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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

The Board of Directors receives periodic (at least once a year) reporting on the status of Group initiatives to counter climate change, with the aim of ensuring that these initiatives receive robust supervision . With outside directors making up the majority of its membership, the Board of Directors engages in multifaceted discussion and reflects its conclusions in the Group’s management strategy and risk management.

Also, the Group Sustainability Promotion Committee chaired by the president of Resona Holdings meets on a quarterly basis to exercise consolidated supervision of important matters concerning the identification, evaluation, and management of climate change-related opportunities and risks. Members of this committee include presidents of Group banks and the heads of the Corporate Administration Division and risk management divisions as well as officers in charge of corporate and retail banking.

This committee strives to identify and assess climate change-related opportunities and risks while discussing policies on and targets for the Group’s measures to reduce risks and increase opportunities. Conclusions reached by this committee are reflected in the Group’s management strategy and risk management.

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Governance of Socially Responsible Loan and Investment

Loan Business

The Group Credit Policy was established by the Board of Directors to provide fundamental principles for credit risk management. This policy clarifies the Group’s intention to give due consideration to its social responsibilities and environmental concerns. In line with this policy, the Group has developed structures and procedures for appropriately identifying and assessing the environmental impact of major projects and evaluating environmental initiatives undertaken by customers.

Investment

Status reports on the exercise of voting rights and other responsible investment activities associated with trust assets managed by Resona Asset Management are submitted to the Board of Directors as necessary. This ensures that the Board of Directors is in position to take a top-down approach and that Resona Bank’s responsible investment activities are constantly enhanced. Moreover, the Group has in place the Responsible Investment Verification Council chaired by an outside director of Resona Holdings, to verify the appropriateness of its stewardship activities, including the exercise of voting rights, from a third-party viewpoint.

Management Strategy

Business Opportunities and Risks Arising from Climate Change

To measure the impact of climate change, which is highly unpredictable, we have undertaken the qualitative evaluation of opportunities and risks based on two different scenarios involving, respectively, a 2°C and a 4°C rise in global temperatures.
The purpose of 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.

[Referenced scenarios]
IEA Energy Technology Perspectives 2°C Scenario • IPCC Representative Concentration Pathways 8.5 • Japan’s Intended Nationally Determined Contribution (INDC), etc.

Outline of the Resona Group’s 2°C Scenario

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Outline of the Resona Group’s 4°C Scenario

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Status of Carbon-Related Assets (as of March 31, 2021)

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) 1.2%
  • *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 carbon-related assets 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 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

  1. 1.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.
  1. 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.
  1. 3.Determine priority sectors
Determine priority sectors based on the results of 1 and 2 above.
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. Looking ahead, we intend to utilize results of this analysis to conduct a quantitative analysis of the financial impact of climate change-related risk on the Group’s operations.

  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
2°C 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°C 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
2°C 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°C 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
2°C 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°C 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 : 2°C Scenario Physical risks : 4°C 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 PHV or ZEV*6 demand. 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. *2.The Resona Group’s sector classification: Energy, Automotive / Transportation, Material, Pulp / Forestry products, Agriculture / Food, Real estate / Construction, and Banking / Life insurance
  2. *3.Portfolio size classification is as follows: Large: More than ¥5 trillion; Medium: ¥1 trillion to ¥5 trillion: Small: Less than ¥1 trillion
  3. *4.Not selected, as risk characteristics vary largely by type of material and, therefore, the sector’s impact on the Group’s portfolio is dispersed
  4. *5.A 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
  5. *6.PHV: Plug-in Hybrid Vehicle (a type of hybrid vehicle that can be charged by plugging into an external power source); ZEV: Zero Emission Vehicle (an electric vehicle or fuel cell vehicle that emits no exhaust gas)

Our Management Strategies and Initiatives

The Resona Group anticipates that climate change is highly likely to have a financial impact on its loan assets, the largest category of assets in the Group’s possession. Accordingly, the Group recognizes that the opportunities and risks its customers face will directly affect the Group through these loans. The majority of the Group’s loan assets are accounted for by loans furnished to individual and SME customers, suggesting that climate change-related lending risks are dispersed. However, compared with large corporations, SMEs are typically in a disadvantageous position. For example, they have few opportunities to study how climate change and other social issues may impact their operations while lacking sufficient resources to plan and executecountermeasures. With this in mind, the Resona Group helps its individual and SME customers, first to expand their knowledge of social issues, including climate change (1st Stage), and then encouraging them to join efforts to resolve such issues (2nd Stage). The Group also helps customers identify latent related issues in order to resolve their anxiety about the future (3rd Stage). Our service lineup is designed to deal with varying customer needs arising from these actions.

In line with the newly formulated Retail Transition Financing Target (see also page 38), we will push ahead with in-depth dialogue with customers and the strengthening of our solution capabilities to help them identify latent related issues in order to resolve their anxiety about the future. At the same time, we will strategically reallocate our management resources over the long term in line with this target.

1st Stage

Initiatives to Help Customers Expand Their Knowledge of Climate Change and Other Social Issues

[An introductory booklet on SDGs]

An easy-to-read booklet explaining the importance of tackling environmental and social issues and an overview of the SDGs and the Resona Group’s relevant initiatives. This booklet is available at branches and distributed to customers.

[The Significant Impact of SDGs on Businesses]

Targeting SME customers, this booklet is utilized in the course of business activities to facilitate dialogue and call attention to the impact of environmental and social issues, including those specified by SDGs, on businesses and the risk of being excluded from supply chains by failing to address them.

2nd Stage

Encouraging Customers to Join Efforts to Address Social Issues

[Mirai E-us Project “Mirai Earth”]

This investment trust product is aimed at supporting eco-friendly tech companies worldwide via the purchase of relevant stocks or green bonds.

Also, a portion of proceeds earned by the Group is donated to the Resona Foundation for Future and the Minato Bank Scholarship Society with the aim of assisting children in their pursuit of higher education and thereby nurturing future leaders.

[Private placement SDGs promotion bonds]

Private placement SDGs promotion bonds

Products in which a portion of the proceeds from commission fees Group banks receive upon the issuance of private placement corporate bonds is donated to a fund that supports organizations pursuing SDG-related causes on behalf of corporate customers who agree with our aspirations to resolve environmental and social concerns.

3rd Stage

Initiatives to Help Customers Identify and Resolve Latent Issues

[Sustainability Linked Loans (SLL)]

Sustainability Linked Loans (SLL)

The SLL scheme offers loans with interest rates and other lending conditions linked to the achievement status of the borrower’s targets vis-à-vis its sustainability strategy, which takes into account the environmental, social and economic impact of its business operations.
The Group’s first SLL loan was extended in March 2021.

[SDGs Consulting Fund]

SDGs Consulting Fund

This product involves on-the-spot consulting with Resona Research Institute free of charge, with its consulting menu encompassing such subjects as how to foster an SDG-oriented corporate culture, how to draw a map indicating relationships between the client’s businesses and SDGs and how to implement supply chain risk countermeasures.

Risk Management

Based on its own definitions of risk categories , such as credit risk, operational risk and reputational risk, the Group strives to address climate change-related risks via periodic Group Sustainability Promotion Committee sessions aimed at identifying and evaluating the status of such risks, and renews the content of relevant risk management methods on a quarterly basis. Having identified climate change-related risks as contributing to uncertainty, the Group began to update its existing risk management process to incorporate issues arising from such risks into risk management methods in each risk category.

Furthermore, the Resona Group aims to mitigate risks that may affect it, its customers and society as a whole by, for example, introducing Initiatives to Promote Socially Responsible Loans and Investments.

In these ways, we are implementing a stepped-up corporate management approach aimed at helping realize a carbon neutral society via the use of our financial functions.

Initiatives for Socially Responsible Investing and Lending

Metrics and Targets

Working in Tandem with Customers to Reduce Climate Change-related Risks and Create Opportunities

In line with the Long-Term Sustainability Targets and the RSC2030 action plans, the Resona Group has formulated metrics and targets in an effort to help as many customers as possible understand the significance of climate change response and support their initiatives. Progress in these action plans is annually evaluated via the operation of a PDCA framework.

FY2021 Action Plans (environment related)

  • Promote constructive dialogue in line with customers’ status regarding their response to SDGs and ESG issues.
  • Support the popularization of buildings with higher environmental value • Promote the use of renewable energy in local communities.
  • Help expand the use of cashless and digitalized transactions while going paperless in the provision of products and services.
  • Participate in local initiatives aimed at protecting the natural environment and biodiversity.

The Resona Group’s Reduction Target for CO2 Emissions Attributable to Its Operations

Aware of the pressing need to strive for Japan’s national target of achieving carbon neutrality by 2050, the Group established a new reduction target with regard to CO2 emissions attributable to its energy use as part of Long-Term Sustainability Targets announced in June 2021.
Results of our efforts to reduce CO2 emissions thus far are also presented on "Environmental Load Reduction in Our Offices".

The Resona Group’s Reduction Target for CO2 Emissions Attributable to Its Operations

FY2021 Action Plans (environment related)

  • Strive to raise employee awareness regarding the reduction of energy use.
  • Introduce renewable energy for use by key facilities.
  • Cut back on the number of company-owned ICE vehicles while expanding the use of EVs in a phased manner.
  • Ask suppliers to address environmental concerns in addition to helping raise their environmental awareness.