In December 2022, the 15th Conference of the Parties to the Convention on Biological Diversity (COP15) was held, accelerating international discussions to promote initiatives for the conservation of biodiversity. Our corporate activities of both a social and economic nature, including the business activities of the Group, depend on natural capital to a significant extent as well as concurrently have an impact on it. In view of this, we are aware that the Group could be exposed to more than minor risks if natural capital and biodiversity were to sustain damage. At the same time, we believe that it is possible to make a contribution to Nature Positive through a sustainable capital cycle.

In May 2021, the Group formulated a management vision called the "Vision 2030" to present the Group's future goal. This was then reviewed in 2024 to reflect changes in the external environment and other factors.

Positioning "Green & Social" as one of the Materiality included in the Vision 2030, we are promoting sustainable finance for the realization of a sustainable society. Our Environmental Vision, Environmental Principles, and Basic Environmental Policies, meanwhile, emphasize the importance of recycling resources and biodiversity.

We participated in the TNFD^* Forum together with Daiwa Asset Management Co. Ltd. in September 2022 and registered both companies as TNFD Adopters in December 2023.

The Group has determined to work toward the restoration of natural capital while placing a focus on the creation of a prosperous future society through financial and capital markets, mainly by promoting sustainable finance toward the realization of a sustainable society.

• *TNFD: An international initiative formally inaugurated in June 2021 by the United Nations Environment Programme Finance Initiative (UNEP-FI), United Nations Development Programme (UNDP), World Widelife Fund (WWF), and Global Canopy with the aim of developing and presenting frameworks for the disclosure of nature-related financial information. The TNFD Forum is an organization composed of stakeholders to support TNFD discussions.

The Group has begun a LEAP analysis^*1 with reference to the TNFD recommendations v.1.0 to conduct disclosure in line with the TNFD framework. Specifically, we performed a preliminary analysis, using ENCORE^*2 (as of April 2024), IBAT^*3 and other tools to identify sectors and regions that require priority actions by the Group, and organized anticipated risks and opportunities.

• *1LEAP (Locate/Evaluate/Assess/Prepare): A sequence of approaches to "locate" the contact with nature, "evaluate" the degree of dependence and impact on nature, "assess" the risks and opportunities, and "prepare" countermeasures and disclosure.
• *2ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure): A free online tool recommended by the TNFD and the Ministry of the Environment of Japan to help organizations understand their dependencies and impacts on nature.
• *3IBAT (Integrated Biodiversity Assessment Tool): A geographical space data provision tool for nature-related information developed by the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC) and other organizations.

For the purpose of identifying relationships between the Group's businesses and natural capital, we first used ENCORE to perform analyses of our securities underwriting clients and some of our investees.

(1) Understanding the impact on nature by sector	(2) Understanding the impact by sector and the relationship with the underwriting/investment ratio
First of all, we checked the degree of impact on natural capital by sector using ENCORE. Then, we converted each impact into a numerical value by natural capital characteristics and created a heat map.	In terms of underwriting and investment, screening was performed for priority sectors, which are defined as those with a large impact on nature that also meet certain criteria of the underwriting/investment ratio, with consideration given to the relationship of the two axes of impact and the ratio of each subject sector described in (1) above.

In order to identify regions and business bases that pose high risks to natural capital, we have begun to identify and perform an analysis on KBAs^*4 and designated protection areas (Priority Areas) using IBAT, Aqueduct^*5, etc. with respect to the companies directly operated by the Group, properties invested in by REIT, and renewable energy power plants invested in by Daiwa Energy & Infrastructure Co. Ltd.

• *4KBA (Key Biodiversity Area): An important area in terms of conservation of biodiversity. It also provides regional information for identifying areas to be conserved and for avoiding and mitigating impacts on biodiversity as much as possible.
• *5Aqueduct: The World Resources Institute (WRI) maps the status of global water shortages caused by drought. Aqueduct is a set of tools that facilitate evaluation of water stress (degree of tightness in the demand-supply balance).

The results of the analysis under Step 1 above suggest that the three sectors of "Electric Power & Gas," "Chemicals" and "Electric Appliances" are the priority sectors with particularly significant impacts on nature. It should be noted that the analysis was performed experimentally for the first time in the current fiscal year, and that the scope of analysis will be expanded gradually.

Risks and Opportunities for the Group

The analysis and disclosure above were performed on a preliminary basis in preparation for full-scale disclosure from next fiscal year. The results provided us with indications of a certain degree of impact on natural capital, and of risks and opportunities associated with natural capital. Going forward, we anticipate that further deepening of the analysis is needed regarding the priority sectors.

Please note that Daiwa Asset Management Co. Ltd. has already disclosed in its Sustainability Report 2023 the provisional results of a simplified analysis on natural capital-related risks latent in its Japanese equity portfolio. We expect that in-depth analyses will become possible by improving the future disclosure of investee companies.

Going forward, we will continue to work for the transition to a nature-positive society together with our stakeholders.