Disclosure of climate-related financial information based on the TCFD recommendations｜Sustainability Basic Policy｜Sustainability

Disclosure of Climate-related Financial Information Based on the TCFD Recommendations

The Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB), formulated its recommendations for clarified, comparable, and consistent information disclosure regarding the risks and opportunities posed by climate change. These recommendations were announced in June 2017. Climate change is an issue to be addressed on a global scale. The effects of climate change have significant impacts on the lives of people, through changes in economic behaviors and society worldwide. The T&D Insurance Group has expressed its support for the TCFD recommendations, and is actively committed to disclosing climate-related financial information in an easy-to-understand manner.

Disclosure of climate-related financial information

Governance

Oversight by the Board of Directors

The Board of Directors has established the Group Sustainability Promotion Committee as its subsidiary body, with the task of reviewing and deliberating its policies related to sustainability and CSR, along with measures concerning the global environment and social issues.
The Group Sustainability Promotion Committee is chaired by the Representative Director and President, who concurrently serves as chairperson of the Board of Directors, and consists of the directors and general managers in charge of Sustainability/CSR and investment management departments at Group companies. The Committee formulates basic policies regarding the global environment and social issues such as SDGs, and the targets and initiatives for climate change action. It is supervised by the Board of Directors, monitoring of the status of the initiatives is implemented every six months, and a report is made to the Board of Directors.
To promote the initiatives of the Group Sustainability Promotion Committee, we have established Sustainability Advisory Committee, Climate Change Risk Subcommittee, ESG Investment Subcommittee, Social Impact Study Subcommittee, and Sustainability Promotion Working Group as subsidiary bodies to the Group Sustainability Promotion Committee.
The Climate Change Risk Subcommittee and Sustainability Promotion Working Group research and consider the situation of climate change risks and various sustainability issues as well as the necessary response, report to and deliberate with the Group Sustainability Promotion Committee, and support the Group Sustainability Promotion Committee in terms of its formulation of policies and consideration of initiatives related to sustainability issues. The ESG Investment Subcommittee enhances the sharing of information within the Group related to ESG investments aimed at simultaneously improving profitability and resolving social issues, thereby supporting the steady implementation of ESG investments by the Group as a whole as well as its sustainable growth. The Social Impact Study Subcommittee develop mechanisms and rules to measure the positive environmental and social impact of the provision of insurance products and services and ESG investments and loans. In addition, the Sustainability Advisory Committee takes advantage of participation by outside experts to incorporate the perspectives of such experts as well as information on the latest trends in order to enhance the Group’s sustainability-related efforts.

Role of Management

The Company has established the Executive Management Board as a body for deliberating on and passing resolutions related to matters that are important in terms of the management of both the Company and the Group, and, in parallel, the Group Strategy Board has been established to deliberate on matters related to the Group Growth Strategy and other relevant and important matters from the perspective of the Group as a whole in order to achieve sustainable improvement in the Group’s corporate value.
The Sustainability Promotion Department has been established to specialize in promoting the sustainability of the Group as a whole, including our response to climate change, and this department formulates our basic policies related to various sustainability issues, promotes specific related measures, and monitors the progress. The Sustainability Promotion Department also serves as the secretariat of the Group Sustainability Promotion Committee, and the Executive Management Board and the Board of Directors receive detailed reports on all basic policies and measures related to the global environment and social issues that are deliberated on by the Group Sustainability Promotion Committee.

Strategies

The following scenario analysis was carried out in order to assess the impact of climate change risks (physical risks^*1 and transition risks^*2) on the Group.

*1 Business risks associated with natural disasters caused by extreme weather such as typhoons and floods, and those associated with phenomena such as an increase in the average temperature and a rise in the sea level

*2 Business risks arising from the actions of government, corporations, and consumers in the process of carrying out the transition to a low carbon/decarbonized society (through a significant reduction of greenhouse gas emissions)

Scenario analysis: What the World Looks Like Under Each Scenario

The world under the 1.5°C scenario	The world under the 4°C scenario
■Premise Strict measures are taken against global warming. By the end of the century, the average annual temperature will increase by between 1.0°C and 1.8°C. ■Overview Due to the rise in average temperatures, natural disasters become more frequent and intense. (However, the impact is kept below a certain level.) Strict measures to combat global warming increase business costs for each company. Technology innovation progresses (and new players emerge) in support of low or net-zero carbon emissions. Reallocation of investment away from companies that are unable to support low or net-zero carbon emissions. ■Reference scenario Physical risk scenarios based on RCP2.6 Transition risk scenarios based on the Disorderly and Orderly categories of NGFS	■Premise No measures are taken against global warming beyond the current status quo. By the end of the century, the average annual temperature will increase by between 3.3°C and 5.7°C. ■Overview Due to the large rise in average temperatures, the impact of frequent and intense natural disasters becomes significant. Sea level rise, storm surge, flooding, and heavy rainfall have a significant impact on coastal areas. (A review of lifestyle and BCP is also necessary. The companies face increased business costs.) Reallocation of investment away from companies that are vulnerable to natural disasters. ■Reference scenario Physical risk scenarios based on RCP8.5 Transition risk scenarios based on the Hot House World category of NGFS

The world under the 1.5°C scenario

The world under the 4°C scenario

■Premise

Strict measures are taken against global warming. By the end of the century, the average annual temperature will increase by between 1.0°C and 1.8°C.

■Overview

Due to the rise in average temperatures, natural disasters become more frequent and intense. (However, the impact is kept below a certain level.)
Strict measures to combat global warming increase business costs for each company.
Technology innovation progresses (and new players emerge) in support of low or net-zero carbon emissions.
Reallocation of investment away from companies that are unable to support low or net-zero carbon emissions.

■Reference scenario

Physical risk scenarios based on RCP2.6
Transition risk scenarios based on the Disorderly and Orderly categories of NGFS

■Premise

No measures are taken against global warming beyond the current status quo. By the end of the century, the average annual temperature will increase by between 3.3°C and 5.7°C.

■Overview

Due to the large rise in average temperatures, the impact of frequent and intense natural disasters becomes significant.
Sea level rise, storm surge, flooding, and heavy rainfall have a significant impact on coastal areas. (A review of lifestyle and BCP is also necessary. The companies face increased business costs.)
Reallocation of investment away from companies that are vulnerable to natural disasters.

■Reference scenario

Physical risk scenarios based on RCP8.5
Transition risk scenarios based on the Hot House World category of NGFS

Physical effects caused by a rise in average temperature (1.5°C scenario < 4°C scenario)
[Acute] Natural disasters such as typhoons and floods become more frequent and intense. The number of injuries and fatalities due to natural disasters increases due to an increase in extreme weather events such as typhoons and floods. [Chronic] Rainfall and weather patterns change, and average temperatures and sea levels rise. Increasing average temperatures lead to an increase in the number of heat stress deaths and heat stroke patients. The risk of contracting an infectious disease increases due to the expansion of the habitats of disease vectors.

Physical effects caused by a rise in average temperature (1.5°C scenario < 4°C scenario)

[Acute]

Natural disasters such as typhoons and floods become more frequent and intense.
The number of injuries and fatalities due to natural disasters increases due to an increase in extreme weather events such as typhoons and floods.

[Chronic]

Rainfall and weather patterns change, and average temperatures and sea levels rise.
Increasing average temperatures lead to an increase in the number of heat stress deaths and heat stroke patients.
The risk of contracting an infectious disease increases due to the expansion of the habitats of disease vectors.

Impact of the transition to a society with low or net-zero carbon emissions (1.5°C scenario)
[Policies, laws, and regulations] Tighter regulations on greenhouse gas (GHG) emissions and the introduction of a carbon tax. Expanded disclosure requirements (increased business costs for companies). [Technology development] Progress in reducing the carbon footprint of existing technologies and the introduction of new technologies such as renewable energy, storage batteries, and electric vehicles. While some companies emerge and grow by seizing new business opportunities, others have been unable to respond to low or net-zero carbon emissions measures and fail. [Changes in investor behavior] Reduced investment and lending to companies that cannot comply with regulations, companies that cannot exit from existing GHG emissions businesses, and companies that have recorded fossil fuels as stranded assets. Expanded investment and financing to companies that contribute to low or net-zero carbon emissions.

Impact of the transition to a society with low or net-zero carbon emissions (1.5°C scenario)

[Policies, laws, and regulations]

Tighter regulations on greenhouse gas (GHG) emissions and the introduction of a carbon tax. Expanded disclosure requirements (increased business costs for companies).

[Technology development]

Progress in reducing the carbon footprint of existing technologies and the introduction of new technologies such as renewable energy, storage batteries, and electric vehicles.
While some companies emerge and grow by seizing new business opportunities, others have been unable to respond to low or net-zero carbon emissions measures and fail.

[Changes in investor behavior]

Reduced investment and lending to companies that cannot comply with regulations, companies that cannot exit from existing GHG emissions businesses, and companies that have recorded fossil fuels as stranded assets. Expanded investment and financing to companies that contribute to low or net-zero carbon emissions.

Scenario analysis: Impact on the Group and the Response Measures

		1.5°C scenario	4°C scenario
Physical risks	Impact on underwriting profitability	The number of heat stress deaths and heat stroke patients increases. Both of these increases will be gradual over a long period of time, which will limit their impact on underwriting profitability. This will be addressed by conducting an appropriate review of premium rates.	Significantly higher average temperatures will lead to larger increases in heat stress deaths and heat stroke patients than under the 1.5°C scenario. Both of these increases will be gradual over a long period of time, but will be larger than under the 1.5°C scenario. We will address this by conducting a more detailed review of premium rates to avoid a significant negative impact on underwriting profitability.
Physical risks	BCP response	A business continuity plan has been established at another site in case a major disaster causes a disruption to the functions of critical sites.	To address the increasing intensity of natural disasters, we will use hazard maps and similar tools to assess the risk level of our business sites, relocate important sites, establish backup sites, and implement remote decentralization measures using IT as appropriate.
Transition risks	Impact on asset management income	In the medium-term time horizon, up to the middle of this century, some industries of the investees of the Group will be significantly affected due to tighter regulations on GHG emissions, the introduction of a carbon tax, the replacement of old technologies with new low or net zero carbon technologies, changes in consumer values and behaviors, etc. To avoid damage to asset management income from the impact on the investees and borrowers of the Group, we will work as appropriate in accordance with the Principles for Responsible Investment (PRI) through the promotion of investment and financing activities to businesses and companies that contribute to the transition to a society with low or net-zero carbon emissions, for example renewable energy businesses, and through engagement with existing investees.	The medium-term impact on the investees and borrowers of the Group will be smaller, since there will be no sudden changes in the environment expected in the 1.5°C scenario. However, in the long-term time horizon up to the end of the century, it is assumed that the increase in average temperatures and the intensification of natural disasters will have a significant negative physical impact on the business activities of each investee and borrower. In order to avoid damage to our asset management income, we will avoid or withdraw investment and financing to firms with significant physical risks.

Reference data: Physical risk scenarios: RCP2.6 and RCP8.5, Transition risk scenarios: NGFS and Bank of England

Scenario analysis: Business Opportunities for the Group

Changes in the morbidity rate and average life expectancy associated with the progress of global warming are expected to give rise to needs for protection (involving death, annuities, and medical care) against emerging risks. There are opportunities to expand net sales of the insurance business, by expanding and providing a wider scope of protection in order to meet such emerging needs.
As the reduction of GHG emissions progresses, the Group, as an institutional investor, has opportunities to enhance the value of investment assets and expand investment returns stably over the long term, by investing and lending to expanding clean energy development and energy conservation businesses, and by owning and managing real estate (such as office buildings) with superior environmental performance.
The Group also has opportunities to expand its business domains and earnings as a business operator, rather than as an institutional investor, by developing or entering into new business domains related to the mitigation of and adaptation to climate change.

More sophisticated climate change risk analysis: Quantitative analysis of effects on the Group

We collaborated with KPMG Consulting Co., Ltd. and the Japan Weather Association (called the JWA below) to conduct a quantitative analysis of effects on the Group in order to increase the sophistication of our climate change risk analysis.

Analysis method

The JWA developed a high-resolution climate scenario dataset by setting up a 1-km mesh for climate-change prediction data in order to analyze physical risks.
Next, two models were developed for the Group—one for estimating the number of victims of flooding and another for estimating the number of people hospitalized/fatalities due to heat exhaustion—assuming that Japan’s future average temperature increases by either 2°C (the RCP2.6 scenario) or 4°C (the RCP8.5 scenario) due to climate change. Five climate prediction models were utilized for our estimates.
We divided the future period up through 2100 into two periods, the near future period from 2026 to 2050 and the distant future period from 2051 to 2100, and then conducted a physical risk analysis.

Analysis results

Disaster victims

There is variation between regions in terms of future increases in rainfall (with rainfall decreasing in some regions).
In addition, although there will be an increased rate of powerful typhoons, the number of typhoons is expected to decrease.

⇒In both scenarios, although there is a possibility of a sudden spike in the number of disaster victims in the case of extremely heavy rainfall, the number during the entire period is about the same.

Number of people hospitalized/fatalities due to heat exhaustion

Regardless of the scenario, there is not that much of a change during the near future period.
During the distant future period, the number of extremely hot days and tropical nights will increase. In particular, in the RCP8.5 scenario, the number of extremely hot days is expected to increase by more than a month compared to the present.

⇒In both scenarios, the number of people hospitalized/fatalities due to heat exhaustion is expected to increase during the distant future period.

Effects on the Company

According to our calculations based on our analysis results, in the case of the RCP8.5 scenario—which has a greater effect—compared to the base period (2006 to 2025), both insurance claims and benefits will increase in the distant future period by ¥510 million to ¥1.63 billion (equivalent to approximately 0.1% to 0.3% of the Group’s paid out insurance claims and benefits).

* The graph below shows the average of all five models. (Increase of ¥1.07 billion in the distant future period)

graph：Monetary effect: RCP8.5 scenario (¥100 million). 2051 to 2100, Heat exhaustion fatalities, Persons hospitalized due to heat exhaustion, Disaster fatalities, Total17.71

Risk management

Risk Identification and Assessment Process

The Group exhaustively classifies the risks it faces through use of a risk profile, with a view toward dealing with increasingly diverse and complex risks. Risks are listed exhaustively by risk category. The Group then identifies and assesses these risks, and prioritizes initiatives by considering factors such as each risk’s significance, potential impact, and current status of control, which are then reflected in management plans, as necessary. The Group registers climate change-related risks on the risk profile as critical risks to be managed, and scrutinizes, identifies, and assesses these risks. Climate change-related risks are identified and assessed as insurance underwriting risk, asset management risk, operational risk, reputational risk, and risks that may have broad-based impacts on overall management.

Risk Management Process

In order to identify and grasp newly emerging risks, as well as changes in risks that have already been identified, a review of the risk profile is carried out twice per year, and reported to the Group Risk Management Committee and the Board of Directors.
In the process of identifying and assessing risks on a company-wide basis through a risk profile, the climate change-related risks are managed using the perspectives shown below.

Management of climate change-related risks

1) Physical risks

The Group considers to mitigate deterioration of underwriting profitability through reinsurance and other means, along with large-scale disaster risks (insurance underwriting risks).
The Group monitors existing products and implements countermeasures, including product revisions, as necessary.

2) Transition risks

The Group engages in investments and borrowings, taking into account climate change-related risks based on the Principles for Responsible Investment (PRI).
The Group monitors trends in economic policies, laws, and regulations, and share the information across the Group, through the Group Sustainability Promotion Committee and the Group Management Promotion Committee. Measures are taken to ensure that the Group responds to such trends in a sufficiently effective manner at the level expected of a listed company.

Metrics and targets

The Group establishes its environmental protection-related targets and is working on initiatives to achieve them in its daily business activities. The four targets are “to reduce CO₂ emissions,” “to reduce electricity consumption,” “to reduce office paper consumption,” and “to improve the green purchasing ratio.” Progress toward the achievement of these targets is measured annually, and disclosed in various reports and websites.
As for CO₂ emissions, Scope 1 (direct emissions from the Company), Scope 2 (indirect emissions via the purchase of energy including electric power), and Scope 3 (indirect emissions via other corporate activities including procurement of materials, transport, and disposal) are measured and disclosed on a continuous basis.
We have set reduction targets for our own emissions (Scope 1 and 2) and for our investees and borrowers (Scope 3: Category 15), aiming to achieve net zero emissions by 2050.

Roadmap to achieving net zero

CO₂ emissions reduction target

Subject	Targets
Own emissions (Scope 1 and 2)	FY2025: 40% reduction (compared to FY2013) FY2050: Net zero
Investees and borrowers (Scope 3: category 15)	FY2030: 40% reduction (compared to FY2020) * Subjects are stocks, corporate bonds, and financing of domestic listed companies. FY2050: Net zero

Promotion of renewable energy introduction

We are a member of RE100, a global initiative that aims to use renewable energy sources to cover all electricity consumed in business activities.
We have set an interim goal of sourcing 60% of our electricity from renewable energy by fiscal 2030, and are actively promoting the use of renewable energy.

Disclosure of climate-related financial information based on the TCFD recommendations