Initiatives for Climate Change Issues through Our Core Businesses
Shinsei Bank has endorsed the recommendations of TCFD (Task Force on Climate-related Financial Disclosures). In line with this TCFD framework, we introduce the Shinsei Bank Group’s efforts to address global environmental issues through our core businesses.
The Shinsei Bank Group has positioned the Group Sustainability Policy as the starting point for formulating management strategies, and by contributing to the creation of a sustainable society, we aim to fulfill our corporate social responsibilities and acquire sustainable growth opportunities.
Responding to global environmental issues, including climate change, is indispensable for a sustainable society. We will strive to create social value and increase the corporate value of the Shinsei Bank Group over the medium to long term through a variety of initiatives, including investment in and financing for clients’ climate change-related projects.
Framework for Promoting Sustainability Management
In January 2021, we established the Group Sustainability Committee, chaired by the Chief Sustainability Officer (CSO). The Group Sustainability Committee has been positioned as one of the Group's important committees, and we are strengthening our promotion system under the strong commitment of management. Members of this committee include executive officers, who discuss sustainability management based on medium- to longterm strategies and report on the progress of initiatives. In addition, important matters related to sustainability management are discussed and reported to the Group Executive Committee, and periodic reports are also made to the Board of Directors.
Under the Group Sustainability Committee, we have appointed a sustainability promotion officer who is responsible for promoting the matters that are discussed, reported on, and resolved by the Group Sustainability Committee in Institutional Business and Individual Business, and promote "Sustainability as a business." In addition, the Sustainability Planning Department of the Group Corporate Planning Division, which plans and oversees Group-wide initiatives, promotes sustainability management as a Group.
In our integrated risk management framework, the Shinsei Bank Group recognizes physical and transitional risks related to climate change as critical risks (top risks). At the same time, we include the promotion of sustainability management aimed at helping to resolve climate change issues in our risk appetite policy. The Board of Directors has also adopted the Group's critical risk (top risk) and Risk Appetite Policy.
Promotion of Businesses that Contribute to the Improvement of Environmental and Social Issues
The Shinsei Bank Group considers climate change and other global environmental issues to be extremely important issues in order to realize a sustainable society. In addition to having business risk in the Group's sustainability management, they also represent a major business opportunity. Through project financing for the renewable energy business and investment and lending in environmental real estate and facilities for reducing environmental impact in ship financing, we have been actively engaged in projects and businesses that contribute to improving and resolving environmental and social issues.
To further deepen these efforts, in fiscal 2019 we established Sustainable Impact Development Division within Institutional Business Unit. In collaboration with each division, we are planning and promoting sustainable finance and developing and supplying investment products for institutional investors. In January 2021, we established the Group Sustainability Committee to establish and upgrade a comprehensive promotion system for sustainability management of the Group as a whole. Going forward, we will capture business opportunities while further collaborating across the Group.
Shinsei Green Finance Framework
Under the current situation where domestic and overseas trends are accelerating toward the transition to a post-carbon society, we formulated the Shinsei Green Finance Framework in May 2020. This framework is consistent with relevant domestic and overseas principles, such as the Green Loan Principles, and aims to further expand our investment and lending to projects that contribute to mitigating and adapting to climate change and proactively seizing business opportunities. The Sustainable Impact Assessment Department, which is an internal office of the Sustainable Impact Development Division, verifies the positive and negative impacts of the loan-targeted projects and evaluates their conformity to the framework. In fiscal 2020, eight projects (totaling 62.7 billion yen) were financed, including solar power plants, woody biomass power plants using unused materials from regional communities, and green buildings, as Shinsei Green Loan that conform to the framework. In structuring and implementing these investments and lending, we aim to create a larger flow of funds by cooperating with customers of regional financial institutions.
Initiatives in Fiscal 2020
Since 2012, Shinsei Bank has been promoting syndicated loans for renewable energy businesses such as solar, wind, and biomass, and has been supporting the spread of renewable energy in cooperation with regional financial institutions. In fiscal 2020, we continued to actively engage in project financing for wind power generation and financing for infrastructure investment companies, and several of these were formed as "Shinsei Green Loan." We aim to create a larger flow of funds by diversifying our distribution methods through the syndication of the "Shinsei Green Loan" and the use of project bonds. In addition, together with Daiwa Energy & Infrastructure Co., Ltd., we began providing mezzanine financing for renewable energy power generation businesses.
Climate change is expected to affect the Shinsei Bank Group's portfolios mainly through the following two routes.
Physical Risks: Direct impact such as property destruction, etc. caused by weather events including floods and storms, indirect impact such as global supply chain interruption and resource depletion, etc.
Transition Risks: Risks arising from the revaluation of financial assets with large GHG emissions as a result of the transition to a carbon-free economy. arbon-related asset exposures (carbon-related assets (energy and utilities, excluding solar and wind power project finance)) accounted for 4.2% of our total exposure in March 2020 and 3.7% in March 2021.
We have positioned climate change as one of our key management issues, and have organized the scenario's assumptions, opportunities and risks in terms of economic fluctuations and two dimensional views, which we monitor on a daily basis.
In identifying sectors that have a significant impact on the Shinsei Bank Group for climate change-related risks, we conduct risk assessments on a sector-by-sector basis and examine the importance of investment and lending from the perspective of the Group's portfolio. We focus on real estate (including for individuals) in industries where there is high physical risk, while electricity, gas, heat supplies, water supply, water transport, and petroleum refining in the industries where there is high transition risk. We intend to disclose the results of quantifying physical risks and quantifying transition risks for each of these industries. Recently, we examined the quantification of physical risks mainly in real estate. When we performed a preliminary calculation, specifically the impact of physical risks on domestic real estate nonrecourse loans, housing loans and domestic project financing, we estimate that net credit costs will be in the range of 1.5 billion yen to 3.0 billion yen over the 30-year cumulative period from 2021 to 2050. At the present time, we will continue to monitor the situation, although we do not believe it is necessary to take any immediate action.
In the future, we will consider expanding the scope of quantification of physical risks. We will also quantify the risks in sectors with higher risks of transition, and actively work on projects and investment and lending for businesses that will contribute to improving and resolving issues related to the transition to a carbon-free society.
Policies for Responsible Investment and Lending
The Shinsei Bank Group considers transactions with companies that do not pay due attention to environmental and social issues to be management risks and has prohibited or restricted transactions in connection with investments and lending for certain specific businesses based on the recognition that there are serious risks to the environment and society. In July 2021, we revised the framework to promote responsible investment and lending by adding prohibitions and noteworthy points across sectors. From the standpoint of climate change countermeasures, based on preventive approaches, we will not conduct new investments and lending both domestically and overseas for new coal-fired thermal power plants, thereby reducing the amount of investment and lending for these power plants.
Initiatives for the Equator Principles
In April 2020, Shinsei Bank became the seventh Japanese financial institution to adopt the Equator Principles. The Equator Principles are a framework adopted by private financial institutions to assess whether projects will be implemented with due consideration for the environment and society when financing projects involve largescale development. In November 2019, the fourth edition of the Equator Principles was adopted to strengthen the perspectives of human rights, climate change, and the rights of indigenous people. By reviewing the environmental and social impacts of projects and making comprehensive decisions based on the Equator Principles, we have been fulfilling our corporate social responsibility and enhancing our environmental and social risk management.
Adoption of the Poseidon Principle
In March 2021, Shinsei Bank signed the Poseidon Principles, an initiative for financial institutions to address climate change risks in the shipping industry, as the fourth financial institution in Asia. Financial institutions participating in the Poseidon Principles will compile the annual greenhouse gas emissions of the vessels subject to financing, calculate and disclose their contribution to the greenhouse gas emission reduction targets for each ship and the entire ship financing portfolio. (Shinsei Bank will announce them from fiscal 2022.) In the future, Shinsei Bank, as a financial institution actively engaged in ship financing, will support the transition of the shipping industry to sustainability from a financial perspective while also utilizing the Poseidon Principles, and manage the climate change risks associated with this business.
Identifying and Managing Climate Change-Related Risks
The Shinsei Bank Group's integrated risk management framework defines significant risks as it relates to the impact of tighter regulations on climate change and the transition to a carbon-free society, as well as the impact of large-scale natural disasters associated with climate change. In addition to the transition to a carbon-free society, we are upgrading our structure for monitoring in anticipation of increased net credit costs triggered by large-scale natural disasters.
Indicators and Targets
We have established a measurement system to expand the scope of GHG emission disclosures to Shinsei Bank, APLUS, Showa Leasing and Shinsei Financial for electricity, which is the largest contributor to Scope 1 and Scope 2. Going forward, we plan to set targets for reducing GHG emissions after further expanding the scope of Scope 1 and Scope 2 measurement and disclosure. We are also undertaking initiatives to measure and disclose Scope 3, including emissions of GHGs from investment and lending destinations.