Addressing Climate Change (Initiatives based on TCFD Recommendations)

The TCFD Recommendations call for disclosures on corporate governance, strategy, risk management, and indicators and targets relevant to climate change–related risks and opportunities.

At Mizuho, we have supported the intent and aims of the TCFD Recommendations since December 2017, and we are working to engage in initiatives and enhance disclosures in accordance with the recommendations. The current status of our response to the TCFD Recommendations is as follows.

TCFD Report (PDF/1,308KB)

Governance

  • The Board of Directors approved and established the Environmental Policy, which clarifies our stance on climate change as we work toward transitioning to a low-carbon society. We revised our Environmental Policy in April 2021 and clarified our contribution to achieving a low-carbon society (net-zero greenhouse gas emissions) by 2050, our support for the objective of the Paris Agreement, and our phased transformation to a portfolio aligned with the targets in the Paris Agreement.
  • Based on our Environmental Policy, we assess our progress on environmental initiatives, including the status of our response to the TCFD Recommendations, and other relevant information under the oversight of the Board of Directors, with consideration of the deliberations of executive management and the advice of the Risk Committee.
  • We have identified key sustainability areas, including responses to climate change, and incorporated them into our 5-Year Business Plan, based on deliberation by our Executive Management Committee and Board of Directors. These enable us to advance our sustainability initiatives as an integral part of our strategy.

    We have identified climate-related risks and opportunities for each in-house company, unit, and group and incorporated them into our business plan.
  • In addition to the above, we have conducted a qualitative evaluation of climate change-related opportunities, transition risks, and physical risks in each sector, as they will unfold over short-, medium-, and long-term time frames. The results of this evaluation are used to strengthen risk management and capture business opportunities.

Strategy

  • We have identified the following climate-related risks and opportunities and impacts on business activities, and we have further strengthened our structure for promoting sustainable business group-wide, with engagement as our starting point, to support the transition to a low-carbon society. We actively promote financial products and services that help mitigate climate change or facilitate adaptation to it and, at the same time, conduct appropriate risk management based on international concerns, trends, and other factors.

 

Opportunities for Mizuho

- Utilizing engagement with clients as a starting point, expand business opportunities to support clients’ transition to a low-carbon society and their climate change responses.

  • Provide sustainable finance, transition finance, and environmental finance.
  • Provide financial and non-financial solutions that meet the diverse needs of clients.
  • Increase medium- to long-term business opportunities for Mizuho by supporting clients’ continuous growth.

- Enhance our reputation in society through strengthened climate change response and proactive disclosure.

  • Gain increased trust and recognition from stakeholders and strengthen our market presence.
  • Improve evaluation from investors and capital markets that emphasize ESG.

 

Risks for Mizuho

In terms of climate-related risks, we are taking into account both physical risks and transition risks.

Our transition risks include credit risk related to financing and investment clients who are impacted by more stringent carbon taxes, fuel efficiency regulations, or other policies or by delays in shifting to low-carbon and other environmental technologies. Our transition risks also include operational risk related to reputational damage from financing fossil fuel projects.

- Our physical risks include operational risk related to the possibility of extreme weather causing damage to our assets (such as data centers) and similar risk of damage to customer assets (such as real estate collateral), with both of these being acute risks.
- Our physical risks also include credit risk arising from deterioration in the macro economy due to increased instances of infectious disease, heatstroke, and similar, which is a chronic risk.

Scenario analysis

Transition risk

Scenario International Energy Agency (IEA)’s World Energy Outlook 2020 Sustainable Development Scenario (SDS)1 Stated Policies Scenario (STEPS)2
Analysis method We specify a parameter for evaluating the impact of risks and opportunities faced by clients in the sector subject to analysis. We then analyze changes in Mizuho’s credit costs by formulating an outlook for the impact on clients’ financial results, based on changes to the parameter under the scenario.
In our outlook for impacts on our clients’ business, we employ 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. We determine the scenario to apply based on the client’s progress in responding to transition risk.
Targeted sectors Electric utilities and oil, gas & coal sectors (worldwide)
Automobile sector (worldwide)
Period 2050 (while the IEA scenario is until 2040, the period for this analysis is until 2050)
Credit costs The increase in credit costs for the electric utilities; oil, gas & coal; and automobiles sectors combined is estimated to be around ¥620 billion through 2050 (with March 31, 2021 as the base point).
Implications and necessary actions We confirmed the importance of advancing business structure transformation over the medium to long term in order to transition to a low-carbon society. 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

Acute risks

Scenario Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 8.5 scenario (4℃ scenario) / RCP 2.6 scenario (2℃ scenario)
Details of analysis We employed a Monte Carlo simulation to calculate the rates at which typhoons and other storms cause wind and water–related building loss or damage. We then analyzed the potential direct (collateral value) and indirect (business stagnation) impacts on Mizuho's credit costs from the loss or damage of mortgaged real estate (buildings) in Japan.
Target of analysis Japan only, for impact of business stagnation this is based on the location of the client’s headquarters (this analysis targeted middle–market firms and SMEs)
Credit costs Impact on mortgage lending value: limited
Impact of business stagnation: Up to ¥52 billion as of 2050, based on testing under both 2°C and 4°C scenarios
Implications The analysis confirmed that there will not be a significant impact compared to our income during the period.

Chronic risks

Scenario Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 8.5 scenario (4℃ scenario) / RCP 2.6 scenario (2℃ scenario)
Details of analysis We analyzed the impacts on credit costs from changes in the macroeconomic environment brought about by increases in infectious disease (e.g. malaria, dengue) and heatstroke as well as by heatstroke prevention practices causing concomitant decreases in summer working hours among outdoor laborers.
Target of analysis Japan only
Credit costs Up to ¥40 billion through 2100, based on testing under both 2°C and 4°C scenarios for 2100
Implications The analysis confirmed that there will not be a significant impact compared to our income during the period.

Risk Management

Identification of climate change risks and integration with comprehensive risk management

- By identifying physical and transition risks resulting from climate change and integrating them into our overall risk management framework for credit, operational, and other types of risk, we are ensuring comprehensive risk management.

Management of top risks

- Under our management of “top risks”, which are risks recognized by management as having major potential impact on the group, we position the rapid advancement of social change occurring due to climate change as a “top risk”. Through discussions with management as part of the risk designation process, we determine related indicators which require monitoring as well as risk control measures. Reports on the status of our response are made to the Board of Directors and other bodies.

Enhanced response to transition risks

- Based on the results of our FY2019 scenario analysis, we strengthened engagement with clients (undertook engagement with approximately 900 clients from the perspective of responsible financing and investment and, among these, in-depth engagement with approximately 70 large credit and similar clients).

  • Strengthened risk management by improving risk control in carbon-related sectors, revising our Environmental and Social Management Policy for Financing and Investment Activity (enhanced it to further address climate change, biodiversity, and human rights), practicing due diligence in line with the Equator Principles3, and other actions.

Metrics and Targets

Targets

- Sustainable finance & Environmental finance targets:
FY2019 – FY2030 total: \25 trillion (of which the target for environmental finance is \12 trillion)

- 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 FY2040

- Target to reduce our own environmental footprint:
Reduce the FY2019 amount of worldwide Scope 1 and Scope 2 greenhouse gas emissions from the eight group companies by 35% by FY2030, and aim to become carbon neutral by FY2050

Monitoring indicators

- Scope 1 and Scope 2: CO2 emissions and energy usage

- Scope 3: Environmental footprint from business trip-related CO2 emissions and large-scale power generation projects for which we have newly concluded financing or investment contracts (amount of contribution to CO2 emissions)

- Environmental conservation associated with large-scale power generation projects for which we have newly concluded financing or investment contracts (amount of contribution to CO2 emission reductions)

- Exposure to high-risk areas within transition risk sectors

As a first step toward Scope 3 measurement and management, we estimated greenhouse gas emission intensity (basic units) in relation to project finance for power generation projects, based on the Financial Sector Science-Based Targets Guidance and the Partnership for Carbon Accounting Financials Global GHG Accounting and Reporting Standard for the Financial Industry

 

  1. Sustainable Development Scenario (SDS): A scenario under which a surge in clean energy policies and investment puts the energy system on track to achieve sustainable energy objectives in full, including the Paris Agreement, energy access and air quality goals.
  2. Stated Policies Scenario (STEPS): Scenarios which reflect the impact of existing policy frameworks and today's announced policy intentions.
  3. A financial industry benchmark for determining, assessing, and managing environmental and social risk related to projects that are being financed

(Bold portions indicate initiatives that we have enhanced since our previous disclosure in May 2020.)

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