February 6, 2023
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Japanese Bankers Association

JBA comments on the draft Principles for Climate-Related Financial Risk
Management for Financial Institutions proposed by the Board of Governors of theFederal Reserve System
Dear Sirs/Madams:
Introduction
The Japanese Bankers Association 1 (the “JBA”) appreciates the opportunity to comment on the draft Principles
for Climate-Related Financial Risk Management for Financial Institutions 2 (hereafter “the Principles”)
proposed by the Board of Governors of the Federal Reserve System (the “Board”), which provide a high-level
framework for the safe and sound management of exposure to climate-related financial risks.
We welcome that the Principles are broadly consistent with the Principles for the effective management andsupervision of climate-related financial risks 3 by the Basel Committee on Banking Supervision (hereafter “theBCBS Principles”), which will be a common baseline for internationally active banks and supervisors. We also
welcome the Board’s consistent approach and implementation timeline with other U.S. agencies, including the
Office of the Controller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the“FDIC”).
Regarding our views on approaches for achieving greater coordination, please refer to the comments submitted
by the JBA to the OCC’s draft Principles for Climate-Related Financial Risk Management for Large Banks,
which is attached to this letter (the “JBA comments to the OCC”). We welcome the clarification that has been
added to the Principles - based on feedback through consultation with the OCC and the FDIC - on the calculationof total consolidated assets of the branches or agencies of foreign banking organizations to which the Principles
will apply and on the role of the board and senior management.
Interoperability of US and international standards
Our member banks are in the process of implementing a climate-related financial risk management framework
at a group-wide level, engaging with the relevant regulators and we would appreciate further clarification on
how this applies to FBOs as stated below in our response to Question 1. If financial institutions with global
operations are required to comply with all the different guidelines in each jurisdiction, it would lead toineffective risk management and a burden for banks. In order to avoid duplicative or different requirements forbanks, we would like to ask the Board to continue to coordinate with international standard setting bodies andjurisdictional supervisors. We would propose an interoperable approach where non-U.S. banks with U.S.
operations can rely on and comply with the guidelines in their home country to the extent they are consistent
with the BCBS Principles and broadly aligned with the future Board’s guidance. For the same reason of avoiding
duplicative or different requirements, we also encourage the Board to coordinate with foreign regulators toharmonize supervisory expectations to the greatest extent possible.

The Japanese Bankers Association is the leading trade association for banks, bank holding companies and bankers associations inJapan. As of February 6, 2023, the JBA has 114 Full Members (banks), 3 Bank Holding Company Members (bank holding companies),
76 Associate Members (banks & bank holding companies), 51 Special Members (regionally-based bankers associations) and one SubAssociate Member for a total of 245 members. Several of its largest member banks are active participants in the U.S. financial markets.
2 https://www.federalreserve.gov/newsevents/pressreleases/other20221202b.htm
3 https://www.bis.org/press/p220615.htm
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Challenges in climate risk management
When incorporating climate-related financial risks into existing risk management, such as credit ratings andcredit costs, there are a number of challenges, including different time horizons (an extremely long term forclimate-related financial risks, which contrasts with current horizons used for existing risk management), and alack of availability and credibility of data (such as data on the relationship between climate-related risks andcredit losses). Therefore, we recognize that it will require a considerable amount of time to establish quantitative
financial risk management practices at the client level. Given such data challenges and the evolution of climate
risk measurement methodologies/modelling, the future Board’s guidance needs to be flexible and principlebased. We would like the Board to provide sufficient time for implementation of the future Board’s guidance,
incorporating the progress of international discussions and allowing us to take a phased approach to
implementation.
Incorporating climate-related risks into capital or liquidity adequacy assessments
Due to the current limitations in terms of data and methodologies/modelling stated above, we believe that it
would also be premature to include an expectation that banks incorporate climate-related financial risks into
their capital and liquidity adequacy assessments at this point in time. We appreciate that the Board recognizes
such challenges regarding data and methodologies in the Principles and believe that it should be reflected in the
Board’s final Principles. We also welcome the Board’s approach taken in the Participant Instructions for the
Pilot Climate Scenario Analysis Exercise 4 that climate scenario analysis is distinct and separate from bankstress tests and that the pilot climate scenario analysis exercise is exploratory in nature and does not have capitalconsequences. We believe that guidance by the Board in the future should also take the same approach.

Response to the questions
Question 1: In what ways, if any, could the draft principles be revised to better address
challenges a financial institution may face in managing climate-related financial risks?
We would like to ask the Board to:- Clarify how this applies to FBOs, with examples of when the threshold of $100 billion would be considered
met and how the principles should be implemented across various corporate structures at FBOs.
- Clarify if any principles must be met locally by FBOs as opposed to globally through organization-wide
policies and processes and to ensure alignment with requirements in foreign jurisdictions.
- Define a compliance approach that accounts for the time required by banks to implement the climate-related
financial risk management processes outlined in the principles and incorporate climate-related financial
risks into decision-making processes. Provide a period for banks to demonstrate progress, rather than set a
particular data for compliance.
Please also refer to the JBA comments to the OCC on Questions 2 and 6.
Question 2: Are there areas where the draft principles should be more or less specific given
the current data availability and understanding of climate-related financial risks? What otheraspects of climate-related financial risk management, if any, should the Board consider?
In the area of climate-related risks for which standard practices have not been established, it is necessary toquantify specifically the elements required to conduct scenario analysis. In addition, it is important that specificelements of such measures are consistent with other countries/regions.
In addition, the principles proposed by the Board will need to consider how to estimate climate-related financial
risk in situations where firm-level climate data are constrained.
Commercial banks have a wide range of customers and types of financial instruments. Therefore, it is extremely4

https://www.federalreserve.gov/newsevents/pressreleases/other20230117a.htm

2difficult to monitor all transactions after the first disbursement of a loan (e.g. rollover of the short-term credit
facility that hits materiality due to the amount). The principles to be proposed by the Board should clearlyspecify the scope of risk management.
The incorporation of examples and best practice criteria and/or case studies, including the above aspects, would
help organizations to understand and meet the requirements.
Please also refer to the JBA comments to the OCC on Question 10.
Question 3: What challenges, if any, could financial institutions face in incorporating thesedraft principles into their risk management frameworks?
We believe that the following challenges need to be addressed:- Lack of clear and robust data coverage across the portfolio- Lack of consensus on approach/methodology for analysis, particularly scenario analysis- Lack of sufficient time to implement policies and procedures
In particular, in order to address challenges on data availability and credibility, we believe that it is important tobuild a system infrastructure for climate data analysis. It is also important to establish and share assumptions
and methodologies as a preliminary step in conducting risk management and analysis in areas where there is alack of common consensus.
Please also refer to the JBA comments to the OCC on Question 3.

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(Attachment)
February 14, 2022
Office of the Comptroller of the Currency
400 7th St. SW
Washington, DC 20219
Japanese Bankers Association

JBA comments on the Office of the Comptroller of the Currency’s draft Principles for
Climate-Related Financial Risk Management for Large Banks
Dear Sirs/Madams:
The Japanese Bankers Association 5 (JBA) appreciates the opportunity to comment on the Office of theComptroller of the Currency’s (OCC) draft Principles for Climate-Related Financial Risk Management forLarge Banks 6 (hereafter “the Principles”), which provide a high-level framework for the safe and soundmanagement of exposure to climate-related financial risks.
We welcome that the OCC’s Principles are broadly consistent with the proposed principles 7 by the BaselCommittee on Banking Supervision (hereafter “the BCBS Principles”), which will be a common baseline forinternationally active banks and supervisors. We encourage the OCC to promote a domestically consistent
approach as well with other U.S. agencies, including the Federal Reserve Board.
Our member banks are in the process of implementing a climate-related financial risk management framework
at a group-wide level, engaging with the relevant regulators. If financial institutions with global operations are
required to comply with all the different guidelines in each jurisdiction, it would lead to ineffective risk
management and a burden for banks. In order to avoid duplicative or different requirements for banks, we would
like to ask the OCC to continue to coordinate with international standard setting bodies and jurisdictional
supervisors. We would propose an interoperable approach where non-U.S. banks with U.S. operations can relyon and comply with the guidelines in their home country to the extent they are consistent with the BCBS
Principles and broadly aligned with the future OCC guidance. For the same reason of avoiding duplicative or
different requirements, we also encourage the OCC to coordinate with foreign regulators to harmonize
supervisory expectations to the greatest extent possible.
When incorporating climate-related financial risks into existing risk management, such as credit ratings andcredit costs, there are a number of challenges, including different time horizons (an extremely long term forclimate-related financial risks, which contrasts with current horizons used for existing risk management), and alack of data availability and credible data (such as data on the relationship between climate-related risks andcredit losses). Therefore, we recognize that it will require a considerable amount of time to establish quantitative
financial risk management practices at the client level. Given such data challenges and the evolution of climate
risk measurement methodologies/models, the future OCC guidance needs to be flexible and principle-based.
We would like the OCC to provide sufficient time for implementation of the future OCC guidance, incorporating
the progress of international discussions and allowing us to take a phased approach to implementation.
Also due to the challenges stated above, we believe that it will also be premature to include an expectation thatbanks incorporate climate-related financial risks into their capital and liquidity planning processes at this point
in time, and that further data and development of quantitative tools and methodologies is needed.
5 The Japanese Bankers Association is the leading trade association for banks, bank holding companies and bankers associations inJapan. As of February 14, 2022, JBA has 114 Full Members (banks), 3 Bank Holding Company Members (bank holding companies),
77 Associate Members (banks & bank holding companies), 58 Special Members (regionally-based bankers associations) and one SubAssociate Member for a total of 253 members. Several of its largest member banks are active participants in the U.S. financial markets.
6 https://www.occ.treas.gov/news-issuances/bulletins/2021/bulletin-2021-62a.pdf
7 Basel Committee on Banking Supervision, Consultative Document: Principles for the effective management and supervision ofclimate-related financial risks
https://www.bis.org/bcbs/publ/d530.pdf

4Comments on the General Principles
Strategic Planning
Given a lot of uncertainty around climate-related financial risks and data gaps, it will take a reasonable amountof time to fully incorporate climate-related financial risks into business strategy and capital/risk appetite. We
would like to ask the OCC to allow banks to integrate climate-related financial risks into strategic planning
based on the data and methodologies that are available at this stage.
Scenario Analysis
We welcome the approach taken by the Principles, which recognize the distinction between scenario analysis
and traditional stress testing based on their different purposes. We believe that the future OCC guidance also
needs to clearly differentiate between scenario analysis and stress testing.
We also support the idea that “management should develop and implement climate-related scenario analysis
frameworks in a manner commensurate to the bank’s size, complexity, business activity, and risk profile” asstated in the Principles.

Comments on the Management of Risk Areas
Liquidity Risk, Other Financial Risk, Operational Risk, Legal/Compliance Risk, Other
Nonfinancial Risk
Further work will be necessary to understand the relationship between climate-related financial risks andliquidity risk, market risk, operational risk, and other financial/nonfinancial risk. In particular, we should achievea consistent and common understanding (measurement or methodology) of the transmission channel from therisk driver of climate-related financial risks to each risk. Therefore, it might be premature at this stage to requirebanks to incorporate specific risk mitigation tools for those risks in the future OCC guidance. We would like the
OCC to secure enough time to take these risks into consideration, and allow us to apply different time horizons
for each risk category when implementing the guidance.

Response to the questions
Applicability
1. Are there additional categories of banks (i.e., based on asset size, location, business model)
to which these principles should apply?
The Principles set out that they are targeted at banks with over $100 billion in total consolidated assets. However,
we believe that the scope of application of the future OCC guidance needs to consider not only asset size, butalso to “reflect differences in banks’ circumstances such as complexity of operations and business models” in acomprehensive manner, as many factors can lead to material exposure to climate-related financial risks for banks.
We agree that “all banks, regardless of size, may have material exposures to climate-related financial risks” asstated in the Principles. Therefore, we would like the OCC to clarify the rationale to apply the Principles only
to large banks, and clarify that the definition of “over $100 billion in total consolidated assets” for non-U.S.
banks mean over $100 billion in total consolidated assets in the U.S. rather than at the whole enterprise level.
At the same time, we believe that it is not appropriate to apply the same guidance both to “U.S. banks with over$100 billion in total assets” and to “non-U.S. banks with combined U.S. assets of over $100 billion” and that
the OCC should consider the circumstances and exposure to climate-related financial risks of the U.S. operationsof non-U.S. banks in applying the Principles and future OCC guidance.
As noted above, we would also like to ask the OCC to collaborate with the Federal Reserve Bank to harmonize
supervisory expectations for U.S. banks, so that all banks in the same circumstances will be subject to the same5

supervisory expectations.
Tailoring
2. How could future guidance assist a bank in developing its climate-related financial risk
management practices commensurate to its size, complexity, risk profile, and scope ofoperations?
Since globally consistent standards for addressing climate-related financial risks and appropriate risk
management methodologies have not been established at present, we would like for the future OCC guidance
to take a principle-based and flexible approach to enhance climate-related financial risk management practices
going forward.
Also, if the future guidance could provide good practices or case studies, it would help banks to enhance ourcapabilities for effective climate-related financial risk management.
We would welcome further opportunities for additional review before the OCC finalizes the future guidance.
General
3. What challenges do banks face in incorporating these principles into their risk management
systems? How should the OCC further engage with banks to understand those challenges?
As stated above, due to a lack of a common consensus on methodologies and monitoring/reporting metrics, ourmember banks have been trying to explore how to develop a management framework on climate-related
financial risks. Other challenges include a limitation on data for analysis and the establishment of a data systeminfrastructure. Therefore, we would appreciate it if public sectors and private sectors could jointly address thesechallenges, and we would like the OCC to consider providing sufficient time for the development of a risk
management framework by banks.
Current Risk Management Practices
4. What specific tools or strategies have banks used to successfully incorporate climaterelated financial risks into their risk management frameworks?
For example, some member banks are using and developing the Risk Appetite Framework and quantitative
metrics (KPIs/KRIs) and scenario analysis on credit risk and market risk. They have disclosed the impact oftransition risks and physical risks in the risk management area in their annual report and sustainability reportaligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework.
5. How do banks determine when climate-related financial risks are material and warrant
greater than routine attention by the board and management?
Some member banks have developed and implemented a sound process for understanding and assessing climaterelated financial risks. For example, one member bank has recognized climate-related risks as top risks in its
existing risk management framework, and regularly reported the financial impact of climate-related risks to the
Risk Management Committee under the control of the Board of Directors and the Risk Management Committee
and the Investment and Finance Committee, which are the committees of the Executive Committee.
It has also put in place a global and group framework where the chief risk officers in its group companies canshare and discuss measures to address climate-related risks.
6. What time horizon do banks consider relevant when identifying and assessing themateriality of climate-related financial risks?
A clear common view of which time horizon is relevant has not been established, as they are still underconsideration globally. For example, when incorporating climate-related financial risks into existing
frameworks, such as credit ratings, consideration of different time horizons has not reached an international
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consensus. The future OCC guidance should allow for appropriate, risk-based flexibility across its supervisory
expectations (e.g., scenario analysis and strategic planning) to account for significant variability over longer
time horizons.
In addition, although it is necessary to measure long-term risks, it is very difficult to predict how society as awhole will transition to a low-carbon economy or how each corporate will change its business in the long-term.
It should be noted that when and how much risk appears depend on the assumptions and presumptions by eachbank, and therefore it is the variation in measurement might be large. Therefore, we would like international
standard setting bodies and jurisdictional supervisors to clarify the concept of the time horizon for measurement
as much as possible, recognizing the need to balance these expectations with each bank's discretion to make its
own risk-based determinations.
7. What, if any, specific products, practices, and strategies–for example, insurance orderivatives contracts or other capital market instruments–do banks use to hedge, transfer, or
mitigate climate-related financial risks?
For project finance transactions, in general, physical damage from climate change (e.g. earthquake, flood,windstorm, etc.) is mitigated through insurance.
8. What, if any, climate-related financial products or services–for example, “green bonds,”
derivatives, dedicated investment funds, or other instruments that take climate-related
considerations into account–do banks offer to clients and customers? What risks, if any, dothese products or services pose?
For example, our member banks provide the following products:(i) Green loans, a loan product that finances eligible green projects such as investment in solar or wind power.
(ii) Social loans, a loan product that finances eligible social projects such as investment in the operation of
hospitals or affordable housing. Social loans can be utilized for climate change adaptation through projects
related to disaster response and preparedness.
(iii) Sustainability loans, a loan product that is a combination of social and green projects as described above.
(iv) Sustainability-linked loans (SLL), a loan product that sets sustainability performance targets (SPT) basedon a customer’s ESG strategy. The terms of the loan change depending on the achievement of the target.
SLLs can take climate related considerations into account when the SPT is related to climate change
mitigation or adaptation.
(v) Transition loans, a loan product that supports the transition of corporations from high to low GHG
emissions if the corporation has a transparent transition strategy (including targets) and appropriate
governance structure to support that transition.
(vi) Positive impact finance (PIF), a loan product that evaluates the social, environmental, and economic impactof a corporation’s business and evaluates whether or not the corporation is working to increase its key
positive impacts and reduce its key negative impacts. Both positive and negative impact areas can be related
to climate change.
Most of the above products are provided in alignment with existing principles provided by the International
Capital Markets Association (ICMA), Loan Market Association (LMA), or United Nations Environment
Programme Finance Initiative (UNEP FI).
9. How do banks currently consider the impacts of climate-related financial risk mitigation
strategies and financial products on households and communities, specifically LMI and otherdisadvantaged communities?
We agree that it is important for banks to take into account the impact of climate-related financial risks on LMI
and other disadvantaged households and communities. We would seek further clarification on the OCC’s
expectations in this area.
Data, Disclosures, and Reporting710. What, if any, specific climate-related data, metrics, tools, and models from borrowers andother counterparties do banks need to identify, measure, monitor, and control their own
climate-related financial risks? How do banks currently obtain this information? What gaps
and other concerns are there with respect to these data, metrics, tools, or models?
Our member banks obtain specific data, such as climate-related variables, industry-specific variables, and theamount of GHG emissions of individual firms, from vendors and public databases. A major concern with respect
to such data, metrics, tools, or models is the gap between firms’ disclosures/strategies and the results of scenario
analysis.
As an example, banks recognize that carbon footprint is a useful source of information for their decision-making,as well as communication with stakeholders (e.g. investors). Therefore, banks would like to estimate CO2/GHG
emissions from their portfolio as soon as possible.
On the other hand, there are still many companies that do not collect or disclose their carbon footprint (Scope
1, 2 and 3). We also recognize that global standards for estimating carbon footprint have not yet been established.
So, the current situation is that each financial institution is still conducting research for the introduction ofstandardized or consistent data. In such a situation, it is true that accurate risk measurement is difficult.
The above-mentioned challenges could be solved by (i) the standardization of metrics related to carbon footprint
measurement and/or (ii) the disclosure of carbon footprint reference data for each sector by
governments/regulators. We would like to ask the OCC to continue to coordinate with international standard
setting bodies and jurisdictional supervisors to standardize metrics and/or to encourage governments to disclose
relevant data, as these activities are expected to boost disclosures for banks.
Also, in order to obtain detailed output through scenario analysis, etc., elaborate management plans (for example,
how to deal with climate-related risks) of corporate clients are required from the perspective of understanding
long-term transition risks. Since the collection of these plans is likely to be very burdensome and timeconsuming, we would like to ask for flexibility on the scope of risk measurement (for example, which industries
or sectors should be targeted for risk measurement, etc.).
We need a consistent and common understanding (measurement or methodology) for a transmission channel
from the risk driver of climate-related financial risks, although we understand that the BCBS report publishedin April 2021 8 mentions the transmission relationship. A common approach would bring about enormous
benefits, such as accelerating the risk assessment process in financial institutions and allowing comparison andbenchmarking across the global financial system.
11. How could existing regulatory reporting requirements be augmented to better capturebanks’ exposure to climate-related financial risks?
We would like the OCC to leverage existing regulatory reporting requirements. Existing securities regulatory
disclosure regimes need to be leveraged regarding banks’ exposure to climate-related financial risks.
Scenario Analysis
12. Scenario analysis is an important component of climate risk management that requires
assumptions about plausible future states of the world. How do banks use climate scenario
models, analysis, or tools and what challenges do they face?
Standardized climate scenarios are used to analyse the climate impact on borrowers’ financial statements, andany missing variables are obtained from other sources. It is difficult to set assumptions regarding possible
technological developments and the investments of each firm based on such developments, and there is a limit
to incorporating firm-specific factors into the analysis.
At present, we understand that there is no established methodology for quantifying climate-related risks, suchas a VaR measure. It will take time to develop agreed-upon standards and methodologies.
Basel Committee on Banking Supervision, Climate-related risk drivers and their transmission channels
https://www.bis.org/bcbs/publ/d517.pdf

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13. What factors are most salient for the OCC to consider when designing and executing
scenario analysis exercises?
We would like the OCC to consider that uncertainties both in climate-related variables and macroeconomic
variables will increase as the time horizon becomes longer. Therefore, due care would be required whenanalysing the results of scenario analysis.
In all risk area, where standard practices have not been established, the direction of quantification methodologies
for executing scenario analysis exercises needs to be indicated.
As proposed in Recommendation 4.4 of the “Report on Climate-Related Financial Risk” published in October
2021 by the Financial Stability Oversight Council (FSOC) 9, we agree to using existing common scenarios, suchas scenarios developed by the Network of Central Banks and Supervisors for Greening the Financial System(NGFS), and therefore it would not be necessary for the OCC to develop its own scenarios.
(End)

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https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf

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