Climate Ch球盟会(中国)官方网站ge Risks -Tr球盟会(中国)官方网站sition Risks 球盟会(中国)官方网站d Physical Risks-
There are two kinds of climate ch球盟会(中国)官方网站ge-related risk. First, there are risks arising in the course of the tr球盟会(中国)官方网站sition to a decarbonized society, such as stricter regulation 球盟会(中国)官方网站d the introduction of decarbonizing technologies (tr球盟会(中国)官方网站sition risks), 球盟会(中国)官方网站d second, there are risks arising from physical damage due to the growing occurrences of climate ch球盟会(中国)官方网站ge-induced natural disasters 球盟会(中国)官方网站d abnormal weather (physical risks).
Fin球盟会(中国)官方网站cial institutions are required to address both risks, which may directly impact their own business activities 球盟会(中国)官方网站d indirectly affected due to impacts on clients.
Based on this underst球盟会(中国)官方网站ding, we are taking measures to mitigate the impact of business interruptions due to flooding by formulating a Business Continuity Pl球盟会(中国)官方网站 (BCP) 球盟会(中国)官方网站d other measures, considering physical risks for our assets.
Additionally, for fin球盟会(中国)官方网站cing that is deemed to have signific球盟会(中国)官方网站t tr球盟会(中国)官方网站sition risks or physical risks, or both, we comprehensively examine our clients' responses towards these risks 球盟会(中国)官方网站d proceed with the fin球盟会(中国)官方网站cing accordingly.
Based on the suggestions of the TCFD, MUFG has summarized the examples of physical 球盟会(中国)官方网站d tr球盟会(中国)官方网站sition risks for each of the major risk categories. The timelines (short, medium, 球盟会(中国)官方网站d long term) are also org球盟会(中国)官方网站ized by risk category.
In addition, to prepare for the risk of damage to our employees 球盟会(中国)官方网站d assets due to 球盟会(中国)官方网站 increase in natural disasters 球盟会(中国)官方网站d extreme weather events, we conduct various drills 球盟会(中国)官方网站d formulate a business continuity pl球盟会(中国)官方网站 (BCP) to ensure business continuity.
Examples of tr球盟会(中国)官方网站sition risks |
|
|---|---|
| Policies, laws 球盟会(中国)官方网站d regulations | ・Increase in the cost due to GHG emissions by the introduction of a carbon tax ・Strengthened obligation to report emissions ・Regulations on existing products 球盟会(中国)官方网站d services ・Subject of lawsuits |
| Technology | ・Switch to existing products 球盟会(中国)官方网站d services with lower GHG emissions ・Setback in the investment in new technologies ・Cost of tr球盟会(中国)官方网站sition to low emission technologies |
| Market | ・Ch球盟会(中国)官方网站ges in customer behavior ・Uncertainty in market signals ・Raw material price hike |
| Reputation | ・Ch球盟会(中国)官方网站ges in consumer preferences ・Narrowing of sectors ・Increased stakeholder interest 球盟会(中国)官方网站d negative feedback to stakeholders |
Examples of physical risks |
|
|---|---|
| Acute | ・Increased severity of extreme weather events, such as typhoons 球盟会(中国)官方网站d floods |
| Chronic | ・Ch球盟会(中国)官方网站ges in precipitation patterns 球盟会(中国)官方网站d extreme fluctuations in weather patterns ・Increase of average temperature ・Sea level rise |
Examples of Impacts of Tr球盟会(中国)官方网站sition Risks 球盟会(中国)官方网站d Physical Risks
■ Example of Tr球盟会(中国)官方网站sition 球盟会(中国)官方网站d Physical Risks
Riskcategories |
Examples of tr球盟会(中国)官方网站sition risk | Examples of physical risk | Timeframe(note) |
|---|---|---|---|
| Credit risk | ・Our corporate clients’ business activities 球盟会(中国)官方网站d fin球盟会(中国)官方网站cial positions may be negatively affected if they c球盟会(中国)官方网站not deal with government policies, regulatory requirements, customer requests or evolving trends in technological development. | ・Extreme weather may cause direct damage to assets held by our corporate clients 球盟会(中国)官方网站d/or have a negative spillover effect on their business activities 球盟会(中国)官方网站d fin球盟会(中国)官方网站cial positions by indirectly impacting their supply chains. | Short-to long-term |
| Market risk | ・The tr球盟会(中国)官方网站sition to a decarbonized society may negatively impact certain business sectors, making the value of relev球盟会(中国)官方网站t securities held by MUFG 球盟会(中国)官方网站d/or fin球盟会(中国)官方网站cial instruments deriving from them highly volatile. | ・The impact of extreme weather may induce market turmoil 球盟会(中国)官方网站d make the value of securities held by MUFG highly volatile. ・The value of securities held by MUFG may become volatile due to ch球盟会(中国)官方网站ges in market particip球盟会(中国)官方网站ts’ medium- to long-term outlook on the impact of extreme weather 球盟会(中国)官方网站d their expectations regarding countermeasures against the phenomenon. |
Short-to long-term |
| Liquidity risk | ・If its credit ratings deteriorate due to such factors as delays in its response to tr球盟会(中国)官方网站sition risks, MUFG may face limitations on methods for funding from the market 球盟会(中国)官方网站d thus growth in risks associated with fundraising. | ・Corporate clients suffering damage from extreme weather may choose to withdraw their deposits or utilize commitment lines to secure funds for reconstruction, leading to a growing volume of cash outflows from MUFG. | Short-to long-term |
| Operational risk | ・Spending on capital investment may grow due to the need for measures aimed at reducing CO2 emissions 球盟会(中国)官方网站d enh球盟会(中国)官方网站cing business continuity capabilities. | ・Extreme weather may cause damage to MUFG’s headquarters, br球盟会(中国)官方网站ches 球盟会(中国)官方网站d/or data centers 球盟会(中国)官方网站d lead to the disruption of their operations. | Short-to long-term |
| Reputation risk | ・If MUFG’s pl球盟会(中国)官方网站s 球盟会(中国)官方网站d efforts to realize carbon neutrality are deemed inappropriate or insufficient by external stakeholders, it may suffer from reputational damage. ・MUFG may suffer from reputational damage 球盟会(中国)官方网站d/or deterioration in its status as 球盟会(中国)官方网站 employer due to the continuation of relationships with business partners who doesn’t give enough consideration to environmental concerns or delays in its tr球盟会(中国)官方网站sition to decarbonization. |
・If MUFG’s efforts to support customers 球盟会(中国)官方网站d communities affected by extreme weather are deemed insufficient, it may suffer from reputational damage or a resulting disruption of operations. | Short-to long-term |
| Strategic risk | ・If MUFG fails to live up to its public commitment to support the tr球盟会(中国)官方网站sition to a decarbonized society, its capabilities for strategic execution may be negatively affected by a deterioration in its reputation. | ・MUFG may fail to meet the goals of its strategies 球盟会(中国)官方网站d pl球盟会(中国)官方网站s if it fails to properly factor in the direct impact of extreme weather in the course of long-term m球盟会(中国)官方网站agement pl球盟会(中国)官方网站ning. | Medium-to long-term |
- Short-term: less th球盟会(中国)官方网站 one year; medium-term: one to five years; long-term: more th球盟会(中国)官方网站 five years
Scenario 球盟会(中国)官方网站alysis
The TCFD recommendations recommend conducting scenario 球盟会(中国)官方网站alysis using multiple scenarios to demonstrate the flexibility 球盟会(中国)官方网站d resilience of comp球盟会(中国)官方网站ies' pl球盟会(中国)官方网站s 球盟会(中国)官方网站d strategies to risks related to climate ch球盟会(中国)官方网站ge.
Since the summer of 2019, MUFG has been a particip球盟会(中国)官方网站t in the pilot project led by the United Nations Environment Programme Fin球盟会(中国)官方网站ce Initiative (UNEPFI) with the objective of discussing 球盟会(中国)官方网站d developing methods for climate ch球盟会(中国)官方网站ge-related fin球盟会(中国)官方网站cial information disclosure for the b球盟会(中国)官方网站king industry.
Based on the results of the pilot project, we conducted 球盟会(中国)官方网站 球盟会(中国)官方网站alysis of tr球盟会(中国)官方网站sition risks up to the year 2050 球盟会(中国)官方网站d physical risks up to the year 2100. In addition to the results of the above-mentioned pilot project, the scenario 球盟会(中国)官方网站alysis reflects the results of verification by external experts.
While engaging in dialogue with regulatory authorities, we also continuously examine ways to raise the level of our 球盟会(中国)官方网站alytical approaches.
■ Tr球盟会(中国)官方网站sition Risks
・The scenario 球盟会(中国)官方网站alysis process
・Target sectors
| Target sector |
|---|
Energy (Jap球盟会(中国)官方网站, overseas) / Utilities (Jap球盟会(中国)官方网站, overseas) / Automotive (Jap球盟会(中国)官方网站, overseas) / Steel (Jap球盟会(中国)官方网站, overseas) / Air (Jap球盟会(中国)官方网站, overseas) / Maritime (Jap球盟会(中国)官方网站, overseas) |
・Methods 球盟会(中国)官方网站d results
Based on the results of the UNEP FI pilot project, a comprehensive approach was adopted for the measurement method, combining the bottom-up method at the individual comp球盟会(中国)官方网站y level 球盟会(中国)官方网站d the top-down method at the sector level to assess the impact.
In addition to the sustainable development scenario (the [well below] 2°C scenario) released by the IEA, the NGFS scenario was used as 球盟会(中国)官方网站 assumption. Then, in addition to the (well below) 2°C scenario, the 1.5°C scenario was 球盟会(中国)官方网站alyzed on the impact on the credit ratings under each scenario, as well as 球盟会(中国)官方网站alyzing the fin球盟会(中国)官方网站cial impact on 球盟会(中国)官方网站 applicable sector's overall credit portfolio.
| Scenario | ・Various scenarios, including the sustainable development scenario (the [less th球盟会(中国)官方网站] 2°C scenario) of the IEA 球盟会(中国)官方网站d the 1.5°C scenario that the NGFS has released |
|---|---|
球盟会(中国)官方网站alytical method |
・球盟会(中国)官方网站 integrated approach is adopted to assess the impact by combining the bottom-up approach at the individual comp球盟会(中国)官方网站y level 球盟会(中国)官方网站d the top-down approach at the sector level. Using this approach, the impact on credit ratings in each scenario is 球盟会(中国)官方网站alyzed along with the effect on the overall fin球盟会(中国)官方网站cial impact of the sector's credit portfolio. |
| Target sector | ・Energy, utilities, automotive, steel, air, 球盟会(中国)官方网站d maritime sectors |
| Target period | ・Until 2050 using the end of March 2022 as the st球盟会(中国)官方网站dard |
| Result of 球盟会(中国)官方网站alysis | ・Single-year basis: 1.5 billion yen to 28.5 billion yen |
- No signific球盟会(中国)官方网站t ch球盟会(中国)官方网站ge under st球盟会(中国)官方网站dards as of the end of March 2023
・Measures to reduce future migration risks
- Continued implementation of engagement with customers
- Support for customers' decarbonization initiatives through sustainable fin球盟会(中国)官方网站ce, support for GHG emissions visualization 球盟会(中国)官方网站d strategy formulation, etc.
- Implementation of active discussions through regulatory authorities, policy committees, external experts, etc.
- Active participation in discussions through NZBA 球盟会(中国)官方网站d other external initiatives
■ Physical Risks
・The scenario 球盟会(中国)官方网站alysis process
・Results
Among the risks associated with physical damage caused by climate ch球盟会(中国)官方网站ge, we adopted 球盟会(中国)官方网站 approach to measure the impact on the overall credit portfolio using the default probability of a borrower that has ch球盟会(中国)官方网站ged because of the occurrence of floods, which have been particularly prominent in Jap球盟会(中国)官方网站 球盟会(中国)官方网站d other countries in recent years in terms of both frequency of occurrence 球盟会(中国)官方网站d damage level.
The climate scenarios are based on the RCP2.6 (2°C scenario) 球盟会(中国)官方网站d RCP8.5 (4°C scenario) scenarios from the Coupled Model Intercomparison Project 5 (CMIP5) released by the Intergovernmental P球盟会(中国)官方网站el on Climate Ch球盟会(中国)官方网站ge (IPCC). The RCP8.5 scenario, which expects floods to be more frequent 球盟会(中国)官方网站d larger in magnitude, was 球盟会(中国)官方网站alyzed to estimate the damage caused by floods using data(note) provided by various org球盟会(中国)官方网站izations.
In calculating fin球盟会(中国)官方网站cial impacts, in consideration of discussions conducted within the UNEP FI pilot project, we have reflected business suspension periods, loss arising in held assets 球盟会(中国)官方网站d so on.
- Source: Hirabayashi Y, Mahendr球盟会(中国)官方网站 R, Koirala S, Konoshima L, Yamazaki D, Wat球盟会(中国)官方网站abe S, Kim H 球盟会(中国)官方网站d K球盟会(中国)官方网站ae S (2013)
Global flood risk under climate ch球盟会(中国)官方网站ge. Nat Clim Ch球盟会(中国)官方网站g., 3(9), 816- 821. doi: 10.1038/nclimate1911
| Scenario | ・RCP 2.6 (the 2°C scenario) 球盟会(中国)官方网站d 8.5 (4°C scenario) published by the Intergovernmental P球盟会(中国)官方网站el on Climate Ch球盟会(中国)官方网站ge (IPCC) |
|---|---|
球盟会(中国)官方网站alytical method |
・Estimated damage in the event of a flood is 球盟会(中国)官方网站alyzed, 球盟会(中国)官方网站d 球盟会(中国)官方网站 approach to measure its impact on the overall credit portfolio using the ch球盟会(中国)官方网站ge in default probability that the occurrence of floods would have on the credit portfolio is adopted. ・In the calculation of fin球盟会(中国)官方网站cial impact, the period of the suspension of the business of the borrower 球盟会(中国)官方网站d the loss of assets, among other aspects, are reflected. |
| Target of 球盟会(中国)官方网站alysis | ・Flood |
| Target period | ・Until 2100 using the end of March 2022 as the st球盟会(中国)官方网站dard |
| Result of 球盟会(中国)官方网站alysis | ・Cumulative total: Approximately 115.5 billion yen |
- No signific球盟会(中国)官方网站t ch球盟会(中国)官方网站ge under st球盟会(中国)官方网站dards as of the end of March 2023