In addition to engaging in business activities aimed at bringing about a sustainable global environment, JSF is working to improve the disclosure of information related to climate change in accordance with the TCFD recommendations.

**In furtherance of financial stability, the Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) in 2015 at the request of the G20.
The final report on the framework for disclosing information concerning the risks and opportunities presented by climate change (TCFD recommendations) was published in 2017. It calls on companies to assess the risks and opportunities presented by climate change, to gauge the financial impact after taking into account the company's business strategy and risk management, and to disclose this information.

Governance

  • To drive groupwide climate-related efforts, the JSF Board of Directors approved "Sustainability: Basic Concept," in which we recognize climate change as a key issue for our business (materiality).
  • The Management Committee (chaired by the representative executive officer & president) deliberates and decides on sustainability initiatives, including those concerning climate-related issues, and the Board of Directors oversees the progress being made on these initiatives.
  • Specific sustainability initiatives, including those concerning climate-related issues, are detailed in the action plan for the Medium-term Management Plan, and they are carried out across the organization under the oversight of the Corporate Governance Office.

Strategy

  • As a company that is responsible for securities and financial markets infrastructure, JSF recognizes the importance of building systems that operate reliably under a variety of conditions. Therefore, we believe that realizing a sustainable global environment is crucial to the continuation of our business activities, and we recognize climate change as a key issue our business (materiality).
  • After identifying the risks and opportunities presented by climate change to our business activities, we qualitatively analyze the impacts and verify the resilience of our management strategy.
  • In response to the transition and transformation into a carbon-free society, along with supporting the efforts of the securities and financial markets participants that are grappling with climate-related issues by improving the financial services that we offer and the commercial appeal of our products, we are aiming to enhance our own enterprise value.

Recognized risks

  • Climate change risks are divided into two categories for identification and recognition purposes. These are "transition risks," which are risks arising from the process of transitioning to a lower-carbon economy, and "physical risks," which are risks of losses arising directly from climate change.
  • For recognized risks, assumptions are made about the type of damage (direct or indirect), the size of the risk (large, medium, or small), and the time frame (short term to medium or longer term).
  • JSF believes that the increase in credit costs will be limited at JSF because securities-backed loans to securities firms and banks represent most of our lending.

Types of risk

Description

Damage

Risks

Timeframe

Transition risks

Higher operating costs due to tax changes related to climate change, such as stricter regulation and carbon taxes.

Direct

Small

Medium to longer term

Decline in securities financing balances due to factors like worsening economic conditions, weak financial and securities markets, and declining demand for funding due to the effects of global warming.

Indirect

Medium

Medium to longer term

Decline in share prices due to stakeholder criticism about the response to global warming and inadequate disclosure.

Direct

Small

Medium to longer term

Types of risk

Description

Damage

Risks

Timeframe

Physical risks

Acute risks

Damage to owned real estate and facilities due to major storm and flood damage, with damage to facilities affecting business continuity

Direct

Medium

Short term to long term

Drop in prices on securities held in conjunction with worsening financial and securities markets due to the effects of extreme weather events

Higher credit costs in conjunction with damage to counterparty business locations due to major storm and flood damage.

Indirect

Small

Short term to long term

Chronic risks

Business relocation costs incurred due to rising sea levels

Direct

Medium

Long term

Higher credit costs in conjunction with counterparty business location damage arising from rising sea levels

Indirect

Small

Long term

Recognized opportunities

  • JSF anticipates and recognizes the following opportunities associated with tackling climate-related issues.
  • Our efforts with respect to these climate-related issues are incorporated into the action plan for the Medium-term Management Plan, and we are monitoring the progress being made on implementing these measures.

Opportunity

Description

Timeframe

Resource efficiency

Energy sources
  • Propelling resource and energy savings
  • Utilizing renewable energy

Short to long term

Products and

services

Markets
  • Offering financial services that support the transition to a carbon-free society
  • Contributing to an environmentally sustainable society through investments in green bonds and other instruments
  • Increased demand for funding due to the expanding market for ESG investments
  • Gaining the trust of counterparties and capital markets thanks to appropriate initiatives and disclosure in response to climate-related issues

Short to long term

Resilience
  • Ensuring business continuity in areas such as lending/borrowing transactions, which serves as infrastructure for securities markets, by building a resilient BCP framework

Short to long term

Scenario analysis

  • A qualitative analysis of the impact of climate on JSF Group, based on two scenarios, is presented below. Under the 2℃ Scenario, global warming is halted due to strict measures to combat global warming, while under the 4℃ Scenario, global warming continues to progress in the absence of drastic measures to combat warming.

2℃ Scenario*1

4℃ Scenario*2

Assumptions
  • Greenhouse gas emissions are curtailed through policy measures
  • There are advances in low-carbon technologies and they are widely adopted
  • Sudden storm and flood damage occurs at the same scale and frequency as at present
  • Without drastic policy measures, greenhouse gas emissions continue to increase at the current pace
  • Sudden storm and flood damage occurs more frequently, and is bigger in scale
  • Chronic changes, such as rising sea levels, have a significant impact on economic activity

Opportunity
  • Increased demand for funding in the financial and securities markets due to growing ESG investing
  • Increased need for financial products and services related to environmental protection
  • Increased demand for funding in connection with investment in infrastructure for disaster preparedness

Risks

Transition risks
  • Stakeholders criticize our response to global warming, causing the price of JSF shares to decline
  • Higher equipment costs associated with measures to cut greenhouse gas emissions and shore up BCP
  • Securities financing balances decline as the economy and financial markets deteriorate due to the effects of global warming

Physical risks
  • Sudden extreme weather events are similar to the present, and no major financial impact is expected
  • There is no irreversible climate change, such as rising sea levels, and no major financial impact is expected
  • There is damage to owned real estate and facilities due to major storms and flooding, affecting business continuity (assumes limited increase in credit costs in conjunction with damage to counterparty financial institutions)
  • Relocation expenses arising from damage to owned real estate due to rising sea levels

Notes: *1. 2℃ Scenario: IEA 2DS  *2. 4℃ Scenario: IPCC RCP8.5

Risk management

  • JSF recognizes that climate change not only poses the risk of a significant impact on the global environment, it also has the potential of affecting our financial position in the future.
  • Because these climate change risks are factors that could cause and amplify financial risks (e.g., credit risk and market risk), we manage the risks associated with climate change within an integrated risk management framework.

Metrics and targets

  • We are working to save resources and energy by promoting teleworking, using web conferencing both inside and outside the company, introducing an electronic ringi decision-making system and a paperless meeting system, and digitizing stored documents.
  • JSF Group CO2 emissions (combined Scope 1 and Scope 2 emissions*) are shown below. JSF Group is working to further reduce CO2 emissions.

(Units: t-co2）

FY2019

FY2020

FY2021

FY2022

FY2023

CO2emissions

923

874

856

810

790

*Scope 1 refers to direct emissions (use of natural gas, gasoline, etc.), Scope 2 refers to indirect emissions (electricity usage)