Risks and Opportunities Relating to Climate Change
In terms of climate change issues, financial institutions are responsible for not only the direct impacts arising from their own business activities, but also the indirect impacts stemming from investee and borrower companies and projects for which the responsibility is much greater.
For instance, medium- to long-term climate change could potentially have a negative impact on the Group’s earnings and financial situation owing to the risk of physical damage to, for example, the natural environment, social infrastructure, and client assets (physical risks), as well as the growing risk of a rapid transition to a low-carbon society owing mainly to policy changes, changes in social norms and financial market preferences regarding climate change, and technological innovation (transition risks). More specifically, the (physical) risk of natural disasters will impair the credit standing of obligors and the value of their pledged assets, while the (transition) risk of being unable to keep up with the rapid transition to a low-carbon society will trigger earnings deterioration, a decline in securities issued by companies that emit large amounts of CO2, and fewer loans extended to such companies. These factors will negatively impact the Group’s credit portfolio and drag down the value of assets held by the Group.
On the other hand, the practice of incorporating the transition to a carbon-free society into business models is a key element in any corporate growth strategy.
Risks Related to Climate Change
|Risk category*||Summary of risks||Characteristics of risks related to climate change|
Business Opportunities Related to Climate Change
|Opportunity category*||Summary of opportunities||Characteristics of business opportunities related to climate change|
|Resource efficiency, energy sources, products & services, markets, and resilience||
*Categories based on the recommendations of the TCFD