Our Response to Climate Change- and Nature-Related Issues (initiatives related to the TCFD and TNFD recommendations)

Resona Holdings will deepen its efforts in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Task Force on Nature-related Financial Disclosures (TNFD) and will work to expand its disclosures.

Governance

The Board of Directors is responsible for overseeing responses to climate change and nature-related issues as an important element of sustainability initiatives. Please refer to "Sustainability Implementation Structure" for specific oversight structures and status. The Board of Directors has also established the Resona Group Environmental Policy, which includes supporting international environmental norms and engaging in dialogue with stakeholders, including business partners, to improve efforts on climate change and biodiversity in line with those norms. In addition, bearing in mind that environmental issues are closely related to human rights and local communities, the Board of Directors has also established the Resona Group Policy on Human Rights, which includes supporting international human rights norms and engaging in dialogue with stakeholders, including local communities, to improve efforts on respect for human rights in line with those norms.

Policy and Implementation Structure

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

Projected developments

GHG emissions from businesses are severely restricted by government-led policies and laws
Advances in and the popularization of low-carbon technologies enhances the availability of low-carbon alternatives to existing products and services
Frequency of sudden occurrences of abnormal weather remains virtually unchanged

Impact on the financial industry

Financing streams will be ever more focused on measures to alleviate climate change impact

Time frame

Short to long term

Projected financial impact

Opportunities

Product and service markets	Growing funding needs among businesses for the development of low-carbon products and services and capital expenditure aimed at reducing their GHG emissions Increased opportunities for the Group to offer financial services due to growing public awareness of climate change
Resource efficiency, energy sources, and market resilience	Reduction in business costs due to enhanced resource and energy efficiency Shift to low-carbon energy sources and the resulting alleviation of the future impact of carbon price surge Growth in the Group’s corporate value due to the implementation of a sustainability-focused business model

Risks

Transition risks

Policy and legal	Introduction of stringent government-led policies and regulations negatively affecting the operations of corporate customers and reducing the value of the Group’s loan assets
Technology and market	Advances in low-carbon technologies and changes in consumer preferences prompting a shift to alternative products and services and negatively affecting the operating results of corporate customers, resulting in a reduction in the value of the Group’s loan assets
Reputation	A decline in Resona Holdings’ share price due to inconsistencies between strategy and actions or insufficient disclosure of information about climate change

Physical risks

Acute	Virtually unchanged frequency of sudden occurrences of abnormal weather (hence, no major financial impact is expected)
Chronic	No chronic and irreversible climate change (hence, no major financial impact is expected)

4℃ scenario

reference: IPCC RCP8.5 and other publicly approved scenarios

Projected developments

Without notable breakthroughs in climate change countermeasures, the volume of overall GHG emissions continues to grow at the current pace
Due to an increase in the number of sudden occurrences of abnormal weather, society suffers even more significant damage
Chronic and irreversible changes, such as a sea level rise, affect economic activities undertaken by businesses and individuals

Impact on the financial industry

Financing streams will be ever more focused on measures to alleviate climate change impact

Time frame

Short to long term

Projected financial impact

Opportunities

Product and service markets	Growing demand for funding for public projects and capital expenditure aimed at alleviating physical damage attributable to abnormal weather
Resource efficiency, energy sources, and market resilience	Reduction in business costs due to enhanced resource and energy efficiency

Risks

Transition risks	No significant breakthroughs in climate change countermeasures (hence, no major financial impact is expected)
Physical risks (Acute・Chronic)	Reduction in the value of the Group’s loan assets due to the impact of climate change, such as the suspension of business induced by damage to corporate customers’ facilities, the absence of such customers’ employees due to damage to their homes, or a decline in the value of collateral assets due to such damage Suspension of the Group’s operations due to damage to its facilities or injuries to its employees because of a disaster

Transition risks

No significant breakthroughs in climate change countermeasures (hence, no major financial impact is expected)

Physical risks
(Acute・Chronic)

Reduction in the value of the Group’s loan assets due to the impact of climate change, such as the suspension of business induced by damage to corporate customers’ facilities, the absence of such customers’ employees due to damage to their homes, or a decline in the value of collateral assets due to such damage
Suspension of the Group’s operations due to damage to its facilities or injuries to its employees because of a disaster

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	As of March 31, 2024
1.3%	1.2%	1.2%	1.3%	1.3%

*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 Qualitative Analysis of Climate Change Scenarios

The Resona Group has identified priority sectors requiring urgent action from among carbon-related sectors specified by the TCFD. Currently, these priority sectors comprise “Energy / Utility,” “Transportation / Automotive” and “Real estate development / Construction.” Targeting these sectors, we conducted an in-depth analysis of climate change scenarios.

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.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
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"^*2 to hypothesize the future status of society and thereby assess the impact on priority sectors
3.Formulate scenarios and conduct qualitative analysis	Formulate certain scenarios and assess developments in climate change-related risks in each sector

*2A method of sector analysis accounting for impacts attributable to sellers, buyers, newcomers and alternatives, with policies considered as an element affecting all other factors

1. Important factors associated with risks and opportunities in each sector

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

2. The future status of society and possible impact on each sector

Energy / Utility

	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 with the move toward carbon neutrality
4℃	Physical risks rise due to the continued dependence on fossil fuels	While fossil fuel demand grows solidly, the sector is affected by frequent occurrences of damage arising from abnormal weather and surging disaster countermeasure costs

Transportation / Automotive

	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

Real estate development / 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 burden progresses at an ever-faster 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

3. Developments in climate change-related risks

Priority sectors	Transition risks : 1.5℃ Scenario	Physical risks : 4℃ Scenario
Energy / Utility	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
Transportation / Automotive	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%
Real estate development / 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%

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°C 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 (“Energy / Utility,” “Transportation / Automotive” and “Real estate development / Construction”)
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 86.0 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 sector-specific 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°C 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 16.0 billion yen

Management Strategy (Biodiversity)

Nature-Related Issues

Corporate activities and people’s daily lives are dependent on natural capital-encompassing not only flora and fauna but the water, soil and atmosphere of the earth. Society not only benefits from but requires functioning ecosystems. However, just as the natural world impacts us, human activities impact the natural world and its ecosystems.

Financial institutions are being called upon to bear responsibility for properly responding to nature-related issues as their operations are widely and deeply connected with natural capital, both directly through their own business activities and indirectly through investment in and the provision of financing to their corporate and individual customers.

Accordingly, the Group has launched the analysis of client sectors deemed to have larger dependency and impact on the natural environment. We began by conducting a heat map analysis of each sector in order to assess its degree of dependency and impact and also determined the proportion of the Group’s financing portfolio accounted for by each sector. These processes were undertaken by using ENCORE^*3, a tool specialized in nature-related risk analysis. In addition, we reorganized general risks and opportunities associated with nature-related issues from the viewpoints of dependency and impact. Going forward, we will continue striving to implement more sophisticated and detailed analyses in line with the LEAP approach based on the TNFD’s information disclosure framework. By doing so, we will assess the financial impact of nature-related issues.

*3Exploring Natural Capital Opportunities, Risks and Exposure

Heat Map Analysis

We analyzed the degree of dependency and impact by type of natural capital based on industry groups in accordance with the Global Industry Classification Standard (GICS). We also used a six-grade rating system encompassing “Very High,” “High,” “Medium,” Low,” Very Low” and “N/A.” As a result, the analysis confirmed that the Group’s portfolio includes no disproportional financing to sectors with high dependency and impact. While maintaining focus on analyzing sectors with high dependency and impact, we will consider prioritizing the analysis of sectors whose constituents account for a relatively large proportion in our financing portfolio.

Risks and Opportunities

In reference to risks and opportunities exemplified in the LEAP approach guidance recommended by the TNFD^*4, the Group has identified and rated in terms of financial impact nature-related risks and opportunities that its clients could confront. As the actual status of these risks and opportunities varies widely by sector, region and type of natural capital, we will strive to conduct more sophisticated and detailed analyses by taking these differing circumstances into account.

*4Guidance on the identification and assessment of nature-related issues: The LEAP approach (issued by the TNFD in October 2023)

Nature-Related Risks and Opportunities for Clients

Risks

	Consequences arising from businesses with high dependency	Consequences arising from businesses with high impact
Physical risks (chronic)	Shortage of raw material supply and resulting growth in procurement costs due to the loss of natural capital and the deterioration of its value	Reputational risks arising from the Group’s involvement in the loss of natural capital
Physical risks (acute)	Damage suffered by the Group’s business sites and the resulting deterioration of its operating results due to abnormal weather and climate-related disasters of growing magnitude	Reputational risks arising from the Group’s involvement in the loss of natural capital
Transition risks	Growth in costs and the suspension of business operations due to the need to respond to shifts in government policies and the strengthening of legal regulations in connection with the restoration and preservation of natural capital	Growth in the cost of responding to shifts in government policies and the strengthening of legal regulations in connection with the restoration and preservation of natural capital Reputational risks arising from inconsistencies between the Group’s strategy and actions or its failure to engage in robust initiatives and information disclosure

Opportunities

	Consequences arising from businesses with high dependency	Consequences arising from businesses with high impact
Resource efficiency, products and services	Transition to more efficient services and processes with lower dependence on natural resources and energy and improved resilience against resource shortages Development of resource-saving products and services as well as green solutions Acquisition of new business opportunities arising from the proper assessment of the economic value of regional natural resources	Transition to more efficient services and processes with lower dependence on natural resources and energy and improved resilience against resource shortages Development of resource-saving products and services as well as green solutions Acquisition of new business opportunities arising from the proper assessment of the economic value of regional natural resources

Management of Risks and Impact

The Resona Group has positioned climate change- and nature 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.

Specifically, we recognize that delays and other shortfalls in our response to the growing public call for countering climate change and preserving biodiversity could result in a loss of growth opportunities, the emergence of stranded assets and other consequences, all of which could lead to deterioration in corporate value. Accordingly, the Group is operating 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.

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 (Scopes 1 & 2)

Categories	Target	Results for FY2023
The Group’s greenhouse gas emissions (Scope 1 + 2)	70% reduction by FY2025 compared to FY2013 Net zero by FY2030	26,950t-CO₂ (71% reduction from the FY2013 level)
Of which, Scope 1	40% reduction by FY2025 compared to FY2013	4,898t-CO₂ (41.9% reduction from the FY2013 level)
Of which, Scope 2	80% reduction by FY2025 compared to FY2013	22,052t-CO₂ (73.9% reduction from the FY2013 level)

Declaration of Net-zero Greenhouse Gas Emissions in the Investment and Financing Portfolio Interim target for 2030 for the energy sector

Categories	Target	Results for FY2023
Greenhouse gas emissions from investment and loan portfolio (Scope 3 Category 15)	Net zero by FY2050	-
Of which, electric power sector: carbon intensity	100～130 gCO₂e/kWh	150 gCO₂e/kWh

Retail Transition Financing Target

Categories	Target	Results for FY2023
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	Cumulative total of transition financing from FY2021 to FY2030: 10 trillion yen	Approx. 1.9 trillion yen (of which, financing in the environment-related fields: 510 billion yen)

Please refer to the links below for details of each target, progress made so far, and future initiatives.

Carbon Neutrality Target (Scope 1, Scope 2) Declaration of Net-zero Greenhouse Gas Emissions in the Investment and Financing Portfolio Retail Transition Financing Target

Other related sites

Biodiversity