Initiatives for the TCFD Recommendations
In April 2019, we announced our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board (FSB).
We recognize that climate change issues pose both risks and opportunities for the company, and that we need to address them company-wide.
As one of the basic policies of our Medium-Term Management Plan (FY2021 to FY2025), we have set the promotion of ESG management (contribution to solving social issues) and are working to solve social issues related to sustainability, including climate change issues.
We will further promote our existing initiatives related to climate change and work on further information disclosure.
We established the Sustainability Committee in April 2021 to aim for our sustainable growth and the realization of SDGs by contributing to solving social issues, including climate change-related initiatives.
Specialized committees including the Sustainability Committee, consider and discuss issues related to climate change, and report the status of progress, etc. to the Executive Committee. Important issues are discussed and decided by the Executive Committee and reported to the Board of Directors.
In formulating the Medium-Term Management Plan (FY2021 to FY2025), the Sustainability Committee, the Executive Committee, and the Board of Directors discussed the goal of achieving carbon neutrality by 2050. We have set the reduction of greenhouse gas emissions (CO2 emissions) as the ESG target for the Medium-Term Management Plan.
Risks and Opportunities
We recognize the impact (risks and opportunities) of climate change on the Company in both as a life insurance company and an asset owner, as follows.
(Note1) In identifying the risks and opportunities mentioned above, we disclose risks and opportunities with high degree of impact based on their importance to the Company's business after identifying large and small potential risks.
(Note2) We assume that the timeline of impact will be as follows: short term: 5 years, medium term: 15 years, long term: 30 years.
Investments for climate change opportunities
We conduct investment activities strategically considering the risks and opportunities related to climate change. We see the growth of the green finance market as an opportunity. For example, we invest in green transitions, which aim to support transition to a sustainable low-carbon economy, and green recovery projects, which aim to accelerate economic recovery from the COVID-19 pandemic as well as efforts to combat climate change.
The TCFD asks to describe the resilience of an organization's strategy under different climate-related scenarios, including the 2℃ or lower scenario.
Currently, we focus our efforts on analyzing the asset owner business, assuming that perspectives of the world under the 2℃ scenario and 4℃ scenario will be as follows.
We consider deepening our analysis on life insurance business as well in the future.
Analysis of the Impact of Climate Change on the Company as an Asset Owner
(1) Scenario Analysis by Sector
As the degree of impact of climate change varies from industry to industry, in analyzing the impact of climate change on the Company's asset management, we have selected sectors with high importance in terms of GHG emissions and investment exposure in our investment portfolio and identified three sectors of electric utilities, energy, and steel for analysis. We will endeavor to understand the magnitude of the impact on the Company as an asset owner through our analysis of the impact of climate change on these three sectors. We will continue to analyze and disclose the degree of impact.
Evaluation of the importance of risks and opportunities by key sector (STEP1)
We evaluated the importance of risks and opportunities in three sectors that are important to the Company, based primarily on a survey of literature published by international organizations and other institutions, with assistance of outside experts.
Impact on key sectors (STEP2, STEP3)
In STEP2, we assume specific situations under the 2℃ scenario and 4℃ scenario (*) for items of risks and opportunities with high importance by key sector identified in STEP1. In STEP3, we qualitatively evaluate their impact on the performance and finance of the portfolio companies.
- These scenarios are based on the Scenarios in "World Energy Outlook" of IEA, IEA reports, "Synthesis Report on Observations, Projections and Impact Assessments of Climate Change, 2018, Climate Change in Japan and Its Impacts," Ministry of the Environment and other ministries.
We are working to achieve a sustainable society and to improve long-term investment results and reduce risk by considering ESG factors for all assets under management and making investments and loans that can contribute to achieving the SDGs and to solving social issues in a broad range of areas. To portfolio companies, we are engaged in efforts to require them to enhance the disclosure of not only their financial information but also non-financial information including ESG (Environment, Social, and Governance) factors through constructive "dialogue with purpose" (engagement).
In February 2022, we set an interim target of reducing GHG emission in our investment portfolio by 50% (compared to FY2020) by FY2029 (end of March 2030) while aiming to achieve carbon neutrality by 2050.
Going forward, we aim to improve future investment performance by engagement with our portfolio companies in key sectors that fully takes into account the specific impacts identified in our scenario analysis. In engagement, we will encourage our portfolio companies to work toward decarbonization while reviewing their responses to specific impacts.
(2) NGFS's Climate Scenarios Analysis
We expect that the assets owned by the Company will be affected by changes in the economic environment as we transition to a decarbonized society. We have analyzed how our assets would be affected by these changes by 2050 under several climate scenarios published by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS*).
Specifically, we have estimated how changes in the economic environment (changes in interest rates and stock price levels) assumed in the following three scenarios would affect our assets under management: (1) Current Policies scenario in which global warming will progress as no further action on climate change will be taken by countries than they are currently implementing (global temperature will rise by more than 3℃), (2) Net Zero 2050 scenario in which countries will achieve the 2050 carbon neutrality and 1.5℃ temperature rise targets in a coordinated and systematic manner, and (3) Divergent Net Zero scenario in which the 2050 carbon neutrality and 1.5℃ temperature rise targets will be achieved, however, total costs will increase due to non-coordinated policies adopted by countries and sectors. This estimate has also taken into account changes in the projected interest rates for new insurance policies in the future due to changes in domestic interest rates.
The estimate in our analysis shows that scenario (2) and (3), which promote measures against climate change, will lead to an increase in interest gains for the Company, which holds yen-denominated interest bearing assets such as Japanese government bonds, as both domestic and international long-term interest rates will increase moderately compared to scenario (1).
On the other hand, this scenario analysis does not take into account any impact from an increase in credit-related costs for portfolio companies due to higher interest rates and an increase in business expenses due to higher inflation rate, etc. In the future, we would like to incorporate these impact as we proceed with the sophistication of our scenario analysis.
* NGFS: An international network of central banks and financial supervisors to examine financial supervisory responses to climate change risks. The Financial Services Agency and the Bank of Japan joined the network in June 2018 and November 2019, respectively.
TOPICS:Analysis of the Impact of Climate Change on the Company's Life Insurance Business
Increase in the number of individuals who suffer from heatstroke due to higher temperature in summer, increase in the number of patients who suffer from tropical infectious diseases due to the expansion of areas where vector mosquitos of infectious disease can be active, etc., and damages to health due to increased and prolonged damage from flooding, etc., can be considered to have an impact on the Company's life insurance business (claims payment) as events that could lead to a significant increase in the amount of claims payment. In FY2021, we quantitatively analyzed the impact of increase in the number of patients who suffer from tropical infectious diseases and confirmed that the increase in the amount of claims payments would be limited.
We analyzed the increase in the amount of claims payments due to mosquito-borne tropical infectious diseases (dengue fever and malaria), assuming that active areas and periods of activity for vector mosquitos of infectious disease will expand due to rising temperatures.
We applied RCP8.5 scenario based on the Fifth Assessment Report of IPCC as the temperature increase, and based on recent outbreaks of tropical infectious diseases in tropical regions, cases of infection and hygiene status in Japan, etc., we assumed that dengue fever would also spread in Japan and patients would be hospitalized or die. As a result of our estimate assuming that damage will occur every year from FY2031 to FY2050, our claims payment would increase by up to about 20 billion yen over the 20-year cumulative period.
Furthermore, outbreak of a new infectious disease (pandemic) due to the emergence of an unknown pathogen caused by the development of tropical forests and thawing of permafrost can be considered to have an impact on the Company's life insurance business (value of new business) as events that could lead to a significant decrease in the business performance. In FY2021, we analyzed the impact of the slowdown in sales performance due to the difficulty of conducting face-to-face sales activities, assuming that the probability of such an event occurring once every few decades. As a result, we could confirm that its impact on the Company's financial soundness was observed but limited.
We believe that there are many challenges regarding the accuracy and reliability of our analysis of the impact of climate change on the Company's life insurance business, as there are no generally established measurement models and climate change itself has a high degree of uncertainty, such as its occurrence over a long period of time. In the future, we will continue our efforts to understand risks through analysis such as further research, stress testing, etc.
We have classified risks related to climate change as "Significant risk". Regarding the management of climate change risk, we will continue to upgrade our risk management process (identification, management, and evaluation) through scenario analysis.
Regarding investment, we consider various ESG factors for all assets under management based on the ESG investment policy revised in October 2021.
We measure GHG emissions (CO2 emissions) from our investee companies, and consider how we actively manage our portfolio.
Metrics and Targets
Metrics and targets for the operations
To achieve carbon neutrality by 2050, we have set GHG emissions reduction targets (CO2 emissions).
(FY2030 target: 46% reduction compared to FY2019)*
- Scope1 (emissions directly emitted by the Company) and Scope2 (emissions associated with the use of electricity, etc. supplied by other companies) are covered. Excludes increase due to new business.
Supply chain emissions (Scope1, Scope2, Scope3)
Supply chain emissions refer to the sum of all emissions related to business activities, not just those of the business itself.
In other words, it refers to the amount of greenhouse gas emissions generated from the entire process of procuring raw materials, manufacturing, distribution, sales, and disposal.
Supply chain emissions = Scope1 emissions + Scope2 emissions + Scope3 emissions
- Direct emissions of greenhouse gases by the business itself (fuel combustion, industrial processes)
- Indirect emissions from the use of electricity, heat and steam supplied by other companies
- Indirect emissions other than Scope1 and Scope2 (emissions of other companies related to the activities of the business)
Prepared by Japan Post Insurance Co. Ltd. based on the Green Value Chain Platform (Ministry of the Environment)
Metrics and targets for an Asset Owner
1. GHG emissions metrics for domestic and foreign equities and credit assets portfolios
To assess climate-related risks and opportunities, we have measured GHG emissions metrics (Carbon emissions, carbon footprint, carbon intensity, and weighted average carbon intensity) for four assets (*1) (domestic equities, foreign equities, domestic credit assets (*2), and foreign credit assets) as of March 31, 2021.
The scopes covered in the carbon emissions calculation are direct emissions of greenhouse gases by investee companies (Scope1), indirect emissions from purchased electricity (Scope2), and emissions from supply chains other than purchased electricity (Scope3). The calculation of the carbon footprint, carbon intensity and weighted average carbon intensity covers Scope1, Scope2, and emissions from direct suppliers of Scope3.
- Unlisted stocks, project finance, REITs, asset-backed securities, etc. are not included. Includes not only internally managed assets but also externally managed assets.
- Includes business loans to companies, etc.
GHG emissions metrics by asset class
For the GHG emissions from our domestic and foreign equities and credit portfolios, the sum of Scope1 and Scope2 emissions was approximately 10.24 million CO2e, which is higher than benchmark emissions. By asset class, emissions from the domestic credit portfolio are significantly higher than benchmark emissions. This is mainly due to the overweight of the utilities sector, including electricity utilities. Due to the same reason carbon footprint, carbon intensity, and weighted average carbon intensity for domestic credits are higher than those of benchmark.
The sum of Scope1, Scope2, and Scope3 emissions was approximately 17.64 million tCO2e, which is higher than benchmark emissions. Also in this case, GHG emissions from the domestic credit portfolio is much higher than those of the benchmark. For the domestic equities portfolio, the sum of Scope1 and Scope2 is lower than the benchmark, while the sum of Scope1, Scope2 and Scope3 is higher than the benchmark. For the investees in the domestic equities portfolio, emissions from their own energy consumption are lower than those of the benchmark but when the scope is expanded to Scope3, or the entire supply chain, become higher than the benchmark.
It is important to note that we recognize including Scope3 in the calculation of GHG emissions may occur double counting (e.g., Scope1 emissions of one company may correspond to Scope3 emissions of another company). Despite this problem, we chose to widen the scope to supply chains to understand our portfolio emissions as much as possible.
2. GHG emissions metrics for sovereign bonds portfolio
For sovereign bonds (including semi-government bonds such as government agency bonds and municipal bonds, including externally managed assets), which we hold large amount of, we have measured the GHG emissions and weighted average carbon intensity as of March 31, 2021. GHG emissions from our sovereign bonds portfolio amounted to approximately 92.86 million tCO2e, of which approximately 63.21 million tCO2e was accounted for by Japanese government bonds (including Japanese semi-government bonds).
The weighted average carbon intensity of our sovereign bonds portfolio was 3.22 tCO2e/real GDP (million yen). On the other hand, that of the benchmark (Bloomberg Barclays Global Aggregate Treasuries Index) was 3.82tCO2e/real GDP (million yen). Our sovereign bonds portfolio overweighs Japanese government bonds compared to the benchmark, and underweighs those of North America, emerging countries, Oceania, etc., where emissions per GDP are high.