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Our Response to Global Warming and Climate Change(TCFD)

Demonstrating our support of the TCFD, we will develop a framework in conformity with its recommendations while maintaining the appropriate disclosure of climate-related financial information.

Governance

Our response to climate change is reported to the Board of Directors at least once per annum because it forms an important element of our sustainability initiatives. Material issues are discussed by the Board of Directors as necessary, which ensures we have a system in place for conducting appropriate supervision.

With outside directors constituting its majority, the Board of Directors engages in multifaceted discussion and reflects its conclusions in the Group’s business strategy, risk management and information disclosure.

In addition, the Group Sustainability Promotion Committee, chaired by the president of Resona Holdings, is tasked with exercising the consolidated supervision of and spearheading measures to address specific issues associated with sustainability and deemed important. Members of this committee include the presidents of Group banks and Resona Asset Management as well as the heads of the Corporate Administration Division and risk management divisions in addition to officers in charge of corporate and retail banking.

This committee also invites external specialists to contribute their opinions on diverse subjects, such as the direction and pace of the Group’s initiatives. These inputs are reflected in discussions undertaken en by top management.

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Management Strategy

Business Opportunities and Risks Arising from Climate Change

To measure the impact of climate change, which is highly unpredictable, we have undertaken qualitative and quantitative evaluations of opportunities and risks based on two different scenarios involving, respectively, a 1.5℃ and a ℃ rise in global temperatures.

This evaluation includes the assessment of estimated impact in the short-, medium- and long-terms, which are defined as approximately 5-, 15- and 35-year periods, respectively.

1.5℃ scenario (reference: IEA Net-Zero Emissions by 2050, IPCC RCP2.6 and other publicly approved scenarios)

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4℃ scenario (reference: IPCC RCP8.5 and other publicly approved scenarios)

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  • Ratio*1 of lending to energy and utility sectors in the entire portfolio (based on definitions under the Task Force on Climate-related Financial Disclosures (TCFD) recommendations).
As of March 31, 2020 As of March 31, 2021 As of March 31, 2022 As of March 31, 2023
1.3% 1.2% 1.2% 1.3%
  1. *1Total of loans and bills discounted, acceptances and guarantees, foreign exchange, etc. (sum of Resona Bank, Saitama Resona Bank, Kansai Mirai Bank and Minato Bank).

In-Depth Analysis of Our Qualitative Climate Change Scenarios

The proportion of lending extended to the energy and utility sectors in the Group’s entire portfolio is not considered significant. Nevertheless, we must assume that the possible impact of climate change-related risks on a broad range of sectors could be profound. Also, the form and magnitude of such impact and the timing of its materialization may differ largely by sector.

In light of these factors, we have identified priority sectors deemed particularly susceptible*2 to climate change-related impact based on assessments of the potential magnitude of such impact while taking into account the proportion of relevant assets in the Group’s portfolio. Targeting these sectors, we conducted an in-depth qualitative analysis of our existing climate change scenarios.

Process Used to Select Priority Sectors

Assessment of climate change impact by sector With reference to information publicized by the Task Force on Climate-related Financial Disclosures (TCFD), the United Nations Environment Programme Finance Initiative (UNEP FI) and the Sustainability Accounting Standards Board (SASB), assess the magnitude of the climate change impact on sectors deemed susceptible*2.
Reflect the proportion of assets in the Group’s portfolio by sector In addition, take into account the proportion of assets relevant to each sector in the Group’s portfolio.
Determine priority sectors Determine priority sectors based on the results of the above processes.
Sector Climate change impact Portfolio size*3 Selection results
Real estate / Construction Medium Large Selected as a priority sector
Automotive / Transportation High Medium Selected as a priority sector
Energy High Small Selected as a priority sector
Material High Small Not selected*4
Agriculture / Food Medium Small Not selected
Pulp / Forestry products High Small Not selected
Banking / Life Insurance Medium Small Not selected

Formulation of Scenarios for Each Priority Sector and the Qualitative Analysis of Developments in Climate Change-related Risks

Targeting each priority sector, we formulated scenarios and conducted a qualitative analysis regarding the magnitude of climate change impact and the timing of its materialization.

  1. 1.Identify important factors associated with risks and opportunities
With reference to information publicized by the TCFD, the UNEP FI and the SASB, conduct surveys and identify important factors considered to exert a profound impact on risks and opportunities affecting each sector.
  1. 2.Assume the future status of society and possible impact on each sector
Analyze important factors identified via 1 above and assume the magnitude of climate change impact and the timing of its materialization based on highly objective parameters recommended by the International Energy Agency and other bodies that support a scientific approach. Incorporate findings from this analysis into the "Five Forces Analysis"*5 to hypothesize the future status of society and thereby assess the impact on priority sectors.
  1. 3.Formulate scenarios and conduct qualitative analysis
Formulate certain scenarios and assess developments in climate change-related risks in each sector.

Important factors associated with risks and opportunities in each sector

  Real estate / Construction Automotive / Transportation Energy
Policy Introduction and/or heightening of carbon tax Introduction and/or heightening of carbon tax Introduction and/or heightening of carbon tax
Legal Strengthening of environment-related building regulations Tightening of GHG emission regulations Tightening of GHG emission regulations
Market Shift in customer needs to buildings with higher environmental performance Rising energy prices Popularization of renewable energy
Reputational - - Higher customer awareness regarding the need to address environmental concerns
Technology - Transition to electric vehicles -
Acute Increasingly frequent occurrences of flooding and other natural disaster damage Operational impact of a catastrophic disaster Surging expenses for the reinforcement of disaster countermeasures and the emergence of physical damage
Chronic - Damage to railroads due to heat expansion and rising air conditioning expenses (transportation) -

The future status of society and possible impact on each sector

(Real estate / Construction)

  Future status of society Impact on sector
1.5℃ Initiatives aimed at achieving carbon neutrality advance significantly, leading to the enforcement of carbon taxation, the introduction of building materials with low carbon footprint and the growing popularization of renewable energy. The construction of facilities designed to reduce environmental burdenprogresses at an everfaster pace.
4℃ Rising physical risks lead to growing demand for buildings with greater disaster resilience. While the construction of facilities equipped with greater resilience against flooding and other disasters progresses, the sector is affected by frequent occurrences of damage arising from abnormal weather and surging disaster countermeasure costs.

(Automotive / Transportation)

  Future status of society Impact on sector
1.5℃ Initiatives aimed at achieving carbon neutrality advance significantly, leading to the introduction of a carbon tax, the popularization of renewable energy and EVs and the acceleration of modal shift in the transportation sector. Toward carbon neutrality, the use of eco-friendly vehicles and rail cars gains growing popularity, resulting in the acceleration of modal shift.
4℃ Physical risks rise as the transition to a low carbon society fails to gain further momentum. While the market environment remains unchanged, the sector is affected by frequent occurrences of damage arising from abnormal weather and surging disaster countermeasure costs.

(Energy)

  Future status of society Impact on sector
1.5℃ Initiatives aimed at achieving carbon neutrality advance significantly, leading to the introduction of a carbon tax and the growing popularization of renewable energy. The use of renewable energy gains popularity at an ever-faster pace toward carbon neutrality.
4℃ Ongoing dependence on fossil fuel results in higher physical risks. While fossil fuel demand grows solidly, the sector is affected by frequent occurrences of damage arising from abnormal weather and surging disaster countermeasure costs.

Developments in climate change-related risks

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Priority sectors Transition risks : 1.5℃ Scenario Physical risks : 4℃ Scenario
Real estate / Construction Risk remains low based on an assumption that an increase in costs attributable to the need to lower energy consumption intensity will be offset by growing revenue backed by rising demand for net-zero energy buildings (ZEB) in 2040. Risk becomes constantly high from 2030 onward based on an assumption that monetary damage arising from flooding will increase approximately 20%.
Automotive / Transportation Risk remains medium based on an assumption that demand for vehicles with internal combustion engines (ICEs) will significantly decline in 2030 due to carbon taxation and the enforcement of stricter regulations on such vehicles. However, risk becomes constantly high from 2035 onward due to the enforcement of domestic regulations on the marketing of new ICE vehicles in the 2030s, provided that falling demand is not compensated for by demand for eco-friendly vehicles. Risk rises to and remains at medium from 2030 onward based on an assumption that monetary damage arising from flooding will increase approximately 20%.
Energy Risk becomes constantly high from 2030 onward based on an assumption that the use of fossil fuel will decrease due to the enforcement of carbon taxation, across-the-board efforts to achieve carbon emission reduction targets and changes in the energy mix. Risk becomes constantly high from 2030 onward based on an assumption that monetary damage arising from flooding will increase approximately 20%, and then subsides to medium in line with an assumed increase in crude oil prices (approximately 30%) in 2040 and resulting growth in revenue.
  1. *2The Resona Group’s sector classification: Energy, Automotive / Transportation, Material, Pulp / Forestry products, Agriculture / Food, Real estate / Construction, and Banking / Life insurance
  2. *3Portfolio size classification is as follows: Large: More than 5 trillion yen; Medium: 1 trillion yen to 5 trillion yen: Small: Less than 1 trillion yen
  3. *4Not selected, as risk characteristics vary largely by type of material and, therefore, the sector’s impact on the Group’s portfolio is dispersed
  4. *5A method for sector analysis in light of impacts attributable to sellers, buyers, newcomers and alternatives, with policies considered as an element affecting all the other factors

In-Depth Quantitative Analysis of Climate Change Scenarios

Based on the qualitative analysis, we conducted a quantitative analysis of the impact on the Group’s financial performance of transition and physical risks.

Transition risks (1.5℃ Scenario)

The characteristics and magnitude of transition risks’ financial impact vary by sector. Also, these factors may be altered going forward by measures undertaken by businesses pursuing carbon neutrality. Accordingly, our qualitative analysis has targeted priority sectors selected via qualitative analysis.

In addition, we have positioned “introduction and/or heightening of carbon tax” as an important risk factor to be used as an assumption for our scenario in light of the universal impact of such taxation on each sector. Moreover, in reference to publicly approved scenarios, we have assumed a 1.5℃ rise in global temperature to assess the resulting future impact on our clients. In this way, we estimated our exposure to credit risks that may emerge during the period leading up to 2050.

Target Sectors All the priority sectors (Real estate / Construction, Automotive / Transportation and Energy)
Assumptions for the Scenario The assumed impact on the Group’s credit risk exposure is based on additional expenses that would be incurred by clients due to the introduction and/or heightening of carbon tax as well as future business responses to the growing public call for carbon neutrality
Reference Scenarios IEA Net-Zero Emissions by 2050 and IPCC 2.6
Analysis Period Present to 2050
Risk Indicator Estimated increase in credit-related expenses
Analysis Results Credit-related expenses could increase during the period leading up to 2050 by a maximum of around 81.0 billion yen

Physical risks (4℃ Scenario)

Physical risks are considered to have a differing degree of impact on clients depending on the locations of both their businesses and real estate properties pledged as collateral for loans in addition to sectorspecific characteristics of their operations. Taking this into account, our quantitative analysis targeted business corporations in general.

Due to restrictions in data available for analysis, we have positioned flood damage resulting from the materialization of acute risk as an important factor to be used as an assumption for our scenario. In reference to publicly approved scenarios, we have thus estimated the impact of a 4℃ rise in global temperature on the business performance of our clients and real estate properties pledged as collateral for loans, determining its impact on the Group’s credit risk exposure during the period leading up to 2050.

Target Sectors Business Corporations in General
Assumptions for the Scenario Based on analyses of hazard maps and natural disaster models, we have estimated the frequency of flooding arising from the materialization of acute risk and resulting growth in flood damage. Having assessed the impact of the above factors on the business performance of clients and their real estate properties pledged as collateral for loans, we have thus determined the extent to which the Group’s credit exposure would be affected.
Reference Scenarios IPCC RCP8.5
Analysis Period Present to 2050
Risk Indicator Estimated increase in credit-related expenses
Analysis Results Credit-related expenses could increase during the period leading up to 2050 by a maximum cumulative total of around 18.0 billion yen

Risk Management

The Resona Group has positioned climate change-related risks as top risks that are deemed to possess a high possibility of impacting heavily on its operations. In line with this positioning, we have developed a consistent risk management structure placing the foremost emphasis on managing these risks.

Top risks are determined via discussion at the Executive Committee, the Board of Directors and other important bodies. Through top risk management, the Company helps Group members share risk recognition while striving to enhance risk governance, prevent the emergence of significant risks, ensure swift response to risk materialization and curb the spread of risk repercussions.

Having identified climate change-related risks as contributing to uncertainty, the Group has launched a risk management framework based on its own definitions of risk categories, such as credit risk, operational risk and reputational risk, determined in line with the characteristics of such risks.

To address credit risk, which is considered to have a particularly strong impact on the Group’s operations, we are working to step up risk management via, for example, “Initiatives for Socially Responsible Investing and Lending” described below. Simultaneously, we are developing a structure enabling us to help realize a carbon-neutral society through our financial functions.

Initiatives for Socially Responsible Investing and Lending

Metrics and Targets

In 2021, the Resona Group established Long-Term Sustainability Targets for its long-term initiatives aimed at mitigating climate change-related risks and increasing opportunities. In May 2023, we announced our commitment to reach net zero emissions by 2050 in terms of Scope 3 Category 15 greenhouse gas emissions resulting from our investment and loan portfolio. We also announced an interim target to lower emissions in the electric power sector2022.

Carbon Neutrality Target Scope1,2

Categories The Group’s greenhouse gas emissions
(Scope 1 + 2)
Of which, Scope 1 Of which, Scope 2
Target 70% reduction by FY2025 compared to FY2013
Net zero by FY2030
40% reduction by FY2025 compared to FY2013 80% reduction by FY2025 compared to FY2013
Results for FY2022 40,770t-CO2
(56.2% reduction from the FY2013 level)
5,079t-CO2
(39.7% reduction from the FY2013 level)
35,691t-CO2
(57.8% reduction from the FY2013 level)

Greenhouse gas emissions reduction targets for the investment and finance portfolio

Categories Greenhouse gas emissions from investment and loan portfolio (Scope 3 Category 15) Of which, electric power sector: carbon intensity
Target Net zero by FY2050 100~130gCO2e/kWh
Results for FY2022 - 139gCO2e/kWh

Retail Transition Financing Target

Categories Financing aimed at helping retail customers update their awareness, transform their modes of behavior and stably move forward from their current situation.
*Includes non-environmental sectors
Target Cumulative total of transition financing from FY2021 to FY2030: 10 trillion yen
Results for FY2022 FY2022 results: Approximately 1,019.8 billion yen
(of this, 303.5 billion yen for environment-related fields)
Long-Term Sustainability Indicators: Retail Transition Financing Target Initiatives to Reduce the Volume of Greenhouse Gas (GHG) Emissions from Our Investment and Financing Portfolio (Scope 3, Category 15) Long-Term Sustainability Indicators: Retail Transition Financing Target