Today, the world’s population of approx. 7.8 billion is consuming 150% of the Earth’s resources, and with the population expected to grow to 10 billion by 2055, the pressures on our planet remain critical.
An important role to play
Degradation of biodiversity, rising sea levels, increased urbanisation and a widening in inequality are some of the real issues the world is facing.
As a financial institution we recognise that we have an important role to play in supporting the global transition to a low-carbon economy through actively reviewing our own operations and supporting our clients and communities in which we operate.
Work is constantly underway on how we can enhance the sustainability of our business activities and support the wider transition to a low-carbon economy, as well as understanding the risks and opportunities that climate change presents to our business. This work focuses on both our own operations and carbon footprint, our business activities, and the clients, counterparties and investors that we support.
Mizuho Financial Group also recently strengthened its framework for promoting sustainable business and has set targets for sustainable finance of JP¥25 trillion (approx. US$ 230 billion) from FY2019 to FY2030.
The Prudential Regulatory Authority of the Bank of England has incorporated climate change into its approach to supervising the associated financial risks. Considerable work at our London office has been undertaken to assess the risks related to climate change which are separated into two categories:
Physical risks: Financial stability can be directly impacted by more frequent and severe natural disasters. Materialising physical risks can significantly degrade asset and collateral values. Inaction to actively address emissions reduction will lead to significant negative impacts on the global economy.
Transition risks: The manner in which market participants choose to adapt to a low-carbon economy can adversely affect financial markets. Transition risks impact the financial sector via the implementation of mitigation policies, technological advances and consumer preferences, which will lead to asset value reassessments. Operational, sustainability-related initiatives have already kicked-off, where as a company we need to target having a positive environmental impact. Amongst others, the team in our London office is implementing an Environmental Management System (EMS), is introducing ESG assessment metrics for our suppliers and is engaging in the Plastic Free City pledge.
Impact of COVID-19 on sustainability
What has become apparent is that the COVID-19 pandemic has emerged as a wakeup call drawing attention to the systemic risks arising from a breakdown in global supply chains and disruption to sustainable capital. The pandemic has highlighted the need to tackle challenges relating to climate change.
The scale of fiscal assistance that has been pledged to support industries and businesses may result in more of a social impact. It has been encouraging to note sustainability conditions being discussed with businesses that are looking for bailouts (e.g. Air France-KLM loans linked to new emission-cutting initiatives) and that countries continue to explore measures to meet their National determined Contributions set under the Paris Agreement in 2015.Governments, businesses and financial institutions have a real part to play to rewire the economy. As banks meet the economy head on, there is opportunity to be a responsible and active participant through risk mitigation and product innovation.
Mizuho deals with a diverse range of clients, many of them implementing or considering strategies that transform their companies and industries into those that have a more positive social and environmental impact. We can play a significant role supporting the United Nations Sustainable Development Goals in influencing the integration of environmental, social and governance (ESG) criteria by financing investment that helps to achieve a lower carbon economy.