Initiatives for Climate Change Issues

Shinsei Bank has endorsed the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures). In line with the TCFD framework, we explain the Shinsei Bank Group's initiatives for climate change issues.

Governance

The Shinsei Bank Group strives to fulfill social responsibilities by contributing to building a sustainable society through its business and to acquire sustainable growth opportunities. In order to realize a sustainable society, it is essential to respond to climate change issues. Therefore, we designated "response to environmental issues such as climate change" as one of our material sustainability issues. We are striving to create social value and to increase the corporate value of the Shinsei Bank Group over the medium to long term through a variety of initiatives, including investment and financing for businesses that contribute to responding to climate change issues.

In the Group Sustainability Management Policy, we determine our policy for the global environment, including responses to climate change issues.

At the Group Sustainability Committee meetings, we discuss important sustainability issues, including responses to climate change issues, and then report to the Group Executive Committee. The Board of Directors receives regular reports, oversees and supervises grouplevel initiatives for climate change.

Strategy

Opportunities

Promoting Businesses that Contribute to Resolving Environmental and Social Issues
The Shinsei Bank Group recognizes that addressing global environmental issues such as climate change is one of the most crucial global challengess for realizing a sustainable society. We understand that this not only creates a business risk in the Group's sustainability management, but also provides a major business opportunity. Until now, we have engaged in investment and financing for projects and businesses that contribute to the improvement and resolution of environmental and social issues through project financing for renewable energy businesses and investment and financing for reducing environmental impact in ship financing. In addition, through scenario analysis in line with TCFD recommendations, we understand that this is a business opportunity as there is a growing need to supply fund for transition support for decarbonization in the short and medium term in relation to climate change countermeasures.
The Sustainable Impact Development Division, established within the Corporate Business Unit in fiscal 2019, collaborates with business-related departments to plan and promote sustainable finance as well as develop and supply investment products for institutional investors. In addition, we are working to build and upgrade a comprehensive promotion system and upgrade the sustainability management of the entire group. We will capture incremental business opportunities while further collaborating across the Group.

Shinsei Green Finance Framework
As domestic and international transition movements toward a decarbonized society accelerate, in May 2020, we have formulated the "Shinsei Green Finance Framework", which is consistent with domestic and international relevant principles, such as the Green Loan Principles, with the aim of further expanding investment and financing for projects that contribute to climate change mitigation and adaptation, and proactively capturing business opportunities. The Sustainable Impact Assessment Department, which is within the Sustainable Impact Development Division, evaluates the positive and negative impacts of projects subject to financing, and evaluates that they are in conformity with the framework. When originating and executing these types of investments and loans, we aim to create a larger circulation of funds by collaborating with customers of regional financial institutions.

Fiscal 2021 Achievements
Since 2012, Shinsei Bank has been promoting the origination of syndicated loans for renewable energy businesses such as solar, wind, and biomass, and working together with regional financial institutions to expand the spread of renewable energy. In fiscal 2021, we continued to strive proactively to promote project financing for solar power generation, wind power generation businesses, and financing for infrastructure investment corporations. By the end of March 2022, a total of 9 loan projects (totaling JPY59.4 billion) were originated and executed as "Shinsei Green Loan" that conform to this framework. Going forward, we aim to create a larger circulation of funds by diversifying our distribution methods through syndication of "Shinsei Green Loan" and utilization of project bonds.
As an example of a new green loan project, in June 2021 we entered into a loan agreement as a "Shinsei Green Loan" for a geothermal power plant in Minami Aso Yunotani, Kumamoto Prefecture.
This was the first project finance arrangement for Shinsei Bank originated for a domestic power generation business, making utilization of the know-how it has cultivated through its extensive experience in project finance. The implementation of the finance and its evaluation of eligible green project has resulted in low environmental impact due to low lifecycle CO2 emissions, contributing to the promotion of geothermal power generation to utilize Japan's abundant geothermal resources. Also, in February 2022, we originated "Shinsei Sustainability-Linked Loan Framework" and executed a sustainability-linked loan to Heiwa Real Estate Co., Ltd. While the company has set ambitious reduction targets for group-wide greenhouse gas (GHG) emissions as a Sustainability Performance Target (SPT), we support the motivation to achieve SPTs by linking the achievement status with loan terms, such as interest rates. Going forward, we will continue to provide sustainable financerelated products, such as the Shinsei Green Loan and Shinsei Sustainability-Linked Loan with the aim of promoting sustainability management for corporate customers, increasing corporate value, and contributing to the realization of sustainable economic activities for the environment and society.

Furthermore, to proactively support the transition, which is a gradual transition toward decarbonization, among companies with high GHG emissions, we have formed a cross-functional transition task force and have begun dialogues with corporate customers,and have been promoting transition finance by grasping new business opportunities.

In vessel financing, we have been focusing on financing the installation of scrubbers and the introduction of dual-fuel engines that can also use LNG fuels. We will proactively consider initiatives for next-generation environmentally friendly vessels in the future and will support the transitions toward decarbonization. Additionally, in January 2022, we also originated an investment for an overseas impact fund that specializes in transitions to carbon neutrality, with the aim of improving our knowledge in the transition field.

Risks

Risk Awareness
We believe that climate change will affect the Group's portfolio mainly through the following two routes.
Physical risks: Direct impact from property destruction, etc. caused by weather events such as floods and storms, indirect impact such as global supply chain interruption and resource depletion.
Transition risks: Risks arising from the revaluation of financial assets with large GHG emissions as a result of the transition to a decarbonized economy.

Carbon-related Asset Exposure
Carbon-related asset exposure (carbon-related assets in total exposure (energy and utilities, excluding solar and wind power project finance)) accounted for 4.2% in March 2020, 3.7% in March 2021, and 4.4% in March 2022.

Climate Change-Related Risks by Industry
We qualitatively assessed the climate change-related risks of industries that are likely to be affected by climate change. The Shinsei Bank Group prioritizes each industry and asset type based on the results of the qualitative assessment and the size of the exposure, and we deeply understand the risks through quantitative analysis, etc.

Scenario Analysis
We have positioned responses to climate change as one of the important management issues, and have organized the scenario's worldview, opportunities, and risks in two dimensions, in terms of economic fluctuations monitored on a daily basis. In addition, in response to the fact that the world is heading toward scenarios of 2??C or less, we have summarized the responses of the Shinsei Bank Group.
In identifying investment and loan sectors that have a significant impact on the Group for climate changerelated risks, we assess risk sector by sector and examine the importance from the Group's portfolio structure. Industries with high physical risks are "real estate (including for individuals)," and industries with high transition risks are "electricity, gas, heat supply and water," "water transportation" and "petroleum refining." For each of these industries, our policy is to disclose the results of the quantification of physical risks and the quantification of transition risks.
With regard to physical risks, in addition to domestic real estate non-recourse loans, mortgage loans, and domestic project finance, which were examined in the previous quantification, this time we examined the quantification of physical risk for unsecured loans in our subsidiary, Shinsei Financial. Estimating the impact of physical risk, the cumulative credit-related costs through fiscal 2050 are projected to be in the range of JPY5.5 billion to JPY9 billion. Although it seems that it is not necessary to take immediate countermeasures at this point, but we will continue to monitor them and examine expanding the scope of quantification.
With regard to transition risk, estimates of the impact of electricity utility, oil and gas sectors, the cumulative credit-related costs through 2050 are projected to be in the range of JPY3 billion to JPY23 billion. We will strengthen engagement with our business partners and strengthen our risk management system in preparation for transitioning to a decarbonized society. We will continue to examine expanding the scope of quantification and proactively engage in investment and financing for projects and businesses that contribute to the improvement and resolution of issues for the transition to a decarbonized society.

Physical risk Transition risk
Scenario IPCC Fifth Assessment Report RCP2.6 (2℃ scenario)/8.5 (4℃ scenario) IEA World Energy Outlook 2020 SDS (2℃ scenario)/STEPS
Target period Year 2050 Year 2050
Risk events Impairment of collateral value due to flooding, occurrence of defaults Business/financial deterioration of investees due to the transition to a decarbonized society, occurrence of defaults
Target business Domestic real estate non-recourse loans, domestic project finance, housing loans, and unsecured loans Electricity utilities, petroleum gas
Financial impact Cumulative credit cost impact of around JPY5.5 billion to JPY9 billion Cumulative credit cost impact of around JPY3 billion to JPY23 billion

Risk Management

Responsible Investment and Lending Policy

In July 2021, the Shinsei Bank Group established the Responsible Investment and Lending Policy with the aim of upgrading its system for promoting responsible investment and financing. We regard business transactions with companies that do not give appropriate consideration to environmental and social issues as a management risk, and we prohibit or restrict transactions based on the recognition that there are serious risks to the environment and society with respect to investments and loans for some specific businesses.
From the perspective of responding to climate change, based on a precautionary approach, we will not make new investments and loans for the construction of new coal-fired thermal power plants, and we will reduce the amount of investments and loans for coal-fired thermal power plants.

Adoption of the Equator Principles

Shinsei Bank adopted the Equator Principles in April 2020. When financing large-scale development projects, we review the environmental and social impact of projects based on the Equator Principles and make decisions comprehensively. We strive to fulfill our corporate social responsibilities and upgrade our environmental and social risk management.

FY2021 results:
Number of projects financially closed by applying the Equator Principles: 9,

Equator Principles Risk Category Grant Results:
A: 0, B: 9, C: 0

Adoption of the Poseidon Principles

In March 2021, Shinsei Bank signed the Poseidon Principles, established as a financial institution's initiative to address climate change risks in the shipping industry, as the fourth financial institution in Asia.
Since reducing GHG emissions is an unavoidable global issue for the shipping industry, we understand that it will become more important to be aware of the principles and respond to them in climate change risk management in vessel financing.
As a financial institution that proactively engages in vessel financing, Shinsei Bank will provide financial support for the transition to sustainability in the entire shipping industry as well as our customers while also committing to the Poseidon Principles, and manage the climate change risks associated with our business.

Metrics and Targets

Targets for Addressing Climate Change Issues through Business Operations

Investing and financing in renewable energy is an area where the Shinsei Bank Group has traditionally been strong, and we have set this goal based on the belief that it is an important role of financial institutions to provide funds to customers who are working to resolve environmental and social issues.
In addition, we have established a specialized team called the Transition Task Force to promote dialogue with customers and support for customers' decarbonization, as our efforts in a decarbonized society are an urgent and important issue for the society as a whole.

  • JPY5 trillion of cumulative origination of sustainable finance by the end of fiscal 2030
  • Supporting transition promotion of corporate customers in high GHG emissions sectors

Targets for Contributing to a Decarbonized Society

Reducing GHG emissions to virtually zero by 2050 is a common global target. The Shinsei Bank Group will strive to reduce greenhouse gas emissions by itself, and as a financial institution, we will also strive to reduce greenhouse gas emissions by investees and lenders.

  • Net zero GHG emissions from the Shinsei Bank Group's energy use by the end of fiscal 2030
  • Net zero GHG emissions in the Shinsei Bank Group's investment and loan portfolio by the end of fiscal 2050
  • Zero loan balance for project finance for coal-fired thermal power generation by the end of fiscal 2040

GHG Emissions of the Shinsei Bank Group

We measured GHG emissions of Shinsei Bank and Group companies, focusing on electricity, which has the largest contribution in Scope 1 and 2. We will further expand the scope of Scope 1 and Scope 2 measurement and disclosure the ranges. For future reductions, we plan to consider promoting energy conservation and switching contracts to renewable energy-derived electricity. To reduce the environmental burden, we will continue to work on reducing GHG emissions.

Investment and Loan Portfolio GHG Emissions

The Shinsei Bank Group recently set a target of net zero emissions of GHGs from our investment and loan portfolio (*1) by the end of fiscal 2050. At the same time, the actual GHG emissions are calculated in accordance with the international standards published by PCAF.(*2) In fiscal 2021, we also measured our investment and loan portfolio GHG emissions for a portion of Shinsei Bank's business corporation and residential mortgage loans.(*3) In the future, we plan to gradually expand the number of target assets and improve calculation accuracy.

  • *1The GHG emissions are calculated as the contribution of the Shinsei Bank Group to the GHG emissions of each investee and financing.
  • *2PCAF: Partnership for Carbon Accounting Financials
  • *3Of the six asset types in the PCAF criteria (above), we measured GHG emissions from our investment and loan portfolio based on the calculation methods, the corporate entities for "listed equity securities and corporate bonds" and "business loans and unlisted equity securities," and residential mortgage loans for "residential real estate."
  • *4The GHG emissions are calculated in accordance with the international standards published by PCAF.
    For details, please refer to PCAF: The global GHG accounting and reporting standard for the financial industry.
    https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf
  • *5Data quality scores: Here, the measurement / estimation accuracy of each investment / loan destination GHG emission measurement /estimation approach is scored in five stages.
    The smaller the value, the higher the accuracy.

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