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Addressing Climate Change (Initiatives based on TCFD Recommendations)

The TCFD Recommendations call for disclosures on corporate governance, strategy, risk management, and indicators and targets relevant to climate change–related risks and opportunities.

At Mizuho, we have supported the intent and aims of the TCFD Recommendations since December 2017, and we are working to engage in initiatives and enhance disclosures in accordance with the recommendations. The current status of our response to the TCFD Recommendations is as follows.

TCFD Report (PDF/1,421KB)

Governance

  • We have identified key sustainability areas, including responses to climate change, and incorporated them into our 5–Year Business Plan, based on deliberation by our Executive Management Committee and Board of Directors, to advance our sustainability initiatives as an integral part of our strategy. We review these on an annual basis.
  • We have established an Environmental Policy, and we assess our progress on environmental initiatives, including the status of our response to the TCFD Recommendations, under the oversight of the Board of Directors.

Strategy

  • We identified climate–related risks and opportunities for each in–house company, unit, and group when designing our business plan.
  • We have conducted a qualitative evaluation of climate change–related opportunities, transition risks, and physical risks in each sector, as they will unfold over short–, medium–, and long-term time frames.
  • We have identified the following climate–related risks and opportunities and impacts on business activities, and we have strengthened our structure for promoting sustainable business group–wide to support the transition to a low–carbon society. We actively promote financial products and services that help mitigate climate change or facilitate adaptation to it and, at the same time, conduct appropriate risk management based on international concerns, trends, and other factors.

Opportunities

  • Increased business opportunities to provide financing for renewable energy projects or solutions for clients' efforts to transition to a low–carbon society.
  • Enhance our reputation in capital markets and society at large through appropriate initiatives and disclosures.

Risks

  • We are taking into account both physical risks and transition risks.
  • Our transition risks include credit risk related to financing and investment clients who are impacted by more stringent carbon taxes, fuel efficiency regulations, or other policies or by delays in shifting to low–carbon and other environmental technologies. Our transition risks also include operational risk related to reputational damage from financing fossil fuel projects.
  • Our physical risks include operational risk related to the possibility of extreme weather causing damage to our assets (such as data centers) and credit risk related to customer assets (such as real estate collateral).

Scenario analysis

  • Under the definition from the TCFD Recommendations, our credit exposure (EXP) in carbon–related sectors comes to 7.3% of our total credit exposure.

Transition risk

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Scenario International Energy Agency (IEA)'s Sustainable Development Scenario (SDS)1 / New Policies Scenario (NPS)2
In our analysis for impacts on our clients' business, we employed two scenarios: a static scenario which assumes that no attempt is made to transform the present business structure, and a dynamic scenario under which the business structure is transformed.
Targeted sectors Electric utilities and oil, gas & coal sectors in Japan
Period 2050 (while the IEA scenario is until 2040, the period for this analysis is until 2050)
Credit costs through 2050 Increase of approx. JPY120 billion (dynamic scenario) to JPY310 billion (static scenario)

Physical risk

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Scenario Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 8.5 scenario (4℃ scenario) / RCP 2.6 scenario (2℃ scenario)
Details of analysis We employed a Monte Carlo simulation to calculate the rates at which typhoons and other storms cause wind and water–related building loss or damage. We then analyzed the potential direct (collateral value) and indirect (business stagnation) impacts on Mizuho's credit costs from the loss or damage of mortgaged real estate (buildings) in Japan.
Target of analysis Japan only, for impact of business stagnation this is based on the location of the client’s headquarters (this analysis targeted middle–market firms and SMEs)
Credit costs through 2050 Impact on mortgage lending value: limited
Impact of business stagnation: JPY52 billion at most, under both 2℃ and 4℃ scenarios

Risk Management

Identification of climate change risks and integration with comprehensive risk management

  • By identifying physical and transition risks resulting from climate change and integrating them into our overall risk management framework for credit, operational, and other types of risk, we are ensuring comprehensive risk management.

Management of top risks

  • Until recently, we have monitored financing and investment from the perspective of environmental and social responsibility in our management of "top risks", which are risks recognized by management as having major potential impact on the group. We now position climate change risks as "emerging risks", which we define as major risks that must be addressed in the next few years despite the fact that materialization of the risks will occur over a medium– to long–term time frame, and we have begun periodic monitoring of related indicators.

Reviewing our policies in light of climate change risks

  • We managed relevant risks through reviewing our Environmental and Social Management Policy for Financing and Investment Activity (e.g. tightening our policy on coal–fired power generation), conducting due diligence based on the Equator Principles3, and through engagement with clients.

Metrics and Targets

Monitoring indicators

  • 1Sustainable Development Scenario (SDS): Scenario under which advancement of low-carbon holds the increase in the global average temperature to below 2℃.
  • 2New Policies Scenario (NPS): Scenario which assumes that the measures pledged to under the Paris Agreement are put into place.
  • 3A financial industry benchmark for determining, assessing, and managing environmental and social risk related to projects that are being financed.