Disclosure of Climate-related Financial Information Based on the TCFD Recommendations
The Task Force on Climate-related Financial Disclosure (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]
Oversight by the Board of Directors
- The Board of Directors has established the Group SDGs Committee as its subsidiary body, with the task of reviewing and deliberating its policies related to SDGs and CSR, along with measures concerning the global environment and social issues.
- The Group SDGs 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 and measures regarding the global environment and social issues such as SDGs, while periodically monitoring the progress of such initiatives, and reporting to the Board of Directors thereon.
- The Board of Directors established the Climate Change Risk Subcommittee as a subordinate body of the Group SDGs Committee.
The purpose of the Subcommittee is to support the SDGs Committee in formulating policies and considering actions related to climate change by investigating and reviewing the status of climate change risks and the necessary responses and then reporting these to the SDGs Committee and offering proposals. The Subcommittee consists of the persons in charge (section managers) of the planning, risk management, and asset management departments at Group companies.
Role of management
- The Company has established the Executive Management Board, comprising the Chairman, the President, and executive officers in charge of specified areas of operations, for the purpose of deliberating important matters related to management of the Group. The Executive Management Board receives detailed reports on all policies and measures regarding the global environment and social issues that are deliberated at the Group SDGs Committee. Important matters are also deliberated at the Executive Management Board, and the results thereof are reported to the Board of Directors.
- The following scenario analysis was carried out in order to assess the impact (physical risks*1 and transition risks*2) of climate change 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 behavior of governments, corporations, and consumers in the process of carrying out the transition to a low carbon society (through a significant reduction of greenhouse gas emissions)
Scenario analysis: what the world looks like under each scenario
2°C scenario: Strict measures are taken against climate change. By the end of the century, the average annual temperature will increase by between 0.3°C and 1.7°C.
4°C scenario: No measures are taken against climate change beyond the current status quo. By the end of the century, the average annual temperature will increase by between 2.6°C and 4.8°C.
* RCP 2.6 and RCP 8.5 scenarios, respectively. The annual average temperature is a comparison between the 2080-2100 average and the 1986-2005 average.
|The world under the 2°C scenario||The world under the 4°C scenario|
|Physical effects caused by a rise in average temperature (2°C scenario < 4°C scenario)|
|Impact of the transition to a society with low or net-zero carbon emissions (2°C scenario)|
Scenario analysis: impact on the Group
|2°C scenario (RCP 2.6)||4°C scenario (RCP 8.5)|
|Physical risks||Impact on underwriting profitability||
|Transition risks||Impact on asset management income||
Physical risk reference data: Climate Change Adaptation Information Platform (A-PLAT)
- 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.
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.
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 SDGs 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.
Integration to the overall risk management
- For the purpose of overall risk management activities, the Group integrally manages its capital, profit, and risk by using ERM (Enterprise Risk Management). ERM refers to a strategic method of corporate management that seeks to maximize corporate value and profits while ensuring the soundness of business through integrated management of capital, profit, and risk. As opposed to passive risk management, which considers risk something to be avoided, in ERM, risk is not something only to be eliminated or reduced, but rather, the risks that should be taken on to pursue growth in profitability are selected actively while limiting risk to a fixed scope of capital to maintain sound management of business operations.
- The T&D Insurance Group has specified an economic solvency ratio (ESR), which is a risk-management index based on economic value. These are concrete quantitative indicators of risk appetite and tolerance. ESR is calculated as net assets (surplus) based on economic value, divided by economic capital (EC), which is the risk level based on economic value, calculated using an internal model including insurance underwriting risk, asset management risk, and operational risk. We manage risk on the basis of economic value through such means as controlling EC to stay within a certain range of the surplus. ESR is managed on a monthly basis. The statutory solvency margin ratio is managed on a quarterly basis. As with other risk reviews, these are reported to the Group Risk Management Committee and Board of Directors.
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 three targets are “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 semi-annually, and disclosed in various reports and websites.
- As for the target to reduce electricity consumption, targets for the five-year periods from FY2008 and FY2013 were both achieved. Efforts are underway to achieve the target for the next ten-year period from FY2018.
- As for the target to reduce office paper consumption, the target for the five-year period from FY2014 was achieved. Efforts are underway to achieve the target for the next five-year period from FY2019.
- 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.