Taking firm action toward a low–carbon society
By promoting sustainability initiatives, we at Mizuho Financial Group, Inc. (President & Group CEO: Tatsufumi Sakai) aim to operate in a way that considers creation of value for our varied stakeholders and improve corporate value through sustainable, stable growth for the entire group, thus contributing to the achievement of the Sustainable Development Goals (SDGs).
Thus far, we have strengthened our stance of advancing sustainability initiatives as an integral part of our group strategy. We recently revised our "Basic Policy on Sustainability Initiatives" (Attachment 1) in order to further drive initiatives in accordance with the expectations of society, our strategy, and the Principles for Responsible Banking1. Also, based on our awareness that climate change is one of the most serious global issues having the potential to impact the stability of financial markets, we have positioned addressing environmental issues and climate change as a key part of our corporate strategy and have bolstered a range of initiatives as a result of numerous discussions at bodies including the Executive Management Committee, Risk Committee, and the Board of Directors.
- Strengthening environmental and climate change initiatives
- (1) Establishing an Environmental Policy (Attachment 2)
We conduct business activities and operations based on the Mizuho Code of Conduct to put the tenets of our Corporate Identity into practice, and the Code of Conduct states: "We will act independently and proactively with the awareness that environmental initiatives represent an essential precondition for the existence and activities of our company."
Under this approach, we at Mizuho have worked proactively for many years on environmental financing and consulting on environment and energy–related initiatives, and have endeavored to reduce and avoid negative environmental impact as the first bank in Asia to adopt the Equator Principles.
Establishing our Environmental Policy alongside our Human Rights Policy under the Mizuho Code of Conduct on this occasion clarifies our stance on climate change as well as our environmental awareness and specific actions that we will take on environmental initiatives including those targeting climate change as we work toward transitioning to a low–carbon society. The Environmental Policy clearly states that oversight is provided by the Board of Directors, and in addition to building a strong corporate governance system that promotes environmental initiatives as an integral part of our strategy, Mizuho group companies will establish similar policies to enable us to engage in consistent environmental initiatives on a group–wide basis.
- (2) Strengthening support for sustainable businesses(Attachment 3)
Mizuho has established key sustainability areas (materiality) and key performance indicators (monitoring indicators) in order to support sustainable businesses. In light of the indirect impact that we, as a financial group, have through our clients, we strive to deepen our understanding of the issues and needs of clients through proactive engagement, and have strengthened our group–wide support of sustainable businesses in order to aid clients' SDGs and Environmental, Social, and Governance (ESG) initiatives, and sustainability–related innovation and risk reduction including initiatives that address climate change and the transition to a low–carbon society. We also set sustainable finance and environmental finance targets to proactively fulfill our role in directing capital towards environmental protection and the achievement of the SDGs.
Sustainable finance & Environmental finance targets:
FY2019 – FY2030 total: JPY25 trillion
(of which the target for environmental finance is JPY12 trillion)
(3) Strengthening the management of climate change risks
- Management of top risks
Mizuho has continually conducted monitoring of financing and investment from the perspective of environmental and social responsibility in our management of "top risks", which are risks recognized by management as having major potential impact on the group. We have begun periodic monitoring of related indicators, and positioned climate change risks as "emerging risks", which we define as major risks that must be addressed in the next few years despite the fact that materialization of the risk will occur over a medium– to long–term time frame.
- Environmentally and socially responsible financing and investment
Considering the expectations and perspectives of our stakeholders, for the purpose of strengthening our environmental and societal considerations in making financing and investment decisions, we previously established a policy on initiatives involving sectors which have a high possibility of contributing to adverse environmental and social impacts, but we have now revised the policy to be comprehensive in prohibiting financing and investment in such initiatives regardless of sector, as well as points of caution ("Environmental and Social Management Policy for Financing and Investment Activity"). Additionally, from the perspective of strengthening our response to climate change risks, we conducted revisions, including tightening the policy which states that we will not provide financing for the construction of new coal–fired power generation facilities and adding the coal mining sector, as well as additional clarification of our responses to transition risks in the oil and gas sectors2 (Attachment 4), and based on this policy we set a quantitative target to reduce our outstanding credit balance for coal–fired power generation facilities.
Target to reduce the outstanding credit balance for coal–fired power generation facilities based on our Environmental and Social Management Policy for Financing and Investment Activity:
Reduce the FY2019 amount* by 50% by FY2030, and achieve an outstanding credit balance of zero by FY2050
* The balance at the end of FY2019 is expected to be approximately JPY300 billion.
Scenario analysis based on TCFD Recommendations
Based on the Task Force on Climate–related Financial Disclosures (TCFD) Recommendations, we conducted a qualitative evaluation of the opportunities and risks that climate change poses for each sector, and based on the evaluation results and other data, we conducted scenario analysis of the transition risks and physical risks for certain scenarios.
Regarding transition risks, we analyzed potential shifts in Mizuho's credit costs for the electric utilities and the energy sector, which have been identified as high risk areas, based on the anticipated impact on their business performance by referencing the forecasted trend of electricity generation by source and production by energy type looking forward to 2050 in the Sustainable Development Scenario (SDS) put forward by the International Energy Agency (IEA). We analyzed the impact on business performance in these sectors using two scenarios: a static scenario which assumes that no attempt is made to transform the present business structure, and a dynamic scenario under which the business structure is transformed. As a result of this analysis we estimate that our credit costs will increase by about JPY120 billion to JPY310 billion by 2050. This range is attributable to the difference between the dynamic scenario and static scenario, and the increase in credit costs could be controlled more over the medium to long term under the scenario which assumes a transformation of the business structure.
Regarding physical risks, we analyzed the direct impact that climate change could have on Mizuho's credit costs attributable to the loss or damage of mortgaged real estate (buildings) in Japan due to wind and water related damages from typhoons and other storms, and confirmed that impact will be limited. Also, we are currently analyzing how our credit costs could be indirectly impacted in the event that the loss or damage of buildings results in business stagnation impacting the performance of our clients, and we plan to disclose the results of this analysis at a later date.
Through this scenario analysis, we reaffirmed the importance of implementing immediate responses to climate change to contribute to the transition to a low–carbon society over the medium to long term. Further strengthening constructive dialogue (engagement) with our clients regarding their efforts to address climate change and responding with a deep understanding of their challenges and needs will allow us to capture business opportunities and strengthen risk management.3 (Attachment 5)
- Management of top risks
- (1) Establishing an Environmental Policy (Attachment 2)
- Strengthening disclosure and communication
In addition to disseminating these policies and their revisions to executive officers and employees at each of our group companies, ensuring that they have an understanding of the SDGs and sustainability topics to enable valuable engagement with clients, we will strengthen and enhance communication with our varied stakeholders.
Also, we will work to enhance our disclosures while utilizing international disclosure frameworks. Our new disclosures going forward include a TCFD Report (scheduled for May), an ESG Data Book (scheduled for July), our implementation status of Sustainability Accounting Standards Board standards (scheduled for September), and our implementation status of the Principles for Responsible Banking (scheduled for December).
- See our press release dated Aug. 6, 2019: "Mizuho signs Principles for Responsible Banking"
- The main changes to our Environmental and Social Management Policy for Financing and Investment Activity are detailed below.
(See Attachment 4 for the updated version)
|Item||Before revision||After revision|
|Transactions prohibited regardless of sector||—||
|Transactions which require additional due diligence regardless of sector||—||
|Coal–fired power generation||
|Oil and gas||
|Palm oil, lumber, and pulp||
- The following is an overview of scenario analysis based on the TCFD Recommendations
(see Attachment 5 for details)
|Transition risk||Credit costs||Increase of approx. JPY120 billion to JPY310 billion|
|Scenario||IEA1 SDS2/ NPS3|
|Targeted sectors||Electric utilities and energy sectors (oil, gas, coal) in Japan|
|Period||2050 (while the IEA scenario is until 2040, the period for this analysis is until 2050)|
|Implications and necessary actions||This analysis reaffirms the importance of addressing this issue starting now in anticipation of medium– to long–term effects as the transition toward a low–carbon society progresses. Further strengthening engagement with clients and responding with a deep understanding of their challenges and needs will allow us to capture business opportunities and strengthen risk management.|
|Physical risk||Credit costs||Impact on mortgage lending value: limited
Impact of business stagnation: under analysis
|Scenario||IPCC4 Representative Concentration Pathway (RCP) 8.5 scenario (4℃ scenario) / RCP 2.6 scenario (2℃ scenario)|
|Details||Impact on mortgage lending value and impact of business stagnation|
|Target||Japan only, for impact of business stagnation this is based on the location of the client's headquarters (this analysis targeted medium–sized blue chip companies and SMEs)|
|Implications and necessary actions||This analysis confirmed that there will not be significant impact on mortgage lending value in Japan.
We are currently analyzing the impact of client business stagnation, and will discuss the necessary response based on the results of the analysis.
- International Energy Agency (IEA)
- Sustainable Development Scenario (SDS): Scenario under which advancement of low–carbon holds the increase in the global average temperatures to below 2℃.
- New Policies Scenario (NPS): Scenario which assumes that the measures pledged to under the Paris Agreement are put into place.
- Intergovernmental Panel on Climate Change (IPCC)