaccine Bond". It has also been working on developing standards both domestically and internationally, and in 2017 and 2020, it served as a member of the Ministry of Environment's Green Bond Guidelines Review Committee. In 2020, it was the only Asian underwriter selected as an advisory council member by the International Capital Markets Association (ICMA).

In October 2020, Daiwa Securities established a dedicated sustainable finance team (currently Sustainability Solutions Department) to provide sustainability-related solutions in line with the needs of investors and issuers, going beyond the product categories such as debt and equity.

As an example of its achievements, it served as the structuring agent for the underwriter and issuer support of the world's first transition bond in the aviation industry by Japan Airlines in February 2022. In foreign bonds, it also served as the lead manager for Hungary's green bond in FY2021, supporting the establishment of frameworks and obtaining second-party opinions. It is also the lead underwriter for Fuluhashi EPO's SDGs-IPO, which provides environmental solutions.

In addition, it strengthens its research support system by providing ESG information for investors (institutional and individual investors) and works to create brokerage opportunities by providing information on companies that are working to decarbonize.

In addition, DC Advisory, which provides M&A advisory services in the Group, conducts engagements such as those listed below.

Figure 3-4 Engagement cases by DC Advisory

Implementation Overview
Company A (Utility) The company designs and constructs multi-utility networks that provide gas and electricity to residential and commercial buildings. DC Advisory provides support for finance related to sustainability-linked loan packages.
Company B (Leasing) The company operates leasing businesses for railway vehicles and tank containers. DC Advisory supported a consortium of infrastructure investors that acquired the company. The company worked with the management and sustainability experts to introduce a green finance framework.
Company C (Leasing) The company operates procurement and leasing businesses for railway vehicles. DC Advisory supported the introduction of an ESG information commitment (annual report created by borrowers).
Company D (Storage) The company is a provider of intermediate storage for liquid bulk (gasoline/diesel/biofuels) at major strategic hubs. DC Advisory supports fundraising through sustainability-linked loans from banks in Europe and North America.
Company E (Storage) The company handles storage of energy and chemical products and focuses on providing sustainable storage solutions. The company continues to invest in developing energy efficiency and renewable technologies. DC Advisory advises the company on fundraising through bank loans, including sustainability-linked loans.

Enhancing M&A Advisory in the Sustainability Field

The Group is further enhancing our M&A advisory in the sustainability field, particularly in opportunities such as M&A in the renewable energy sector within our wholesale division.

In October 2019, the Group took a 50% investment stake in Green Giraffe Advisory B.V., the Dutch renewable energy business advisory. In February 2021, the Group also established the joint venture DC Advisory (Thailand) Co., Ltd., through joint venture with 9 Basil Co., Ltd. and others in Thailand to strengthen our global M&A network (see figure 3-5). Going forward, we will contribute to the realization of a carbon-neutral society by providing M&A support to our clients in this field.

Figure 3-5 Strengthening the global M&A network

Figure 3-5 Strengthening the global M&A network

Sourcing and Investment Promotion Focused on Sustainability

Taking into account risks (such as market downturn due to macroeconomic deterioration and decreased opportunities for sales) and opportunities (such as investment in renewable energy) primarily in the investment sector, the Group will further promote investment in the sustainability field, particularly in the renewable energy field.

The Group established Daiwa Energy & Infrastructure Co., Ltd. in July 2018 to expand and are expanding investment in the renewable energy and infrastructure field not only in Japan, but globally. In December 2019, we entered into a strategic partnership with Aquila Capital Holding GmbH of German (shifted to an affiliate applying the equity method in 2020), which develops and operates renewable energy businesses, and we are also accelerating investment in pgotovoltaic power plants and infrastructure assets in European as well. In September 2021, we utilized the lending function of Daiwa Energy & Infrastructure and the infrastructure asset management function of Daiwa Real Estate Asset Management to form the solar private core fund "DSREF Core Amaterasu Investment Business Limited Liability Partnership". Moving forward, we will promote the expansion of our assets under management by converting portfolios into funds and providing opportunities for external investors to address climate change issues, not only for ourselves but also for external investors.

Providing Sustainability-Related Solutions

We are further strengthening sustainability-related solutions in the research and consulting services provided by Daiwa Institute of Research, building on the opportunities available in the department (expansion of transition support solution business). Specifically, we will issue information and provide policy proposals on the impact of climate change on the economy and society and strengthen our consulting to establish management strategies and support projects to address climate-related risks, staring with responding to TCFD, as we connect our efforts to enhancing our customers' corporate value.

Realizing Carbon-Neutrality

Considering the reputational risk of the Group, we are promoting the realization of net zero GHG emissions. For details, please refer to "Transition Plan to Realize Carbon-Neutrality".

Strengthening Engagement with Stakeholders

At the Group, to provide financing support for our customers' transition to carbon-neutrality, we are strengthening engagement (constructive dialogue) with all of our stakeholders starting with issuers and investors. For example, based on our "Environmental and Social Policy Framework", in recognition of risks relating to our businesses that could have a significant negative impact on the environment or society, we are advancing the appropriate policies through engagement with the recipients of our investments and loans.

Transition Plan to Realize Carbon Neutrality

Parallel with our "Daiwa Securities Group Net Zero Carbon Declaration", we released a roadmap to realize the declaration and are advancing initiatives to realize carbon-neutrality (Figure 3-6).

Figure 3-6 Transition plan for achieving Net Zero Carbon

Figure 3-6 Transition plan for achieving Net Zero Carbon

Figure 3-7 Trends in the company's GHG emissions (Scope 1 and 2)

Figure 3-7 Trends in the company's GHG emissions (Scope 1 and 2)
  • (Note)The company's GHG emissions (domestic and overseas) are calculated for approximately 95% of the locations based on the number of employees.

Net Zero GHG Emissions within Our Own Operations by 2030 (Scope 1 and 2)

Regarding net zero GHG emissions from Scope 1 and Scope 2, we are promoting reductions based on our priority area "Reduce the environmental footprint of the Group" (Figure 1-3). In terms of our specific initiatives, we will promote continuing our energy-saving activities as well as introducing renewable energy (Figure 3-8).

Figure 3-8 Examples of measures to promote our net zero GHG emissions (Scope 1 and 2)

Item Examples of initiatives until FY2022 Examples of future initiatives
Energy-saving activities
  • Efficient use of energy
    • -Replacement of equipment (air conditioning, lighting to LED)
    • -Optimization of operations, etc.
  • Continuously implementing measures to improve energy efficiency
Introduction of renewable energy
  • Introduction of renewable energy through the use of tracking non-fossil fuel certificates for domestic in-house contract electricity
  • Encouraging owners to switch to renewable energy for other companies' contracted electricity in domestic rental properties and overseas bases
  • Utilization of carbon offset
    • -Emissions trading, etc.

In terms of our energy saving activities, we will introduce energy-saving technologies and systems at our facilities and streamline our energy use. We will continue to do so in the future. In addition, in regard to introduction of renewable energy, we have been using tracking non-fossil fuel certificates to shift to renewable energy at the Group's bases occupying the head office building (GranTokyo North Tower) since April 2021, and switched the tracking destination of the same certificate to renewable energy power generation facilities owned by Daiwa Energy & Infrastructure, a subsidiary of the Group, from July 2021 (Figure 3-9). Furthermore, we have also introduced renewable energy at some branches of Daiwa Securities and the Daiwa Institute of Research's main data center since October 2022. By the end of FY2023, we plan to switch all domestic properties to renewable energy. In the future, we will consider switching to renewable energy for leased properties and overseas locations that require coordination among stakeholders, as well as utilizing carbon offsets, in order to achieve net-zero GHG emissions (Scope 1 and 2) by 2030.

Figure 3-9 Utilizing renewable energy from the power generation facilities owned by Daiwa Energy & Infrastructure at the headquarters building

Figure 3-9 Utilizing renewable energy from the power generation facilities owned by Daiwa Energy & Infrastructure at the headquarters building

In selecting the renewable energy menu to be introduced into our offices and other locations, we use not only the reduction effect of GHG emissions but also the Internal Carbon Pricing (ICP) as a material for judgment. Specifically, we compare the cost of future ICP implementation, calculated based on J-Credit prices, with the additional cost of introducing renewable energy. In the calculation, we use data on the expected reduction of GHG emissions due to the introduction of renewable energy obtained from the power companies, and by utilizing ICP in this way, we make a reasonable judgment on the additional cost of introducing renewable energy. In addition, in 2021, we established a department specializing in emissions trading at Daiwa Securities, and are advancing market research and system development in anticipation of the expansion of Japan's emissions trading market. Furthermore, in April 2023, we will participate in the GX League, led by the Ministry of Economy, Trade and Industry. In the league, participating companies are expected to lead the market design for achieving a carbon-neutral society, not only with their own efforts to reduce emissions, but also by collaborating with a wide range of stakeholders, including supply chains and civil society. The Group will set reduction targets for our own GHG emissions (Scope 1 and 2) at domestic locations required by the league, report achievements, conduct emissions trading based on reduction achievements, and disclose these activities. In addition, we will accumulate knowledge in preparation for the introduction of full-fledged emissions trading in Japan, through participation in the rule-making in the same field through the Carbon Credit WG, capturing business opportunities through dialogue and exchange between participating companies.

Net Zero GHG Emissions within Our Investment and Loan portfolios etc. by 2050 (Scope 3)

Financed Emissions

To realize a carbon-neutral society, we must manage and reduce emissions not only at the Group but also throughout the entire supply chain. Particularly for financial institutions, it is important to manage GHG emissions (Scope 3 Category 15, Financed Emissions) in investment and loan portfolios. Based on our priority area "Set targets to align with the Paris Agreement goals and expand transparent information disclosure", the Group will promote setting targets and disclosing information (Figure 1-3).

To reduce Financed Emissions, we will start by (1) identifying priority asset classes and sectors, (2) analyzing sector characteristics and collecting analysis data, (3) measuring emissions and considering management methods within the Group, (4) setting and disclosing intermediate targets using SBT (Science Based Targets) and other methods, and (5) promoting and strengthening strategy formulation, engagement, and implementation to achieve our goals (Figure 3-10).

Figure 3-10 Image of monitoring for reducing Financed Emissions

Figure 3-10 Image of monitoring for reducing Financed Emissions

In the measurement of Financed Emissions for the FY2021, the target asset classes were listed stocks, corporate bonds, corporate loans, unlisted stocks, commercial real estate, and project finance. The target sectors were power generation, steel, oil and gas, automobile manufacturing, coal mining, and transportation. For the measurement in the FY2022, sovereign bonds were added to the target asset classes, and agriculture, aluminum, cement, and real estate were added to the target sectors. We have established a Group-wide monitoring system for the management of Financed Emissions (Figure 3-11).

Figure 3-11 Group-wide monitoring system for Financed Emissions

Figure 3-11 Group-wide monitoring system for Financed Emissions

In December 2021, we joined the Partnership for Carbon Accounting Financials (PCAF) and the PCAF Japan Coalition, initiatives related to GHG emissions measurement and disclosure. Under this system, we will continue to explore while utilizing PCAF's knowledge and database. As for the interim target, we plan to set and disclose goals that are in line with the Paris Agreement by using SBT or other means by the end of FY2023. Additionally, we will engage in decarbonization support for our investment and lending partners and participate in rule-making for measurement and disclosure in collaboration with international initiatives and authorities. For more details, please refer to "Appendix: Approach for measuring GHG Emissions within our Investment and Loan Portfolios".

Facilitated Emissions

Furthermore, regarding facilitated emissions, which include GHG emissions from our capital market businesses such as underwriting, there is an ongoing international discussion, and we are monitoring the situation closely. Specifically, PCAF plans to publish guidance on measurement methods in 2023. It is recommended that financed emissions and facilitated emissions be disclosed separately. However, the IFRS Sustainability Disclosure Standards, published by the International Sustainability Standards Board (ISSB) in June 2023, currently excludes facilitated emissions from disclosure as the methodology is not yet sufficiently mature. As the Group, we consider measuring facilitated emissions important from the perspective of understanding our capital market portfolio and managing related business risks. We are currently consulting with relevant departments on measures to be taken for measurement. At Daiwa Securities, we are committed to contributing to a carbon-neutral society through initiatives such as supporting funding for startups with decarbonization technologies and promoting transition finance through our capital market business.

Supporting a Smooth Transition to a Carbon-Neutral Society through the Financial Business

As an integrated securities group, through our financial business, we will continue to support our customers' efforts toward decarbonization. (Please refer to "Strategic Climate Change Initiatives" for more details.)

Resilience Assessment of Our Strategy Based on Climate-Related Risks

The flow of scenario analysis conducted by the Group is based on multiple climate change scenarios (envisioning diverse climate-change phenomomena and other extensive changes) and (a) qualitatively assesses the impact on business activities and (b) calculates the impairment losses of assets classified as carbon-related industries. Based on these assessment and calculations, we are evaluating the Company’s strategies and response policies.

Figure 3-12 Scenario Analysis Image

Figure 3-12 Scenario Analysis Image

Envisioned Scenario

Based on the scientific relationship of the positive correlation between the cumulative CO2 emissions and the rise in global temperatures, we believe that the path of CO2 emissions reductions holds a major key in future climate change. In addition to the rate of progress and effectiveness of reducing emissions, there are a wide range of factors to consider including natural phenomena such as natural disasters, climate events and their social changes, and other wide-ranging economic conditions, meaning the future will not be decided by a single factor. In the current scenario analysis, we performed various paths based on the scenarios of NGFS, which is a financial system impact assessment scenario formulated by NGFS (Network for Greening the Financial System) consisting of central banks, financial supervisory authorities, and others. Please refer to Figure 3-13 for an overview of the envisioned scenario.

  • *NGFS is a network of financial authorities involved in the assessment of climate change risk etc.

Figure 3-13 Envisioned Scenario

Source: Created from NGFS

Scenario   Basic Elements Assumed Risks
  Reference Scenario
Temperature Rise
CO2 Emissions Physical Risk
(natural disasters, etc.)
Transition Risk
(Climate-related specificities)
(1) Orderly Transition (Proactive Response) Net Zero 2050 Approximately 1.5℃ (suppression) Reduction (smooth) Small Large
(2) Disorderly Transition (Disrupted Response) Delayed Transition Reduction (headwinds)
(3) Hot House World (Passive Response) Current Policies Over 3℃ (continuation) Reduction Pace Continues Large Small

Analysis Results

Qualitative Analysis of the Impact on Business Activities

Shutdowns or slowdowns in the economy or industry, volatility in the financial markets (falling stock prices, increased credit risk, etc.), damage from heavy rains or flooding and health problems caused by abnormally high temperatures were all listed as factors of relative concern. To apply these analysis results to scenarios, there is a relative risk of economic shutdowns or market volatility appearing in cases where CO2 emission reductions lead to economic or social turmoil (disorderly transition) and of damage from heavy rains or flooding or of abnormally high temperature occurring in cases where CO2 emission reductions are delayed (Hot House World).

On the other hand, regarding the impact of the energy transition on business, there is a negative impact on existing businesses from the reduction of fossil fuel resources and a positive impact on new business opportunities with the increase in new forms of energy such as renewable energy, meaning that overall, the energy transition is positioned as a near neutral factor. Furthermore, there is the possibility of climate change initiatives such as CO2 emission reductions affecting corporate evaluations (reputation), and we expect an indirect impact on the Group’s business.

Thus, it is considered that the Group has a certain degree of adaptability to social and economic elements strongly related to climate events, such as energy transition. By preparing for disaster reduction measures and BCPs against direct risks such as heavy rain and floods, and steadily implementing climate measures to maintain reputation, it is possible to mitigate the negative impact even in cases of macroeconomic stagnation.

Evaluation Losses of Assets Classified as Carbon-Related Industries among the Held Assets

In the process of reducing CO2 emissions, a scenario of "disorderly transition" accompanied by confusion resulted in losses of approximately 55 billion yen (cumulative from 2023 to 2050), compared to a scenario assuming no impact from climate change and with significant economic headwinds. It is believed that the key to progress in reduction lies not only in the progress itself, but also in the overall response of society.

Future Response

In the current scenario analysis, we have formulated hypotheses based on the information and data presently available and performed our evaluation after narrowing down the targets of analysis.

There are a wide range of topics for consideration regarding climate-related risks, and we envision a wide range of patterns in terms of the time of occurrence and scale of these risks. While conservatively interpreting the interpretation and results obtained from this round of scenario analysis, the Group plans to acquire a broader range of information and related data and improve our analysis methods in the future. We will also refine the identification of risks through our scenario analysis and work to appropriately reflect these risks in the Group's disclosure.