Initiatives for nature-related stakeholders

• We have formulated the “SCB Group Human Rights Policy,” conducted human rights due diligence and identified “impacts on original inhabitants, regional community residents and the environment” as one of the human rights issues.
• Addressing natural capital is an important issue for shinkin banks that are rooted in their communities and grow alongside them. As the central financial institution for shinkin banks, we are working with shinkin banks to solve issues in the regional communities.

Opportunities Associated With Climate Change

The SCB Group has specified “development of local industries and Japan’s growth” and “collaborating with regional communities on environmental issues” as key social issues (materiality). Through its business activities, the group aims to enhance corporate value while achieving social impact by contributing to a sustainable society through finance and promoting the decarbonization of regional communities and SMEs.

Specifically, these activities include the promotion of sustainable finance and the “Shinkin Green Project.”

• Viewing the expansion of renewable energy and advancements in technology as investment opportunities, we are committed to promoting sustainable finance that contributes to the solution of environmental and social issues, including climate change, with a medium- to long-term goal of a cumulative total of ¥5 trillion by 2030 (covering the period from fiscal 2021 to fiscal 2030).

• We recognize that encouraging decarbonization initiatives in regions and SMEs will not only lead to new businesses and growth opportunities for SMEs, but is also important from the perspective of revitalizing regional economies.

  Together with shinkin banks nationwide, the Green Project Promotion Office in the Sustainability Promotion Division, is taking the lead in promoting initiatives such as regional decarbonization in cooperation with government agencies and external organizations.

Risks Associated With Climate Changes

We recognize that potential climate change risks associated with the transition to a low-carbon society, such as stronger climate-related regulations and technological innovations (transitional risk), and risks associated with physical damage caused by natural disasters and increased abnormal weather due to climate change (physical risk).

As these risks are expected to have a direct impact on our business activities and an indirect impact through the effects on our investment and lending destinations, we are establishing a business continuity system and addressing the impact on the SCB’s finances.

• In providing financial functions required to maintain the economic activities of shinkin banks and other stakeholders, we, as the central bank for shinkin banks, have formulated our business continuity plan (BCP) assuming the risks in which natural disasters would have a material impact on performing our business and put a structure in place that enables us to continue essential businesses when these become apparent.

• In order to quantitatively evaluate the impact on the SCB’s finances of impact of climate change on investment and lending recipients, we conducted the following scenario analysis.

  Scenario Analysis for Climate Change

  Based on the “Practical Guide for Scenario Analysis of Climate Change Risks and Opportunities in Accordance with TCFD Recommendations (for the Banking Sector) ver.2.0” released by the Ministry of the Environment, we analyzed two scenarios: “1.5°C” and “4°C.”

  Additionally, the exposures covered by the analysis were limited to loans, in line with the TCFD recommendations.

  (i) Organization of worldview per scenario

  The worldviews of the 1.5°C and 4°C scenarios are as follows. In understanding the risks of each scenario, short-term, medium-term, and long-term timescales are set as the time spans to be addressed.

  [Worldview of the 1.5°C scenario]

  Towards achieving net zero by 2050, strict measures have been taken in “policy-based legal regulations,” and awareness is changing throughout society

  (Expected situations)

  Risks	Category	Possible Situations	Timeline
  Transitional risk	Policy/regulatory	Introduction of a carbon tax, shift to low carbon emission energies, etc.	Short- to long-term
  	Technology	Capital investments in low carbon technologies, and conversion of existing assets into stranded assets, etc.
  	Market	Changes in supply/demand for handled products, rise in raw material prices, etc.
  	Reputation	Due to changes in customer and society’s awareness of carbon neutrality, companies may be deemed to have insufficient responses to climate change and information disclosure.	Short-term
  Physical risk	Acute	Increase in damages due to natural disasters (cyclones, floods, etc.)	Short- to long-term
  	Chronic	Gradual emergence of damage caused by prolonged abnormal weather (sea level rise, drought, etc.)	Medium- to long-term

  (Expected Impacts)

  The risks associated with the transition to a low-carbon society (transitional risk), such as tighter climate-related regulations and technological innovation, will increase and affect the businesses and financial conditions of investment and loan customers, which can be expected to affect a portfolio indirectly.

  At the same time, physical risks are assumed to be lower than those in the 4°C scenario.

  [Worldview of the 4°C scenario]

  No major changes in the mindset of the entire society as actions under “laws and regulations based on policy” toward net zero by 2050 are insufficient, and disasters become more severe

  (Expected situations)

  Risks	Category	Possible Situations	Timeline
  Transitional risk	Actions toward net zero in each category and change in mindset are assumed to be insufficient compared to those in the 1.5°C scenario		－*1
  Physical risk	Acute	Natural disasters (cyclones, floods, etc.) become more severe and damages increase significantly compared to the 1.5°C scenario	Medium- to long-term
  	Chronic	Damages due to extended abnormal weather (sea level rise, drought, etc.) become more severe compared to the 1.5°C scenario	Long-term

  *1

  This is indicated as “−” because it assumes a situation in which climate change responses are not adequately implemented.

  (Expected Impacts)

  The risk of physical damage caused by natural disasters and abnormal weather due to climate change (physical risk) is expected to increase, and this risk could have an indirect impact on the business and finances of the borrowers to which we invest.

  At the same time, transitional risks are assumed to be lower than in the 1.5°C scenario.

  (ii) Selection of important sectors

  Given the degree of climate change impacts and the scale of exposure of loans and bills discounted, we selected the electricity, real estate, automobile/automotive parts and oil/gas/consumable fuel sectors as important sectors for scenario analysis.

  (iii) Organization of transmission channels for impacts on financial conditions of important sectors

  We identified the transmission channels in which climate change impacts companies’ financial conditions in the important sectors in “the 1.5°C scenario” and “the 4°C scenario.”

  In this process, we recognized important elements as listed in the table below.

  [Key factors affecting each sector]

  		Electricity sector	Real estate sector	Automobile/automotive parts sector	Oil/gas/consumable fuels sector
  Transitional risk	Policies/laws and regulations	Introduction of carbon tax	Introduction of carbon tax	Introduction of carbon tax	Introduction of carbon tax
  	Technology	Investments in R&D of low carbon technologies	Investments in developing decarbonization-ready properties and others	Investments in R&D of low carbon technologies	Investments in R&D of low carbon technologies
  	Market	Changes in energy mix	Shift of demand to environment-conscious properties	Popularization of electric vehicles	Changes in energy mix
  	Reputation	Changes in carbon neutral awareness of customers and communities	Lower evaluations of non-environmentconscious properties	Lower evaluations of cars with engines	Changes in carbon neutral awareness of customers and communities
  Physical risk	Acute	Damage to power generation stations and others due to flood damage	Damage to owned properties due to flood damage	Damage to manufacturing sites due to flood damage	Damage to oil refinery plants and others due to flood damage
  	Chronic	Suspension of electricity supply grids due to damaged facilities	Lower labor productivity of workers due to global warming	Suspension of production at manufacturing sites due to damage	Suspension of oil refinery activities due to damaged facilities

  (iv) Quantitative assessment of transitional and physical risks in important sectors

  In line with the transmission channels, we estimated each company’s financial statements by 2050. We calculated the increase in credit-related costs appropriate to the corporate credit strength changes derived from the resulting estimation.

  [Transitional risk (1.5°C scenario)]

  Base scenario	IEA-net zero emissions scenario
  Analysis target	Exposure of loans and bills discounted for electricity, real estate, automobile/automotive parts sectors and oil/gas/ consumable fuel sectors
  Analysis period	By 2050
  Analysis method	Estimate the impact on financial statements of companies in the target sectors of the transition to a decarbonized society and estimate the increase in credit-related costs
  Analysis result	Around ¥3.0 billion (cumulative)

  [Physical risk (4°C scenario)]

  Base scenario	IPCC-R8.5
  Analysis target	Exposure of loans and bills discounted for electricity, real estate, automobile/automotive parts sectors and oil/gas/ consumable fuel sectors
  Analysis period	By 2050
  Analysis method	Hazard maps were created for business assets owned by companies in the target sector, the impact of flood damage on financial statements was estimated, and the increase in credit-related costs was estimated
  Analysis result	Insignificant amount

  (v) Scenario analysis results

  For key sectors, the transitional risks amount to a cumulative total of around ¥3.0 billion by 2050, while the physical risks are estimated to be an insignificant amount, meaning that the financial impact of either is likely to be limited.

• As of March 31, 2025, carbon-related assets accounted for 29.3% of total loans^*2.

  Based on TCFD recommendations, loans to the energy, transportation, materials and construction, and agriculture, food, and forest products groups are defined as carbon-related assets.

  *2

  Total direct lending to members (shinkin banks) and non-members (¥9,111.1 billion)

  ＜Dependence and Impact on Natural Capital＞

  1. (1)The relationship between shinkin banks and natural capital

     The SCB depends on, and has an impact on, natural capital through its business activities.
     Therefore, we believe it is necessary to analyze our relationship with natural capital and appropriately identify risks and opportunities.

  2. (2)Analysis of our relationship with natural capital
     1. (i) Dependence and impact on natural capital at our places of business

        We examined the points of contact between the places of business of the SCB and sensitive locations in natural capital from the five perspectives recommended in the TNFD recommendations.
        The examination revealed some overlaps with sensitive locations. However, these were all relatively low-priority natural conservation areas, and the impact of the SCB’s business activities on sensitive locations is small.
        Therefore, it has been concluded that there are no important area for the SCB.

     2. (ii) Scope of analysis

        To identify risks and opportunities related to natural capital, we conducted an analysis in accordance with the LEAP approach recommended by the TNFD recommendations.
        We selected loans and bills discounted as exposure to be analyzed.

     3. (iii) Dependence and impact of the loan portfolio

        Using “ENCORE,” we assessed the dependence and impact on natural capital across the entire loan portfolio for potentially important sectors (the 12 sectors outlined in Annex 1 of the Sector Guidance - Additional Guidance for Financial Institutions published by TNFD).
        Specifically, we categorized sectors based on loan balances and the dependence and impact on natural capital, and identified sectors that should be addressed with greater priority.
        As a result, 5 sectors—materials, real estate management and development, transportation, consumer services, and utilities—were identified as having large loan balances and significant dependence or impact.

  [Dependence on and impact of natural capital]

  

  We have identified the dependencies and impacts on natural capital in the value chains taking our borrowers into consideration, for the five priority sectors with high dependence and significant impact on natural capital and with large loan balances.
  Going forward, we will conduct detailed analyses, including the identification of risks and opportunities and proceed with the discussion on measurement, management and mitigation of risks that are important to the business activities of the SCB.