March 14, 2024
Secretariat of the Basel Committee on Banking Supervision
Bank for International Settlements
CH-4002 Basel, Switzerland
Japanese Bankers Association

JBA comments on the BCBS Consultative Document: “Disclosure of climate-related
financial risks”
Dear Basel Committee members:
The Japanese Bankers Association 1 (JBA) appreciates the opportunity to provide our comments on the BaselCommittee on Banking Supervision’s (BCBS) Consultative Document: “Disclosure of climate-related financial
risks” 2 (hereafter “the consultation”) released on November 29, 2023. We hope the following will contributeto further consideration in the BCBS.

General commentsIn responding to the consultation proposals, we have revisited the objectives of Pillar 3 of the Basel
Framework.

According to the Basel II framework, the purpose of Pillar 3 of the Basel Framework is to provide
a market discipline and complement to minimum capital requirements (Pillar 1) and thesupervisory review process (Pillar 2).

Also, the BCBS standards include the following guiding principles for Pillar 3 which weunderstand it is important when introducing new standards: Clarity, Comprehensiveness,
Meaningfulness, Consistency over time, and Comparability across banks.



The consultation proposals do not indicate its relevance with the objectives of Pillar 3 and areinconsistent with the above BCBS guiding principles.

The Pillar 3 framework should enhance a market discipline and transparency regarding any materialrisk-related information relevant to the market participants to reduce information inequality andensure comparability of the data disclosed among banks and jurisdictions.

The proposal does not explain how the proposed disclosure requirements and/or templates are related
to the objectives of the Pillar 3 framework: providing a market discipline about the impact of climaterelated financial risks on bank capital adequacy and risk exposure.
Also, the proposal contains numerous requirements beyond BCBS member’s core mandates or beyond
the objectives of Pillar 3. For example, it proposes banks to disclosure their “strategies” with respect
to climate change and the net zero transition.



The proposed Pillar 3 standards for climate-related financial risks are inconsistent with the BCBS’s“Principles for the effective management and supervision of climate-related financial risks”(hereafter “BCBS Climate Principles”) published in June 2022. It is important to approach climaterelated financial risks as a risk driver of traditional financial risks instead of newly added standalonerisk in line with the BCBS Climate Principles.

The BCBS Climate Principles concluded that climate-related financial risks can be a driver of
traditional financial risks (such as credit, market, or operational, etc.), rather than a new risk categoryof its own.

The Japanese Bankers Association is the leading trade association for banks, bank holding companies, and bankers associations inJapan. As of March 14, 2024, the JBA has 114 Full Members (banks), 3 Bank Holding Company Members (bank holding companies),
76 Associate Members (banks & bank holding companies), 50 Special Members (regionally-based bankers associations), and one SubAssociate Member for a total of 244 members.
2 https://www.bis.org/bcbs/publ/d560.pdf
1

1




Nevertheless, this consultation proposes to introduce a several new, standalone templates for banks todisclose climate-related financial risks apart from the context of the transitional financial risk types,
which contradicts with the BCBS Climate Principles.
Before imposing new Pillar 3 requirements on banks, the BCBS should substantiate how the proposed
disclosure will contribute to achieve the Pillar 3 objectives and clearly explain how the BCBS views
this disclosure is related to a driver of the traditional risk types with respect to capital adequacy.

It is extremely important for the BCBS to consider in specific terms that the transmission
mechanisms from climate-related risks factors which affect the real economy to the impact onfinancial risks facing a bank. Not limited to Pillar 3, the BCBS should be mindful not to hindertransition finance to certain sectors or regions under the guise of “risk management” throughout theentire prudential framework. This is not about a micro question of which items should be included
or should not be included in the BCBS’s climate-related disclosure framework, but a more
fundamental matter of underlying philosophy for the BCBS and regulators should have as they
develop, implement, and operate the prudential frameworks.
While climate-related risks (physical and transition risk) for banks’ customers may be one of theelements to be captured in banks’ risk management frameworks, not all these risks will materialise as
financial losses for banks.
When and how much such risks will materialise as banks’ financial risks depend on numerous factors,
including, customers’ footprints and business models, maturity dates of such risks in banks’ balance
sheets, risk mitigation measures such as collateral or insurance, etc. the BCBS should not ignore oroversimplify these complex dependencies.
For example, in the proposal, the BCBS insists that financed emissions can be seen as proxy of banks’transition risk. Financed emission is not a tool to measure or evaluate banks’ transition risks,
though it can be useful for banks’ target-setting and understanding where banks stand in the context
of net-zero transition.
This is because financed emissions are calculated by multiplying the actual GHG emissions in the real
economy and attribution factors (i.e., Debt/Equity Ratio and bank share), and so decrease of financed
emissions does not necessarily mean decrease of actual emissions in the real economy (i.e.,
fundamental risk factor for climate change).

Similarly, facilitated emissions may not represent banks’ transition risk. Based on the PCAF standard,
the formula for facilitated emissions for a listed company is “GHG emissions of issuer × (facilitatedamount / (market capitalization+ total debt)) ×33％ ”. Therefore, facilitated emissions can fluctuate
by market factors such as changes in market capitalisation and the momentum of the primary market,
which may not be necessarily relevant to decrease or increase of actual GHG emissions in the real
economy.

Even if financed emissions or facilitated emissions precisely mirror actual GHG emissions in the real
economy, just because customer A and B populates produce same amount of GHG emissions does notmean that the climate-related risks for those customers will materialise as financial risks for banks inthe same way or at the same time.

The BCBS should well note that overly simplifying the issue of comparability may end up in
misinterpretation and misuse of information disclosed by banks, but also in ineffective or
inappropriate risk management.

The prudential framework should be risk-based and evidence-based. The scope of disclosure
requirements in the prudential framework should be limited to items strictly tied with the Pillar 3
objectives of market discipline with respect to capital adequacy and risk exposures.
The objectives of corporate disclosure frameworks (such as the ISSB) will not be the same as
disclosure frameworks in the prudential framework. Therefore, the BCBS does not need to duplicate
the corporate disclosure requirements in a Pillar 3 context.
As concluded in the NGFS’s report “Capturing risk differentials from climate-related risks”, therelationship between exposure to green or non-green assets and banks’ financial risk remain unproved.
In this situation, it is inappropriate to request banks to disclose financed emissions/facilitated as proxyof banks’ transition risk.
2Also, we would like to recall the role of banks in addressing climate change and purpose of transition
planning for banks.
Banks play a critical role in engaging with customers’ (i.e., the real-economy companies’) transition
to more sustainable future.

Unless GHG emissions in the real economy reach net-zero, the climate-related financial risk for banks
will not disappear.
Banks will not drive the transition of the real-economy, however, will facilitate it through providing
transition finance, and as a result, they can fundamentally reduce their climate-related financial risks.

Therefore, the prudential frameworks should not hinder such banks’ efforts to mitigate the climaterelated financial risks.

The transition plan for banks is a strategic exercise to realise sustainable future through supporting
the real-economy companies, not solely developed for risk management purpose.
Internationally, many banks have already voluntarily committed to net zero and are developing or
have developed transition plans.

The transition plan is an initiative to achieve its own net zero by 2050, including sector-specificemission reduction targets, and is a tool for stakeholders to understand its net zero strategy andapproach, as well as a tool to engage with customers.

In order to understand the risks for banks, it is necessary to consider the status and progress of global
and national transition plans, the outlook for future achievements, as well as the possibility of losses
in each bank's portfolio. It does not simply capture risk from the bank's transition plan. The
proposal could be misleading that it may sound the bank’s transition plan will measure risk
directly.
Transition plans and net zero targets do not guarantee results, but the implementation of the plan
determines the results.

By actively engaging with the customers’ transition while also managing risks appropriately
based on their transition plan, banks can contribute to the realisation of a sustainable real
economy and, as a result, contribute to the reduction of long-term climate-related financial risks.

In order to essentially reduce climate risk, the BCBS is expected to create an environment wherebanks can support the transition of the real economy without being caught up in the increase or
decrease of financed emissions. Specifically, we expect efforts to dispatch the right signals about how
to capture financed emissions, improve the availability and reliability of data, and avoid
fragmentation between jurisdictions regarding the framework for transition plans.

The areas and sectors with high emissions, including Asia and the power and steel industries, are theones that need transition finance the most. Also, because the transition to green takes time, providing
transition finance may increase the bank's financed emissions in the short term.

While a large amount of funds are said to be needed for the transition, the banks may not be able toprovide funds to the places that need transition finance if financed emissions are simply
considered as a risk within prudential regulation framework.



As an alternative to the proposal or as the next step, we strongly recommend the BSBS to start withresearching and analysing the data to identify truly beneficial and relevant elements for banks’financial risk in collaboration with banks, just like the Qualitative Impact Study.

The BCBS should not view specific elements (e.g., financed emissions or facilitated emissions) as
proxy of banks’ transition risks and mandate banks to disclose them without conducting objective
research and analysis. Omitting such processes are not only inappropriate, but also may undermine
the core credibility of the prudential frameworks.
Banks are ready to pursue effective climate-related financial risk management with the BCBS, and infact, many banks globally are already voluntarily disclosing their efforts on climate change, including
risk management.
First and foremost, we strongly recommend the BCBS to start with identifying elements truly
meaningful and relevant for risk management in collaboration with banks.

3

Our responses to the questions
Questions
Comments
GeneralQ1.
(Benefits)
What would be the benefits of a  As recognised in this consultation paper and in the existing reports
published by the BCBS’s Task Force on Climate-related Financial
Pillar 3 disclosure framework
for climate-related financial
Risks (TFCR), the quantification of climate-related financial risks andits measurement methodologies are at a development stage. The
risks in terms of promoting
comparability of banks’ risk
NGFS report (Capturing risk differentials from climate-related risks,
29 May, 2022) also concluded that there is still limited evidence of exprofiles within and across
post risk differentials between green and non-green assets or activities.
jurisdictions and promoting
In this context, it is of some significance that the BCBS starts withmarket discipline? What otherbenefits have been identified?
identifying the effective disclosure requirements for risk
management in a manner that supplements the disclosure underthe ISSB Standards to enhance the availability and comparability ofdata required for the analysis of forward-looking data.
 Given that climate-related financial risks may have a significant
impact on banks' business, there is some benefits for the BCBS todevelop a disclosure framework on climate-related financial risks
from a perspective specific to the prudential framework for banks,
which is not necessarily covered by the ISSB standards, topromote comparability of banks’ risk profiles and help banks
improve their analytical skills for such climate-related financial risks
and improve the soundness of business within and acrossjurisdictions, from a market participants’ perspective.
(Challenges)
 It is essential that the disclosure framework is appropriately
designed after explaining the relationship between each metricrequired to be disclosed and risks such as credit and market. In
particular, the relationship between quantitative metrics andclimate-related financial risks is unclear and therefore may cause
confusion. We understand that this proposal is made separately fromthe Pillar 1 and Pillar 2 frameworks. If so, the BCBS should specify
in advance how supervisors will use the disclosed data. In asituation where the specific method of using data by supervisors is notclearly stated, it is unclear for banks what data should be collected anddisclosed.
 Despite the lack of established measurement methodologies forclimate-related financial risks and the lack of establishedrelationship between green and non-green exposures and risks,
the proposed quantitative disclosure requirements are based on
the assumption that financed emissions are a risk proxy (theBCBS’s quantitative templates rely on financed emissions as ameasure of transition risk: “Emissions by obligors could be considered
an indicator of their transition risk” page 5). This may create
unintended consequences and undue burdens for banks.

Impeding the understanding that a shortage of transition financeitself is a riskBanks’ temporary increase in financed emissions due totransition finance may be deemed "high risk" and may hindertransition finance
An increase in banks’ reputational risks

4Questions






Q2.

What are the risks of a Pillar 3
disclosure framework forclimate-related financial risks
not being introduced?





Q3.

Would the Pillar 3 framework
for climate-related financial
risks help market participants
understand the climate-related

CommentsAdverse impact on supervisory evaluation of banks
As an alternative to the proposal or as the next step, we strongly
recommend the BSBS to start with researching and analysing thedata to identify truly beneficial and relevant elements for banks’financial risk in collaboration with banks, just like the Qualitative
Impact Study.
Pillar 3 disclosure requirements should be limited to “where it isclear that the requirements are necessary to achieve the objectivesof Pillar 3 and where disclosure under ISSB standards is
insufficient". The BCBS should focus on identifying relevant data
and developing data measurement methodologies.
Many banks currently measure and disclose emissions in line withguidance issued by private initiatives such as the Glasgow Financial
Alliance for Net Zero (GFANZ) and Net-Zero Banking Alliance(NZBA), but only in priority sectors. When supervisors request
banks to measure emissions and their forecasts, if set, across all
sectors, we believe that the framework is valuable if supervisors
themselves sort out the relationship between emissions andclimate-related financial risks firstly and then identify and collectdata necessary to measure emissions and forecasts and provide
banks with detailed guidance on measurement methodologies. On
the other hand, if all data identification, collection, andmeasurement methodologies are left to individual banks, it isinevitable that disclosures across banks will vary, and it will beeffort-consuming and less meaningful.
・From the perspective of international consistency andcomparability in assessing materiality, a definition of material
climate-related financial risks should be provided, includingcommon assumptions such as perspectives of risk assessment andassumed scenarios.
The ISSB has finalised its IFRS sustainability disclosure standards(IFRS S2 Climate-related Disclosures), including industrial guidancefor commercial banks. Japan has been working on the development of
their standards based on the ISSB standards. Applying the ISSB
standards will enable banks to identify data on customers’transition risks for their own risk management to a certain degree.
Therefore, it is not considered that the lack of a Pillar 3 disclosure
framework will lead to immediate risk.
If "data required for forward-looking analysis" is not included in the
Pillar 3 disclosure requirements even disclosure under the ISSB
standards is insufficient, the issue of availability and comparability ofsuch data will remain unresolved.
This framework may also increase market uncertainty and reduce thequality of investment decisions, making it difficult for supervisors toproperly assess a bank's risk profile and risk management practices,which can hinder effective supervision and regulation.
While we consider that the Pillar 3 framework will help market
participants understand the status of banks' management of climaterelated financial risks, there are many items that overlap with existing
disclosure items under the TCFD Recommendations. Further, withthe recent legislative development of the ISSB standards based on
5Questions
financial risk exposures ofbanks and how banks aremanaging these risks?

Comments
the TCFD Recommendations, the benefit of mandatory disclosure
under the Pillar 3 is not significant from a perspective ofcomparability across banks.






Q4.

Would the Pillar 3 framework
for climate-related financial
risks
besufficiently
interoperable
withtherequirements of other standardsetting bodies? If not, how
could this best be achieved?



At this stage where no measurement methodologies for climaterelated financial risks have been established and the relationshipbetween green and non-green exposure and risk has not been
established, the proposed disclosure requirements are based on
the assumption that the risk is equivalent to financed emissions,which may cause unintended consequences and undue burden on
financial institutions, such as:
Impeding the understanding that a shortage of transition financeitself is a riskBanks’ temporary increase in financed emissions due totransition finance may be deemed "high risk" and may hindertransition finance
An increase in banks’ reputational risksAdverse impact on supervisory evaluation of banks
If information to be disclosed is too technical, it may be difficult formarket participants to understand, and if data provided lacks
objectivity, the effect may be limited.
Other concerns include the possibility that banks that analyse anddisclose scenarios more precisely may appear to be exposed to morerisks, and that market users may make a comparison without fully
understanding that calculation methods and assumptions differ amongbanks. It is therefore necessary to provide supplementary explanations
on calculation methods and assumptions, and to improve the maturityof market users.
While an appropriate design of the Pillar 3 framework would improveunderstanding, the current design may lead to further
misunderstanding.
Pillar 3 disclosure requirements should be limited to “where it isclear that the requirements are necessary to achieve the objectivesof Pillar 3 and where disclosure under ISSB standards is
insufficient" in a manner to avoid duplications as much aspracticable. In this regard, the purpose of additional disclosure
requirements unique to the BCBS not covered in the ISSB
standards should be clarified in relation to the objectives of Pillar
3.
It should be noted that the BCBS has a different role for the
ISSB, and therefore, even if the information disclosed bybanks in ISSB and Pillar 3 is identical, what the disclosures
imply is quite different.
As expanding the scope and requirements of disclosure would be
unduly burdensome for banks, each bank could identify anddisclose material items based on the “comply or explain”
approach as possible solution.
In developing new climate-related financial risk disclosure standards
that differ from standards established by other standard setters such as
the ISSB, the BCBS should be aware that the burden of providing
immaterial information and the difference between the ISSB standards
and the BCBS requirements may hinder market participants’
understanding of a bank’s risk portfolio. It should also take into
6

Questions

Q5.
Would there be any unintended
consequences of a Pillar 3framework for climate-related
financial risks? If so, how could
these be overcome?

Comments
account significant operational burden on banks in addressing
different disclosure standards, and should seek to interoperate withother standard setters where possible if the BCBS, in terms ofunderstanding the risk profile of banks, were to set the same
disclosure requirements as other standard setters.
Interoperability can be ensured if the relationship between
concepts and approaches used by other standard setters and thoseused by the banking industry and supervisors is organised and therelationship between these are clarified.

The BCBS should establish a Pillar 3 disclosure framework
after ensuring that it is consistent with other international
standards. Disclosure requirements similar to the ISSB
standards should be able to cross-reference to the disclosure
under the ISSB standards.
The proposal is not interoperable with disclosures related totarget setting and progress management as implemented in the
NZBA and TCFD frameworks.
(Potential impact on transition)
 What is important in responding to climate-related challenges is tounderstand the consequences of individual economic agents’behaviour on the entire economy. Unlike financial stability in the
narrow sense (i.e., to ensure the stability of the entire financial system
by controlling risks and maintaining soundness), this is an area inwhich all economic agents need to take actions proactively. In light of
this, a disclosure framework giving an impression that taking actions
are exposing companies to risks even for areas where taking no actions
lead to risks would rather have an adverse effect.
 As it is essential for banks to properly identify and manage climaterelated financial risks in order to ensure the stability of the financial
system, it is appropriate for banks to disclose material risks. On theother hand, from the perspective of maintaining the stability of thefinancial system also in the medium to long term, it is necessary tocontinue to provide adequate transition finance to prevent economic
disruptions caused by the emergence of corporate transition risk.
Since the disclosure of climate-related financial risks under the
Pillar 3 framework has a strong impact on the behaviour of banks,
which are the main providers of transition finance, caution should
be exercised against disclosure that may lead to a shrinking supplyof transition finance.
In particular, among the quantitative indicators proposed in thisconsultation paper, disclosure of exposures by sector, financed
emissions, emission intensity by sector, facilitated emissions,real estate exposures in the mortgage portfolio by energy
efficiency level, and trading book could trigger divestments
aimed at shot-term indicator improvement. It could also be
expected that excessive detail in disclosure of concentration risk
could raise credit concerns through the bank's assessment of risks
to a particular sector, company, country, or region.
Climate-related financial risks are not simply comparable acrossbanks because the assumptions of each bank such as the scenario
selection and sectors covered are different and there are no
uniformed standards. If the BCBS framework focuses only on the
aspect of "risk" management, this may lead to an undesirable
situation where improving indicators becomes a short-term goal7

QuestionsComments
for banks. We are concerned that this incentive to improveindicators to be disclosed may give rise to problems associatedwith rejecting loan applications, the occurrence of bankruptcy of
individual companies, and reputational risk arising fromindividual loans.
In addition, exposures by sector and financed emissions areindicators that are also required to be disclosed by the ISSB
standards. However, it is necessary to take into account the size ofthe announcement effect on banks and market participants byregarding them as indicators that represent transition risk ofbanks by the BCBS.

To address these challenges, it is necessary to have a mechanism tocommunicate to market participants without misunderstanding,for example, by clearly stating in the disclosure the structuralissue that the provision of transition finance to reduce theoccurrence of medium- to long-term transition risk may
temporarily worsen the indicators, and the required disclosure
items should be limited to those related to truly material risks.
 As transition efforts of customers result in mitigation of medium-to
long-term risks, the disclosure of future risk mitigation prospect
may provide a more accurate understanding of future transition
risk, and control hasty divestments aimed at a short-term indicator
improvement.
 If the BCBC presents its approach on how climate-related financial
risks should be monitored and assessed for assets held in the tradingbook that has different characteristics from the banking book andnecessary data, and the impact of climate change-related risks onmarket risks could be assessed, it would be meaningful to expand
to the trading book. Since, however, such approach is not presented,
we consider that extending to the trading book is premature, and has
little significance at this stage.
 The trading book seeks for short-term trading profits fromchanges in interest rates and, due to its operational nature, has
limited exposures to climate-related financial risks which are, by
their nature, long-term risks.
 If the Pillar 3 framework is extended to the trading book, there could
be a significant loss of liquidity in markets such as government bonds,
which could destabilise prices and run counter to the BCBC’s financial
stability objectives. Therefore, it is not appropriate to include thetrading book in the scope of this framework.
 The expected role of banks is to utilise relatively long-term
relationships with customers and encourage reductions of emissions
through engagement. From this point of view, it is natural to target thebanking book. However, including the trading book in the scope willcomplicate management and therefore should be avoided.
(General) Classifying exposures by sector and geographical region or location
will help the identification and assessment of climate-related financial
risks, but this may complicate the classification approach of sectors
and regions and definitions. Given the situation where specific dataand information may be insufficient and data and measurement
methodologies have not been established, the classification of

Q6.
What are your views on
potentially extending a Pillar 3framework for climate-related
financial risks to the trading
book?

Q7.
What are your views on the
proposed methodology ofallocating exposures to sectors
and geographical locations
subject to climate-related
financial risks?

8

QuestionsComments
exposures used as a starting point of climate-related financial risks
may have many challenges. It is therefore important to adopt an
approach that fully considers the characteristics of each sector andregion.
If “a sector is classified by the GICS code" and "geographic location
is determined by national regulators," we believe that comparability
across banks in the same jurisdiction would be enhanced. However, toensure comparability between different jurisdictions (e.g., EU andAsia), climate-related financial risks should be assessed on a uniform
scale across jurisdictions. Disclosure without a uniform scale may
unfairly under/overstate certain jurisdictions.

(Classification by sector)
 As some banks do not aggregate and manage their exposures by sector
according to the GICS codes, disclosures by other industry categories
should be allowed. In particular, if industry codes other than GICS
codes are permitted based on regionality in the disclosure of statutory
disclosures that reflect the requirements of the ISSB standards and in
the disclosure of industry indicators in the existing Pillar3 framework,
it is requested that similar measures be taken. If disclosure is permitted
in other sector classifications, since other disclosure standards, suchas the ISSB standards and the CSRD, also require exposures byindustry, the BCBS should coordinate with other standard setters toallow disclosure in other sector classifications under other disclosure
standards, in order to avoid excessive disclosure burden on thebanking industry.

Q8.
What are your views on whichelements should be madesubject to national discretion
and
which
shouldbemandatory? Why?

(Classification by geographical region or location)
 With respect to classification by geographical region or location, it
should also be noted that the types and impacts of climate-related
financial risks faced even within the same region vary. Data on thelocation of the principal business is not always available, particularly
for holding companies, and it is reasonable to assume that there may
be vulnerable areas for physical risks other than the location of theprincipal place of business for suppliers with dispersed operations. We
therefore request that a sufficient transition period be provided for the
implementation.
(General) It is understandable that disclosure is mandatory for areas withan established methodology, as comparability is considered to beensured.
In such cases, however, the level of disclosure requirements
should be within a reasonable extent.
 However, elements for which the current methodology has notbeen established and therefore to be disclosed based on eachbank's interpretation and definition or those whose materiality
varies across jurisdictions are not necessarily comparable, andshould be determined based on factors such as the significance of
disclosure in each country, availability of data and burden on
banks. In particular, with regard to the quantitative elements, theavailability of data differs from country to country (mandatory
corporate disclosure on climate change, as in Europe, has not beenstandardized globally), so at this point, some aspects must be left tothe discretion of each country. However, given that each bank9Questions

Q9.
What are your views on
whether potential legal risks forbanks could emanate from, orbemitigatedby,
theirdisclosures as proposed in thisconsultation, and why?
Q10.
Would the qualitative andquantitativerequirements
under consideration need to be
assured in order to bemeaningful? If so, whatchallenges are foreseen?

Comments
manages climate-related financial risks on a group-wide basis,including overseas subsidiaries and branches, variations among
countries should be kept to a minimum. It is not desirable to havesubtly different templates for each country as a result of allowing
national discretion.
(Specific requirements)
 For example, energy efficiency level information is not standardised
and widely available to source in Japan as opposed to in otherjurisdictions such as Europe. Further, it is considered appropriate toallow national discretion for the energy efficiency of real estatecollateral, as the likelihood of a direct impact on real estate values is
not necessarily high at this stage.
 Mandatory disclosure without an organised climate change-relatedtransition plan and a relationship between targets and risks may cause
misunderstanding by market participants, which may lead to litigation
risks due to the content of the disclosures.
 As GHG emissions data are not uniformly accurate, it is important torecognise that banks may be required to make disclosure based onsuch uncertain data. If new disclosure requirements are establishedbased on such uncertain data, potential ESG legal risks may increaseas factors which may lead to lawsuits increase.
 While we recognise the growing importance of disclosing nonfinancial information, including sustainability, details of assurance
standards, such as reasons for requiring assurance and the scope,should be clarified. Since currently there are no establishedstandards, it is premature to require banks to obtain third-party
assurance, and non-financial disclosures should be reviewed inbanks’ internal management process (for example, requiring thesignature of a director included in disclosure documents after adecision by an appropriate body).
While we recognise that, for some disclosures, obtaining assurance
may be preferable for both market participants and disclosing entities,
data on non-financial disclosures are more difficult to collect thanthose of financial disclosures because the process for obtaining
assurance is not well established and it takes a long time to obtainassurance. (For example, with respect to the actual figures of
exposures and financed emissions, we believe that third-party
assurance is meaningful. On the other hand, for disclosure elementsthat require judgment by banks, such as forward-looking statements,
we think it is not meaningful because it depends on how assumptions
are made, and the appropriateness of the assumptions is assumed to bedifficult for third parties to assess.). In addition, obtaining third-party
assurance for each disclosure would place a heavy burden on banks,and may cause delays in terms of timely information disclosure
because obtaining assurance at the same time as financial information
is extremely difficult due to the resource constraints of third-party
assurance providers. Therefore, sufficient time should be allowed toobtain assurance, and limited assurance, rather than reasonableassurance, should be allowed after limiting the items for whichassurance is required.

10

Questions

Comments
While establishing an internal control system and maximising the useof internal auditors may be a solution, capacity building is likely totake time due to limited experience compared to conventional risks
and therefore the scope of assurance should be expanded in phases in
the future.
Qualitative disclosure requirements
Q11.
 The qualitative disclosure will clarify risks that cannot be
What are the benefits of thecaptured solely by figures and can address the issues in the
proposed qualitative Pillar 3
quantitative risk measurement, such as data availability andclimate-related financial risk
comparability. Since there is no established assessment methodology,
in particular for physical risk, there is more concern that standardising
disclosure requirements?
quantitative disclosures will lead to comparisons between those thatdeviate from the actual state of risks. The stable supply of funds tohigh-risk regions and sectors is an important role of banks, andquantitative disclosure of "concentration risk" in particular should
avoid impeding this role. In this sense, the role of qualitative
disclosures is very important in terms of minimising the risk of
misinterpretation by quantitative disclosures.
 Further, the qualitative disclosure will enable the disclosure ofqualitative aspects of risks, such as how banks forecast impacts offuture climate change and what uncertainties they face, and disclosing
their risk management initiatives to the market can enhance thereliability of such information.
Q12.
(General)Should the proposed qualitative  Among the qualitative requirements proposed in this consultation
Pillar3
climate-related
paper, the governance, strategy, and risk management items
financialrisk
disclosure
required to be disclosed by the ISSB standards are expected to be
included in mandatory disclosure in the future in manyrequirements
beonamandatory basis to facilitate
jurisdictions. It is therefore not meaningful to mandate them in
the Pillar 3 framework. Should the BCBS decide to mandate them,comparability across banks?
from the perspective of reducing the burden on banks due toduplication of work, it is recommended that the disclosure of theabove items in this framework be optional for those items that are
already required to be disclosed.


While requiring specific disclosures to facilitate comparability would
be reasonable, we recognise that the measurement methodologies ofclimate-related financial risks, including the measurement
method of future projections, has not been established. Therefore,
flexibility should be allowed in the level of disclosure based on thestatus of responses by each company. It is desirable to ensure acertain degree of flexibility through qualitative disclosures, as
practices for managing and disclosing climate-related financial risks
are still developing, and from the perspective of being able to reflect
the diverse responses to climate change due to possible differences inclimate change impacts in different jurisdictions and business models
of different banks. On the other hand, guidance should be provided toensure comparability when it is proposed as mandatory.

(Specific requirements)
 There is no established concept of the relationship between
emissions and transition risk, or of concentration risk, and it isdifficult to sufficiently perform analyses due to data availability.

11Questions
Q13.
What key challenges would
exist for preparers or users of
the proposed qualitative Pillar 3
climate related financial risk
disclosure requirements? How
could these be overcome?
Q14.
What additional qualitative
Pillar3
climate-related
financialrisk
disclosure
requirements
shouldtheCommittee consider?
Q15.
How could the proposed
qualitative Pillar 3 climaterelated financial risk disclosure
requirements be enhanced or
modified to provide moremeaningful and comparable
information?

Comments
Therefore, the impact of mandatory disclosure of such matters is
unclear. Thus, it should not be mandatory.
 We understand that both Table CRFRA and Table CRFRB include
forecast data. Since strategies are based on the ability to forecast the
future, there is a challenge in developing strategies to the same extent
for all sectors and regions. As we recognise that the measurement
methodologies of climate-related financial risks, including themeasurement method of future projections, has not been
established, flexibility should be allowed in the level of disclosure
based on the status of responses by each company.
 There are no disclosure items to be added at this time, but opinionsfrom users should be considered in considering any additional
disclosure requirements.
 After the introduction of the ISSB standards, if there is a lack of
information in the practice of bank supervision, the BCBS should
consider any additional requirements. The BCBS should also consider
approaches other than requiring disclosures, such as collecting
individual data.
(General) While we understand the need for certain qualitative disclosures at thisstage, where there is no unified measurement methodologies forclimate-related financial risks and where the relationship between
green and non-green exposures and risks has not been established, weshould ensure the timeliness and reliability of disclosure information
by periodically reviewing the content of the qualitative disclosure
requirements as the information necessary for forward-looking
analysis is identified in the future.

Since the assessment of climate-related financial risks by banks
is extremely difficult, the BCBS should consider measures toinform information users that the accuracy and appropriatenessof such disclosures is limited to avoid the risk of future litigation
arising from misstatements.
 The ISSB standards should be implemented first, and the enhancement
or modification should be considered in the bank supervisory practice.
The BCBS should also consider approaches other than requiring
disclosures, such as collecting individual data.
 To provide market participants with a concrete understanding ofbanks' risk management practices, it may be useful to provide casestudies and examples that illustrate banks' climate-related financial
risk management approaches and outcomes.
(Transition plan) Banks and companies should not be required to disclose information
which is broader than that required under the ISSB standards astransition planning serves as a strategy to achieve goals of net zero
which are voluntarily set and its purpose is not risk management.
(Concentration risk)
 We understand that concentration risk is important in understanding abank's climate-related financial risk profile. However, it is necessary
to also discuss the possibility that the avoidance of concentration by
all banks may result in increased climate-related risks.
 Further, if the methodologies and criteria for determining exposures

12

Questions

Comments
differ across jurisdictions and banks, the methodologies and criteria
need to be clearly defined, not only because comparability acrossbanks cannot be ensured, but also because disclosure of this item may
impede market participants' proper understanding of a bank's risk
profile.
If the Pillar 3 framework requires the disclosure of the data that is not
required by the ISSB standards or that is of a higher granularity thanthe ISSB standards, the BCBS needs to more clearly explain thereasonableness of such requirements.

Q16.

What are your views on therelevance of the proposed
qualitative Pillar 3 climaterelated financial risk disclosure
requirements to understandclimate-related financial risks
to which banks are exposed?
Quantitative disclosure requirement
GeneralQ17.
 So long as there is an understanding by users of the prerequisites andWhat are the benefits of thecalculation methodologies are unified, quantitative disclosures can beproposed quantitative Pillar 3
useful to market participants because they enhance comparability andclimate-related financial risk
can be used to estimate financial impacts.
disclosure requirements?
 However, to avoid misuse through misinterpretation of numericalvalues, the intent and positioning of information disclosed should
be clarified, including whether the items are simply comparable
across banks.
Q18.
 We strongly oppose making quantitative requirements mandatory
Shouldthe
proposedin the absence of evidence of a link between the proposed
quantitative Pillar 3 climatedisclosure requirements and the objectives of the prudential
related financial risk disclosure
framework.
requirementsbeona  In practice, it is difficult to make all quantitative disclosuremandatory basis to facilitate
requirements mandatory in the absence of a clear link between the
proposed disclosure requirements and risks.
comparability across banks?







Currently, data availability is limited, and poor disclosure may lead tomisleading and, in some cases, error and litigation risks.
The cost of compliance with disclosure is very high. Banks would
need considerable time and workload to establish a mechanism tomeasure and collect necessary data to meet the proposed
quantitative disclosure requirements and to disclose information by
ensuring reliability and completeness. Further, it is difficult for allbanks to take actions uniformly for compliance with the requirements,
such as the establishment of an organisational structure andsystem development.
Therefore, the BCBS should implement the proposed quantitative
disclosure requirements on a voluntary basis for the time being,
and when disclosure practices under the ISSB standards havedeveloped, the BCBS should perform a cost-benefit analysis ofdisclosure and decide whether to make it mandatory.
When doing so, the BCBS should not uniformly make all items
mandatory, and instead should only mandate those disclosure
items that are recognised as comparable and useful (e.g. disclosure
items that leave little room for judgmental intervention, such as
actual values) and make other disclosure items voluntary.

13

Questions

Q19.
What key challenges would
exist for preparers or users of
the proposed quantitative Pillar
3 climate related financial risk
disclosure requirements? How
could these be overcome?

Comments
If the BCBS is to decide to mandate the quantitative disclosure, thedisclosure requirements should be aligned with the minimum line ofdisclosure requirements on a global basis since the level of disclosure
requirements may differ across jurisdictions. Also, guidance onmatters such as the definition of classification, assumptions, andcalculation methods needs to be provided.
(General) The main problem is that, as stated in the general comments
above, it is not shown how this disclosure framework contributes
to the achievement of the objective of Pillar 3, and there is no way
to determine whether this disclosure framework is a meaningful
exercise in terms of the prudential framework.
 The relationship between the proposed quantitative indicatorsand climate-related financial risks is unclear. First of all, theappropriateness of their assumptions should be demonstrated andthen adjustments should be made to the disclosure requirements
so that they will accurately reflect the banks’ risk profile.
 We believe that the lack of established criteria and assessment
methodologies is an important issue, in particular for quantitative
disclosure. Regarding climate-related financial risks, there are many
items that are calculated by each bank under certain assumption andsome items that are difficult to compare horizontally due to highuncertainty. To overcome this, it is necessary to for standard settersand national supervisory bodies to provide some benchmarks,
such as common methodologies and identification of high-risk
sectors/high-risk regions. It is also important to provide education or
guidance to support the interpretation and use of quantitative
information.
 It is expected that the BCBS will provide clear policies etc. to be
applied when assumptions are used.
 Since the new rules require responses to be made within a very shorttime frame (from the end of the fiscal year to disclosure), there is an
issue with the accuracy of the figures. Since banks will also need tostrengthen their systems and processes for data collection andmanagement, it is also necessary to establish unified rules andframeworks for data collection. In some cases, banks have no choice
but to disclose data using provisional values (e.g., emissions of acustomer one year ago). In such cases, it is necessary to devise a way
to avoid misinterpretation by users of the fact that the base year of data
differs from the disclosure period. Also, the base year may differ frombank to bank, making side-by-side comparisons difficult.
(Scope of disclosure) Aggregation at the highest level of consolidation is a challenge. We
request that the scope of disclosure be limited to major banks
under the consolidation.
(Financed emissions) In the proposal, the BCBS insists that financed emissions can be seen
as proxy of banks’ transition risk. Financed emission is not a tool tomeasure or evaluate banks’ transition risks, though it is an indicatorthat can represent the efforts to decarbonise associated with banks'
investments and loans. We expect the BCBS to dispatch the rightsignals about how to capture financed emissions.
14Questions

Q20.
What additional quantitative
Pillar3
climate-related
financialrisk
disclosure
requirements
shouldtheCommittee consider?

Comments
Even if financed emissions were to be used as one of the referenceindicators, the accuracy of the measurement of financed emissions
needs to be improved. Currently, the disclosure of emissions data bycompanies is inadequate and the workload for banks to collect data isvery high. It is also difficult for obligors to collect emissions data in aconsistent manner, and it is currently impossible to obtain highly
accurate data. The current financed emissions estimation has some
limitations in accuracy and may be misleading to users. There arelimits to what can be requested from the banks in promoting
disclosure, and we believe that it is necessary to promote it as anational system/regulation.

Data availability and speedy disclosure are important. Mandatory
disclosure of emissions to companies for speedy collection of
information on emissions by obligors is necessary (Disclosure at
the same timing as financial results is desirable). In particular,
since measurement of emissions is voluntary for non-listedcompanies, there is a limit to the efforts of a single bank inrequiring disclosure.
Disclosure of emissions intensity by material and product foreach company is important. In some cases, emission intensity is
not disclosed. It is difficult to calculate emission intensity
particularly for companies that handle multiple materials andproducts.
Examples: Automobiles (in a few cases, specific energy
consumption per mileage is disclosed), materials (companies that
handle steel and nonferrous metals, etc.).

(Treatment of funds)
 Exposures through investment vehicles such as funds may differ fromthose of loans and direct investments in bonds and stocks in terms ofrisk management methods, given the limits of controllability
associated with indirect investments and the fact that the allocation isbased on the investment strategy of each vehicle. It is questionable
whether disclosure of such exposures by sector would be decisionuseful information for disclosure users.
 Before the BCBS considers additional requirements, we strongly
recommend the BSBS to start with researching and analysing thedata to identify truly beneficial and relevant elements for banks’financial risk in collaboration with banks, just like the Qualitative
Impact Study.



Q21.

How could the proposed
quantitative Pillar 3 climaterelated financial risk disclosure

There are no disclosure items to be added at this time, but opinionsfrom users should be considered in considering any additional
disclosure requirements.
After the introduction of the ISSB standards, if there is a lack of
information in the practice of bank supervision, the BCBS should
consider any additional requirements. The BCBS should also consider
approaches other than requiring disclosures, such as collecting
individual data.
We believe that comparability and information availability could
be improved if standard setters and national supervisors provide
benchmarks, such as standardising methodologies and identifying
high-risk sectors/high-risk regions, and the BCBS provides

15

Questions
requirements be enhanced or
modified to provide more meaningful and comparable
information?
Q22.

What are your views on therelevance of the proposed
quantitative Pillar 3 climaterelated financial risk disclosure
requirements to understandclimate-related financial risks
to which banks are exposed?

Comments
specific disclosure requirements guidelines.
Future review of disclosure requirements should take into account i)data identified as “necessary for forward-looking analysis of climaterelated financial risks” and ii) data that are found to be insufficient fordisclosure under the ISSB standards.
We do not believe that the emissions of individual customers or
their aggregate financed emissions are indicators that directly
represent high or low transition risk. Specific cases whereemissions do not correlate with transition risk could include thefollowing.

If an automaker produces storage batteries to replace enginepowered vehicles in order to produce electric vehicles, theautomaker's Scope 1 and 2 may increase due to the burden of
producing storage batteries, which have high emissions. On theother hand, transition risk will start to decrease with the
production of electric vehicles.
In a case where manufacturing and selling heat pumps thatsignificantly reduce the environmental impact of product use
significantly increases sales and profits, Scope 1, 2, and 3 also
increase significantly.
When a business expands the Scope 1, 2, and 3 measurementfrom a stand-alone company to a consolidated group throughcorporate efforts, the numerical value of the company's Scope 1,
2, and 3 increases significantly. In reality, the company's response
to climate change has become more sophisticated, but it is notreflected in the Scope 1, 2, and 3.
The BCBS should note that there is not necessarily a correlation
between emissions and the creditworthiness of an obligor, and the pros
and cons of disclosure and the method of disclosure should be
carefully considered, taking into account the possibility of unintended
consequences.

If the Pillar 3 framework requires the disclosure of data that is not
required by the ISSB standards or that is of a higher granularity
than the ISSB standards, the BCBS needs to more clearly explain
the reasonableness of such requirements.
Q23.
 We believe that disclosing climate change-related financial risks
What are your views on theinherent in exposures using uniform measures would be beneficial incalculations
requiredtoterms of increasing comparability and assessing the magnitude of
disclosetheproposedpotential risks. However, clarification of detailed requirements forcalculation methods is required and it is necessary for standard
quantitative Pillar 3 climatesetters and national supervisors to indicate benchmarks (e.g.,
related financial risk disclosurecommon methodologies and specific areas of high-risk
requirements?
sectors/high-risk regions) to enhance comparability andinformation usefulness.
 Further, to establish the calculation methods for quantifying climaterelated financial risks, relevant classification, such as Green/Brown,need to be defined and historical data are also necessary.
 Also, it is necessary to appropriately assess whether internal controls
are functioning over processes and calculation methods for preparing
disclosure information based on underlying data.
Transition risk: exposures and financed emissions by sector (CRFR1)
Q24.
(Exposures by sector)

16

Questions
Would exposures and financed emissions by sector be a usefulmetric for assessing banks’
exposure to transition risk?

Comments
Exposure by sector is useful in assessing a bank's exposures totransition risk, but transition risk is medium- to long-term risks
that do not necessarily materialise and can be reduced if thetransition of obligors proceeds appropriately. From the perspectiveof preventing unintended consequences, the characteristics of these
indicators should be clearly indicated so that market participants are
not misled.

(Financed emissions) As for the following sentence in page 5: “Emissions by obligors could
be considered an indicator of their transition risk, particularly when
examined alongside appropriate supporting context.”; we disagree
that the consultation paper proposes quantitative disclosure
requirements based on the assumption that finance emissions area risk proxy. Financed emissions are an indicator that canrepresent the efforts to decarbonise associated with banks'
investments and loans. However, it cannot accurately capture thelevel of transition risk of banks because it is calculated based on
multiple variables, including corporate value as well as the emissionsof customers, and it relies on the disclosure of emissions by customers,
which makes data imprecise.
 For example, a bank may reduce the amount of loans to Obligor A who
has been assessed as having a high transition risk as a result of
appropriate risk management and may increase the amount of loans to
Obligor B who has been assessed as being capable of smoothtransition and hence a low transition risk. In this case, B may havemore financed emissions but less transition risk than A. Further,
additional loans (= increased financed emissions) may be effective to
reduce transition risk, or termination of loans (= decreased financed
emissions) may increase transition risk. In this view, financed
emissions would not be a useful metric for assessing banks’ exposures
to transition risk.
 In addition, the BCBS’s positioning of financed emissions as atransitional risk management indicator may have a significant
impact on banks and market participants, potentially leading banks
to divest in order to improve the indicator in the short term. The pros
and cons of disclosure should be carefully considered.
 The role of banks in economy-wide decarbonisation is to support
corporate transitions through financing. Exposures and financed
emissions are expected to temporarily increase as a result ofefforts to support transitions of investees and obligors. However,they are also efforts to reduce future transition risk, and are notappropriate as indicators to assess a bank's current transition
risk. A comprehensive assessment should be made, including
additional qualitative information such as a framework for
managing financed emissions and the availability of financing that
contributes to transition, so that a substantive assessment oftransition risk can be made.
As uniform measurement standards and calculation methods foremissions are not established, methodologies vary across entities.
In many cases, SMEs, etc. do not identify and disclose their own
emissions and use many estimates (their data quality score is low).
Currently, banks also do not disclose financed emissions and17Questions

Comments
exposures of all sectors, which may indicate the lack of comparability
and reliability. Considering the current circumstances, disclosure
should not be uniformly mandated. Entities would needconsiderable time and workload to establish a mechanism tomeasure and collect necessary data to disclose financed emissions
and to disclose information by ensuring the reliability andcompleteness.
In addition, climate change has already progressed to a certain degree,
and the need for adaptive finance has been stated. It may be necessary
to organise the concept from the viewpoint that exposures andfinanced emissions include the results of efforts to adapt to climatechange.
(Scope of disclosure) It is not realistic from the standpoint of data availability to assume thesame scope of consolidation in the disclosure of climate-related
financial risks as in the existing Pillar 3 disclosure. Aggregation at
the highest level of consolidation is challenging due to datacollection constraints and we request that the scope of disclosure belimited to major banks under the consolidation. Given that
proposed data will be aggregated in accordance with the newstandards, it will require a considerable amount of workload and timeto establish aggregation processes and procedures, including
consolidated subsidiaries.

If financed emissions are used as the main risk indicator, it should
be clarified whether the entities that should be aggregated on aconsolidated basis are only consolidated group companies thatprovide financial services for which financed emissions can bemeasured, or whether they include group companies for which
financed emissions are not applicable. In the calculation ofemissions of consolidated entities, especially in cases where acommon emissions database is not used in the calculation offinanced emissions, it should be defined whether the
consolidated emissions should be calculated by multiplying theequity emissions of the consolidated entities by the consolidation
ratio, and how the method of calculation should be used. It would
be desirable to define the calculation method. While consistency
with the existing Pillar 3 disclosure is not ensured, measures
should be taken to phase-in arrangements for consolidatedbased disclosure, such as allowing only non-consolidated
disclosure for the time being for the disclosure of this climaterelated financial risks.


Q25.
What are your views on theavailability and quality of datarequired for these metrics,
including by sector, activity,
region or obligor?

(Financed emissions) As for financed emissions, even Scope 1 and 2 emissions data still use
estimated data for some exposures, which presents data
availability/quality challenges. For Scope 3, data deficiencies are
more pronounced, and it is difficult to compensate for them throughestimation. The BCBS should provide guidance on data
availability, quality, and estimation methods if the BCBS requires
the disclosure of financed emissions.
 It is difficult at this stage to aggregate emissions for the mostrecent fiscal year for credit portfolio companies immediately after
the end of the fiscal year. The figures are highly accurate for sectors
18Questions

Q26.
What key challenges would
exist for preparers to disclose
these metrics, including bysector, activity, region, or
obligor? How could these be
overcome?

Comments
with a large number of listed companies, while the figures are
estimates for sectors with a large number of unlisted companies andproject finance and are less accurate.
(Disclosure by classification)
 As for the disclosure by sector, it will be difficult to compare as some
sectors do not have an established sector-wide financed emissions
measurement methodology (e.g., corporate loans), which may lead tovariation in calculation methods. The availability and quality of data
differs as well. Therefore, it is desirable to introduce this disclosure in
conjunction with measures to mandate corporate disclosure bynational governments.
 As for the disclosure by sector, region, or obligor, it depends on thedefinition and granularity. However, given that a considerable
amount of workload will be required and quality will not be able
to be ensured, the BCBS is requested not to include these
disclosure requirements.
 Many of the data would be available if the definition is determined.
However, if the granularity is fine, there is a high possibility that data
will not be available in existing databases or cannot be obtained fromexternal information, and it will be necessary to establish an internal
data collection flow, which may be difficult to work on. In addition, if
the company aims for 100% coverage, it will need to look throughfund investments and other investments to classify them, which isconsidered to be very challenging.
(Financed emissions) As noted above, it is not appropriate to use financed emissions as anindicator of transition risk, but even if financed emissions were to be
used as one of the reference indicators, the following issues exist.
Financed emissions will increase by addressing transition financeto customers actively working on decarbonisation. As currently
being discussed in the Partnership for Carbon Accounting
Financials (PCAF) and other related organisations, a separate
listing of financed emissions excluding transition finance could
be considered.

There is a difficult issue in the calculation method of financed
emissions because fluctuations in the balance sheet of investees
and obligors may result in a significant change in the attribution
factor regardless of actual emission reduction.
Disclosure of customers is not yet mature (especially for Scope3), and comparisons over time are currently difficult, which maylead to misleading results. We expect disclosure in accordancewith the ISSB standards to spread widely in the future, but it isdifficult for non-listed companies. This challenge could beovercome by making the measurement and disclosure ofemissions mandatory for non-listed companies.
While detailed disclosure cannot be achieved without obtaining
information from customers, there is a time lag of six months toa year in obtaining disclosure information. If accuracy is given
priority, timeliness cannot be ensured, and if timeliness is given
priority, accuracy cannot be ensured. We believe that disclosure
standards should be clarified.
Further, the currently calculable financed emissions include
some estimated data, and banks are in the process of improving
19

Questions

Comments
date quality from estimates to actual measurements as soon as
primary data become available. Many banks have started
disclosing financed emissions of their portfolio, and as data
availability improves, it is expected that banks will revise actual
figures in their voluntary disclosures for prior periods. The BCBS
should present its approach on whether or not prior period
adjustments are necessary or acceptable in this climate-related
financial risk disclosures given its current approach for other
Pillar 3 disclosures.

(Disclosure by sector)
 For sectors, it is desirable that the various industry classifications ineach country be flexibly applied according to the jurisdiction or havean integrated reading table.
Q27.
(General)What additional transition risk  Future review of disclosure requirements should take into account i)
disclosure requirements should
data identified as “necessary for forward-looking analysis of climatethe Committee consider?
related financial risks” and ii) data that are found to be insufficient fordisclosure under the ISSB standards, and should consider sciencebased transition risk disclosure requirements.
 Banks should assess and disclose how transition risk are transmitted
in each sector or across sectors. This would help investors understandtransition risk perceived by banks, and would also enhance banks'
ability to assess transition risk.

Q28.
What are your views on theappropriateness of classifying
sectors according to the Global
Industry
Classification
Standard (GICS) with a six- oreight-digit industry-level code?

(Status of transition readiness)
 In assessing a bank’s transition risk, it is essential to consider
whether customers are making progress towards transition. While
there is currently no unified standard for measuring transition
readiness; for example, GFANZ proposes categorising transition
finance into four classes, such as 1.5C Aligned, 1.5C Aligning,
Climate Solution, and Managed Phaseout. Transition finance is anindicator of how seriously banks are takes their efforts on their
exposures contributing to the decarbonisation of the real economy in
the long term, any additional disclosure of these customers’transition response status could portray a bank’s transition risk
and should be considered by the BCBS.
 Given that the TCFD’s sector classification is also based on the GICS
codes, we believe that it would be useful to establish a unified sector
classification through the GICS codes in order to enhancecomparability.
However, there are cases where the GICS codes differ fromJapanese industry standards (e.g., there are cases where aconstruction company becomes a real estate company). The rulesthat allow the industry codes to be adjusted according to theactual situation are needed.
As many large companies are spread across variety of industry
sectors, they may not be able to classify all of them according to
the GICS codes. Therefore, if the GICS codes to be used, theBCBS needs to recognise in advance a certain level of suchpotential imperfections.

In addition, when assessing climate-related financial risks, its
outputs will vary depending on whether sectors should be20

Questions

Comments
classified by entity or by use of funds. It is desirable to establish
a uniform definition by taking into account that output isdifferent.
On the other hand, the BCBS should not require banks to perform
classification and disclosure according to the GICS codesdeveloped by specific private-sector companies. Since some banks
do not aggregate and manage exposures by industry on a GICS basis,
disclosure by other industry categories should also be permitted.
Particularly, if industry codes other than GICS codes are permitted
based on regionality in the disclosure of statutory disclosures thatreflect the requirements of the ISSB standards and in the disclosure ofindustry indicators in the Pillar 3 framework, it is requested thatsimilar measures be taken.
(General) We believe that it is useful for banks to disclose their particularly
important ideas, from the perspective of being able to review theassumptions of each bank's approach. Also from the comparability
perspective, disclosure of the specific methodology would be useful
to a certain extent. Nevertheless, it is desirable to unify measurement
methodologies.


Q29.
Would it be useful to require
disclosure of the specificmethodology(suchasPartnershipfor
CarbonAccounting
Financials(PCAF)) used in calculating
financed emissions?

（PCAF） As for the specific methodology for the calculation of financed
emissions, the PCAF is the substantive international standard-setting
body on methodologies for measuring emissions from financing, andwe believe it is appropriate to require disclosure in accordance with
the PCAF standards.
 However, the PCAF standards are high-level in content, and inpractice it is necessary to define more detailed methods. Even if the
BCBS follows the PCAF methodology, it is not a perfect indicator ofchanges in emissions or risks of banks. The PCAF measurement
methodology can be biased due to the significant impact of market
fluctuations in corporate value. Therefore, the limitations of themethodology should be clearly stated.
 In addition, in most cases, data input to the PCAF measurement
methodology itself is not customer-disclosed data. Therefore, even if
the methodology is appropriate, calculated figures will be the same forcompanies in the same country and sector if estimates are used.
Physical risk: exposures subject to climate change physical risks (CRFR2)
Q30.
(General)
Would exposures subject to  Exposures are not considered to be an adequate metric forclimate change physical risks
assessing physical risks. Given the highly regional nature of
be a useful metric for assessing
physical risks, if exposures of assumed affected parties arebanks’ exposure to physicalcalculated without taking into account the likelihood of beingrisk?
subject to physical risks, physical risks may be overestimated.
Further, as banks define the likelihood of being subject to physicalrisks in detail by disaster and by location and their assumptions ofanalysis differ significantly, it would be difficult to ensurecomparability. Exposures subject to climate change physical risks
would be a useful metric if banks can specifically disclose a potential
impact on their assets or performance caused by physical risks (e.g.,
extreme climate conditions, sea level rise).
21

Questions

Comments

Q31.
Would there be any limitationsin terms of comparability of
informationifnational
supervisors at a jurisdictional
level
determinedthegeographical region or location
subject to climate change
physical risk? How could thosebe overcome?

(Specific requirements)
 There are many challenges with regard to corporate finance. Corporate
physical risks are classified into direct damages, damages caused by
the supply chain, and damages caused by macroeconomic impacts,
which have very different outcomes depending on scenarios andmodels, and many companies have manufacturing sites and sales
markets that span multiple regions, which need to be accurately
allocated. Therefore, we believe that poor disclosure will be
misleading.
 As for residential real estate exposures, given the wide variation in thevulnerability of residential real estate to physical risks in eachjurisdiction, such as housing structure and availability of insurance,
we believe that their disclosure should be subject to the national
discretion given the importance of risk management.
 As physical risks encompass a wide range of risk events, from floods
to heat waves, sea level rise, and the impact of such risks varies
depending on the type of business and the area of activity of eachobligor, it is difficult to uniquely define a geographical category that
represents the actual physical risks of each obligor. In addition, evenif each bank were able to aggregate and disclose data, there is a highpossibility that the definition of geographical categories for eachobligor would be different across banks. Further, if assumptions for
aggregation (e.g., whether to assess regions based on each asset heldby the company, whether to include only the location of the head office
for aggregation, whether data necessary for such aggregation areavailable) are not aligned across banks, it would not be possible toensure comparability.
 Currently, there is not sufficient data available to appropriately assess
physical risks faced by companies whose supply chains and markets
are dispersed across multiple countries, and the most serious limitationis that many companies have to be assessed by country based on thelocation of their head office.
 Moreover, it is necessary for national authorities to set assessment
criteria (e.g., physical risk levels by country, to ensure comparability).
In addition, in assessing risk levels, it is necessary to have anassessment axis that reflects not only the risk of disaster, but also
differences in the post-disaster economic and social response
capabilities of the affected country.


Presumably, some countries will apply limitations on disclosure
information. However, when national supervisors determine thegeographical region subject to physical risks, the criteria or levelof selecting regions should be aligned from the comparability
perspective. It is expected that national supervisors will makedifferent judgments on regional allocations, which will lead to a lossof comparability across countries and regions for investors.

However, given the current limitation for national supervisors at
a jurisdictional level to determine geographical regions or
locations subject to climate change physical risks, the BCBS
should also allow banks to determine such “regions” or“locations”.

22Questions
Q32.

What alternative classification
approaches
could
the
Committee introduce for theclassification of geographicalregion or location subject toclimate change physical risk to
reduce variability and enhancecomparability amongst banks?
Comments
For example, the following classification approaches could be
introduced:
Classification based on the Climate Risk Index: Classified using
an index that assesses climate risks in each region.
Classification based on climate zones: Divide the globe into
different climate zones and classify each zone based on thespecific climate risks it faces.
Classification based on disaster risk: Classification based on
specific disasters (e.g., floods, droughts, typhoons) that eachregion may face.
For each hazard, a "coefficient" could be set to reflect the degree of
impact by sector and property use (e.g., factories, offices, sales office)to refine corporate risk assessment.
There are no disclosure items to be added at this stage, but opinionsfrom users should be considered when discussing additional
disclosure requirements.

Q33.

What additional physical risk
disclosure requirements should
the Committee consider?
Bank-specific metrics for quantitative climate disclosures (CRFR1 & 2)
Q34.
(General)What are your views on the  The proposed disclosure requirements for asset quality andprudential
value
and
maturity analysis are more granular than the ISSB standards,
meaningfulnessofthegiving rise to a concern regarding their feasibility in practice. The
disclosure of the proposed
BCBS should not require the disclosure uniformly under thebank-specific metrics on (i)current circumstances and should carefully consider it after
asset quality (non-performing
assessing the development of calculation methods and theexposures
andtotal
usefulness of the disclosure.
allowances); and (ii) maturity(Asset quality (non-performing exposures and total allowances))
analysis?
 There is not necessarily a correlation between asset quality(amount of non-performing loans) and financed emissions, and it
is considered that the parallel disclosure of asset quality may lead tomisunderstanding by users. The allowance for loan losses represents
the portion of uncollectible loans that have a higher probability ofoccurrence, but the methodology for assessing the portion of
uncollectible loans due to climate-related financial risks is not yet
established. Therefore, we are concerned that by presenting thisseparately, users may be misled into believing that the allowance
represents the portion of uncollectible loan due to climate-related
financial risks.
 As for physical risks, it should be noted that there is a risk of erroneous
analysis that compares the amount of NPLs by region, classified byphysical risks at the time of assessment.
 As for transition risk, they are presented in many sectors over the
medium to long term, and disclosure of current non-performing
exposures and total allowances will not contribute to investors'
accurate understanding of the concentration risk of transition risk ateach bank.
(Maturity analysis)
 As for the disclosure of maturity, we believe that it will make acertain contribution in terms of soundness assessment as unlike
other traditional risks, climate-related financial risks materialiseover a medium to long term.

23

Questions

Comments
To be able to understand the level of exposures at the timing whenclimate change-related financial risks are deemed to materialiseTo assess the potential risks inherent in exposures
On the other hand, we believe that disclosing risk exposures based on
maturity length may discourage banks from providing stable funding
to help decarbonise high-risk areas and respond to disasters.
Allowances for loan losses include elements other than climaterelated risks. In order for the gross allowance for loan losses to be
useful, it must be “assessable as the uncollectible portion due toclimate change”. To this end, it is necessary to be able toappropriately reflect the financial impact of climate change in theevaluation of credit ratings and borrower classification, or inparameter estimations such as PD and LGD.

Taking country risk as an example, currently, its classification isusually managed in terms of the country where the head office islocated or where the parent company is located, and only one
country is assigned per customer. As for domestic customers,
they can only be identified by the location of their head office(one prefecture), and there is no data available to properly
allocate physical risks of a company and assess the amount ofsuch risk.



Q35.

What challenges would exist
for preparers or users of these
disclosures? How could thesebe overcome?







Q36.

What additional bank-specificdisclosure requirements in
respect of banks’ exposure toclimate related financial risks
shouldtheCommittee
consider?
Forecasts (CRFR1, 4, 5)
Q37.

What are your views on the
proposed inclusion of forecast
information in the Pillar 3
climate-related financial risk
disclosure requirements ininstances where banks have established such forecasts?

However, this is an extremely challenging task because no
methodology has been established at this stage. If total disclosure is
to be mandated, the methodology should be defined by thestandard setters and national regulators, as it is difficult to beresolved by individual banks.
Disclosure should be avoided if the calculation basis cannot be
disclosed. The disclosure of total allowances should be removed asthey could give market participants the wrong message if stated inparallel with climate-related financial risks.
If such disclosures are to be required, in order to aggregate data for a
new disclosure framework, it is necessary to establish a system for
aggregating data including consolidated subsidiaries, which requires
a significant burden and time.
There are no disclosure items to be added at this stage, but opinionsfrom users should be considered when discussing additional
disclosure requirements.

Transition risk typically arises over the medium to long term, and theimpact of transition efforts can be delayed. Therefore, sharing forecastof future risk reductions along with actual results can provide a clearer
understanding of a bank's risk profile and future climate-related
financial risks.
Many Paris Agreement alignment indicators, targets, and goals set bybanks disclosing under the TCFD are often ambitiously established24

QuestionsComments
top-down and do not necessarily predict future risk reductions for thebanks. Also, forecasts are not included in disclosures under the
ISSB standards.
Further, given that there are limitations on data obtainable from
customers for forecasting purposes and that climate-related transition
risk fluctuates over time, it is difficult to identify and analyse its
impact. Even if we are to calculate forecast information, a slightchange to assumptions is expected to derive very different outcomes.
Therefore, it may be difficult to disclose reliable and objective
quantitative data for forecast information. Including forecast
information in the disclosure requirements may give rise tounintended consequences in terms of uncertainty, comparability,and data availability. It is premature at this stage to require thedisclosure of forecasts and therefore they should not be included in
the disclosure requirements to avoid potential unnecessary
confusion and misunderstanding.
Many financial institutions currently measure and disclose emissions
in line with guidance issued by private initiatives such as GFANZ and
NZBA, but only in priority sectors. When supervisors ask banks tomeasure emissions and their forecasts (if set) across all sectors, we
believe the framework is valuable if supervisors themselves sortout the relationship between emissions and climate-related
financial risks firstly and then identify and collect the necessary
to measure them and provide banks with detailed guidance on
measurement methodologies. On the other hand, if all data
identification, collection, and measurement methodologies are left toindividual banks, it is inevitable that disclosures among banks will
vary, and it will be a labour-intensive and less meaningful.

Disclosure would be mandatory if a forecast is made, but the BCBS
should ensure that banks that disclose it are not disadvantaged morethan those that do not, so as not to discourage forward-looking risk
management by banks. If the disclosure of this information is to berequired, the BCBS should be more specific about the nature of theforecast specified in this consultation paper. Even when the forecast
is to be included, it will be important to clarify its basis,
assumptions, and methodologies used as it gives rise touncertainty.
(General) While it depends on the definition of the forecast to be disclosed, thedefinition should be clearly defined to avoid unintended consequences
due to interpretation by users.
・ For example, if the forecast of total emissions is an increase in
the process of banks supporting the decarbonisation of theirinvestees, such as transition finance, or if it reflects an increasein demand due to the decarbonisation of the economy, then total
emissions should not be recognised as a proportionate risk.


Q38.
Would the proposed forecast
information be a useful metricfor assessing banks’ exposure
to climate-related financial
risks?

(Specific requirements)
 Currently, among the proposed items, financed emissions, sectoral
emissions intensity, and facilitated emissions are composed of many
variables and the amount or increase or decrease of these variables is25

Questions

Q39.

What type of forecasts would
be most useful for assessing
banks’ exposure to climaterelated financial risks?



Q40.

What challenges would exist
for preparers or users of Pillar 3
disclosures in relation topotential forecast information?
How could these be overcome?


Comments
not directly related to the bank's transition risk. As it is extremely
difficult to compare forecasts among banks, these are not usefulindicators for assessing a bank's climate change-related financial risks.
For example, the following types of forecasts would be useful.
Forecast of emissions: Companies relying on fossil fuels could
be significantly affected if governments strengthen policies toreduce carbon emissions, which could affect their ability to repay.
Forecast of natural disasters due to climate change: An increasein natural disasters due to climate change may reduce bank asset
values (especially real estate), which may affect banks' lending
capacity.

Forecast of the economic impact of climate change: By
forecasting the impact of climate change on specific industries,
such as agriculture and tourism, banks can assess lending risks tothese industries.
Measurement of financed emissions: Forecast of emission trends
in each industry, including SMEs, could be useful.
In assessing a bank's exposure to climate-related financial risks,
it would be useful to analyse, through scenario analysis, thechanges in traditional risks that may occur as a result of climatechange and assess the financial impact.
Further, banks should assess and disclose how transition risk aretransmitted across sectors. This would help investors understand thetransition risk perceived by banks, and would also enhance banks'
ability to assess transition risk.
For scenario analysis, the data and analysis methodologies are notyet established and the analytical methodologies differ across banks.
It should be noted that scenario analysis does not necessarily imply ahigh probability that the contents of the forecasts will be realised at
this point in time, nor is it comparable across banks, as each bankneeds to make a forecast based on a very large number of assumptions,and uncertainty must increase. Users are required to properly
understand the complex calculation assumptions of each bank.
Due to the challenges such as forecasting scenarios, lack of data,
uncertainty in forecasts, and lack of standardisation of methodologies,
measures to address them such as strengthening data collection,
improving prediction models based on scientific evidence, andpromoting international standardisation should be enhanced. In lightof these technical limitations, the BCBS should allow flexibility inthe method of disclosure and clearly state the points to beconsidered in using the content of the disclosures.
It is also necessary to define whether the forecasts should be based on
the emission-reductions target of investees and obligors in thereference year, proportionally allocated to the bank's shares, orwhether the emission-reductions target set by the bank itself should beused.

When using the projected emissions disclosed by investees andobligors, it is assumed that there may be some missing or
estimated figures due to data availability, and the approach forevaluating such disclosed figures should also be clarified.

In addition, the fact that the practice of emission-reductions
targets by banks is still developing, and that there is a mixture of26

Questions

Q41.

Where forecast information is
not available, what alternative
information might be useful toassess banks’ exposure toclimate-related financial risks
on a forward-looking basis?
Comments
total emissions-based, intensity-based, and other methods,
should be taken into account from the perspective of ensuring
comparability and consistency.
As it is likely to take some time to establish a quantitative method
for assessing exposure through scenario analysis, a method for
qualitatively assessing the level of risks can be adopted first. An
example of alternative information could be a method to qualitatively
determine the plans and progress of each of the bank's customers in
reducing transition risk and to identify high-risk entities and theirchanges over time.
Further, when considering the result of scenario analysis, thefollowing information could be useful.
Historical data: Estimate future risks by analysing historicalclimate change-related financial risk data (For example, losses
from natural disasters and impacts from carbon emission
reduction policies).
Sector analysis: Assess the risk of companies that banks lend toby analysing how specific industries and sectors are affected byclimate change.

Geographic analysis: Analyses the extent to which the areas
where bank assets and obligors are located are affected by climatechange (such as sea level rise and heat waves).

Concentration risk
Q42.
(General)What are your views on the  Although it would be useful to disclose quantitative indicators ofusefulness banks’ disclosure ofconcentrated risk in the future, it is difficult to reflect them inquantitative information on
concentrated risk management because the quantification of
their risk concentration, ie ofclimate-related financial risks is not advanced at present. It isthe bank’s material exposures
expected that the definition and approach of credit exposures, in whichtransition and physical risks are concentrated, will differ depending on
to sectors or industries subject
banks, making it difficult and not useful to compare the risk profile ofto transition risk or tobanks.
sectors/geolocations subject tophysical risk relative to its total  While there is limited information even on concentration risk
regarding credit risk, we do not believe that concentration risk in thisexposure?
area is useful.

(Physical risk)
 Regarding physical risk, there is a greater risk of misleading
quantitative disclosure regarding concentration risk if disclosed in apoor manner with insufficient data. Because physical risk, inparticular, affects different regions and disasters, disclosing only the
exposure of "vulnerable regions" and other regions may distort market
participants' understanding of a bank's risk profile. From theperspective of promoting a correct understanding among market
participants, and from the perspective of not impeding the provisionof funds for adaptation, it is important to select areas that are truly"vulnerable" to physical risk. Therefore, the BCBS is requested toprovide clear definitions to prevent inconsistent interpretation acrossjurisdictions or banks.
(Transition risk)
 Also regarding transition risk, we recognise that it is important tofollow how the practices of measuring and disclosing financed27

Questions
Q43.

What are your views oncomplementing
quantitative
disclosureofrisk
concentrations with qualitative
disclosure of contextual andforward-looking information on the bank’s strategies and risk
management
framework,
including risk mitigation, tomanageclimate-related concentration risk?

Q44.
What challenges would exist
for preparers or users of
disclosures in relation toquantitative and qualitative
information on climate-related
risk concentrations? How could
these be overcome?



Q45.

In relation to the disclosure of
exposures subject to physicalrisk, would it be meaningful forassessing banks’ climaterelated concentration risk if
these exposures were divided
into six or seven broadly
defined hazards, eg heat stress,
floods,droughts,storms,wildfires etc?
Comments
emissions by sector will change in the future.
We do not agree to the assumption that financed emissions isdeemed as a risk proxy. With regard to the concentration of credit incompanies with high emissions or high physical risk, we understandthat credit deterioration does not necessarily occur at the same time
due to common factors, and it is not meaningful to manage anddisclose the concentration.
In the future, it is possible to supplement qualitative indicators on
concentrated risk (strategy and risk management) by disclosing
quantitative indicators. However, it is difficult to make allquantitative indicators mandatory disclosure at present.
Further, it is essential to positively evaluate the provision of long-term
stable funds to regions with high climate change risk for investmentsthat mitigate such risks, and qualitative disclosure is important in
the sense that it avoids misleading quantitative disclosure(behaviour such as "simply reducing concentration in high-riskcountries = reducing lending and promotion for lending to lowrisk countries", or such portfolio is evaluated positively).
No definition or concept has been established for climate-related
concentration risk. Therefore, it is expected that the judgment will
differ depending on banks. If such judgments differ, it will be difficult
to compare banks' risk profiles and may not be useful to users. Evenin the case of qualitative disclosure of concentration risk, we believethat a certain definition is necessary to ensure international
consistency and comparability as long as it contributes to theassessment of financial risks associated with concentration.
In addition, there is a limit to how much information can be used in
obligor disclosures and NGFS scenarios. Even if quantitative andqualitative information is to be included, reasonable assumptions need
to be made. We believe that disclosing concentration risk in data
constraints is only misleading.
This is a BCBS specific additional disclosure requirement which will
also have cost issues for preparers.
The impact of physical risk varies from disaster to disaster. Further,
we recognise that floods and droughts, in particular, do not occur all
at once in the world, and that we should look at each region and how
likely they are to occur. Considerations should be made for individual
projects, rather than centralised management based on uniform risk.
Therefore, it is useful to disclose each physical risk. By defining in
more detail chronic and acute risks or types of physical risk (flood,
drought, forest fire, etc.) and considering these risks individually,banks may be able to plan and implement appropriate measures foreach risk. This may be useful for banks to effectively manage climaterelated financial risks and minimise their impact.
On the other hand, it is currently difficult for each bank to
independently identify and measure the direct and indirect impacts,
including economic costs and financial losses, of each of the 6-7
disasters and identify vulnerable areas, as it is likely to create avery high management burden, given the limitations of data andmethodology. Therefore, it is desirable for supervisors to provide
justification and determine the areas vulnerable to physical risk.

28

Questions



Q46.

What additional bank-specificdisclosure elements on climaterelated concentration risk
shouldtheCommittee
consider?

Comments
Even if exposures were to be divided into defined hazards, as there
are linkages between each hazard (heat wave and drought,
wildfire) and the possibility of overlap (river flood and storm
surge, tropical cyclone), we believe that instead of separating anddisclosing each hazard in detail in a concentrated risk analysis of
exposure, the BCBS could first consider such linkages.
If disclosure of climate-related concentration risk is required, thedegree of readiness of customers in the category could also be
disclosed.
・For example, in the case of transition risk, if exposures to highemitting sectors are to be disclosed, the degree of activities tomitigate transition risk should be scored by customer, and thebreakdown of exposures by score should be disclosed. This
would enable an assessment of the degree of activities totransition risk for the sector as a whole, which in turn would
contribute to the smooth funding supply to sectors.

Templates (CRFR1-5)
Q47.
(General)What are your views on the  Given the lack of methodologies for measuring climate-related
financial risks, we believe it is premature to move forward withstructure and design of thetemplates.
proposed templates in relation
to helping market participants  As for the future use of templates, if disclosure is required to be madeunderstand the climate-relatedusing overly detailed and complicated templates, it is expected to havefinancial risks to which banks
the disadvantage of increasing the operational burden on banks andare exposed?
hindering market participants' understanding and use of information.
Jurisdictions and banks differ in the depth of their efforts to address
climate-related financial risks, and the status of data collection andpreparation varies. To improve comparability and provide useful
information to users, items should be focused only on simple andinformation easy to collect. From this perspective, it isappropriate to, for example, use templates for disclosure in linewith the ISSB standards if the same disclosure requirements as in
the ISSB standards were to be established.

Q48.
Would the potential structureand design of the templatespose any challenges for
preparers or users of Pillar 3
climate-related financial risk
disclosure requirements? How
could those be overcome?

(Disclosure by sector)
 Regarding the template that requires disclosure by sector, there is aquestion as to the appropriateness of aggregating exposures throughdifferent asset classes such as loans, equities, and bonds held in thebanking book for each sector. Among the reported amounts,"allowances" and "non-performing exposures" can only be calculated
for loans, and for stocks, maturity categories cannot be disclosed.
Therefore, this information is not useful from the perspective of
aggregation and comparability, as well as evaluation of disclosure
figures.
 It is necessary to avoid discrepancies in the interpretations of preparers
and users by disclosing information about the definitions of terms,
measurement methods, and units (such as currency, MtCO2e) alongwith the template.
 As it is difficult to disclose all information required in thetemplates, the BCBS is requested to allow a phased
implementation of disclosure by, for example, providing guidanceon which information in the templates should take precedence.
 Given banks’ heavy burden related to information systems in their29

Questions

Comments
effort to comply with the quantitative disclosure requirements, theBCBS is requested to ensure that the disclosure requirements will not
be changed frequently.
Quantitative disclosure requirements subject to jurisdictional discretion (CRFR3-5)
Q49.
(General)What are the benefits of the  As the nature of and response to climate change and data availability
proposed quantitative Pillar 3vary across jurisdictions, we believe that leaving disclosure
climate-related financial risk
requirements subject to jurisdictional discretion would be effective in
disclosure requirements subject
avoiding undue burden on banks while still disclosing material items.
to jurisdictional discretion?
 While pathways to decarbonisation vary widely by region and sector,
a uniform disclosure requirement could lead to under/overvaluation insome jurisdictions, failing to reflect such characteristics. In order toprevent such a discrepancy, flexibility according to eachjurisdiction's circumstances should be ensured and jurisdictions
should be allowed to operate at their own discretion.
 The disclosure requirements of CRFR3-5 are not included in the ISSB
standards, and it is unclear how data aggregated in CRFR3-5 will
be useful. Therefore, it is necessary to clarify, among other things,
the purpose of requiring the aggregation and disclosure of thisdata and how such data will be used.

Q50.
What key challenges would
exist for preparers or users of
the proposed quantitative Pillar
3 climate related financial risk
disclosure requirements subject
to jurisdictional discretion?
How could these be overcome?

(Real estate exposures in the mortgage portfolio by energy efficiency level) Real estate exposures in the mortgage portfolio by energy efficiency
level has feasibility issues due to data limitations. Unlike in Europe
where there are laws on the energy efficiency of real estate, in otherjurisdictions without such laws, the accumulation and development ofdata necessary for the disclosure will not progress, making it difficult
to collect necessary information from customers in a timely mannerand disclose information. Therefore, we agree with that this indicator
should not be a mandatory disclosure requirement for all jurisdictions,but rather a discretionary disclosure requirement for each jurisdiction.
If the disclosure is to be made mandatory, guidance on the energy
efficiency level, emission intensity, and definition, etc. will benecessary.
Particularly in Japan, few banks are aware of the environmental
performance evaluation of collateral properties and few
properties have obtained environmental assessments. Therefore,
in reality, disclosure will be limited to a very limited number ofproperties.
 In addition, as energy efficiency does not necessarily affect real estatevalues, it would be desirable for jurisdictions that require disclosure
to do so only where there is a material impact. It should also be notedthat if banks’ disclosures raise concerns about declining real estate
prices, there could be an unintended deterioration in the real estatemarket and a consequent spillover to the financial system.
(General) The BCBS should note that different jurisdictions require different
responses from preparers. When there is data required in the practiceof bank supervision in each country, it should be considered, including
individual methods of data collection.
 Considering expected legal and regulatory differences, lack of data,
and lack of standardisation, international cooperation, data collection
through cooperation with public institutions and research institutes,

30

Questions

Q51.
What are your views on thefeasibility, meaningfulness andpracticalityofbanks’
disclosureoffacilitatedemissions?（CRFR5）

Comments
and promotion of international standardisation are possible measures.
(Emission intensity by sector)
 Particularly with respect to emission intensity by sector, we agree thatabsolute emissions do not take into account the size and nature ofbanks, and that complementary indicators beyond absoluteemissions are needed. However, emission intensity is the only one
factor in measuring the progress of the transition in each sector
and client, and has a lagged effect. The transition status of eachsector/client needs to be monitored comprehensively, includingtransition strategies, targets, and progress, and sectoral emission
intensity is not appropriate as a risk management indicator.
 If the disclosure of emission intensity by sector is to be required,although it is unclear whether supervisors should be involved at thisstage, the definition of GHG intensity emissions per physical output
to be used for each sector should be provided. In addition, since
whether total emissions or physical intensity is an appropriate
indicator to identify climate-related financial risks may vary by sector,
the relationship between these indicators and risks should be welldefined and disclosed. In addition, the concept of when it is necessary
to use estimates for the amount of activity to measure physicalintensity should be presented, depending on the sector.
 Further, as for emission intensity by sector, many of clients do notdisclose emission intensity by sector (raw materials, automobiles). In
addition, it is difficult to calculate emission intensity by sector whenproperties are used in multiple sectors.
 Facilitated emissions include off-balance sheet and temporarytransactions that do not accurately reflect banks’ transition risk;
therefore, we believe that the disclosure of facilitated emissions is
unnecessary for the purpose of this framework.
 Moreover, if the disclosure of facilitated emissions were to discouragecustomers from seeking transition finance from the direct market, forexample by avoiding underwriting from high-emitting sectors, it could
lead to an unhealthy reliance on bank financing. This could prevent
sectors from transforming their business structures, thereby increasing
credit risk and potentially destabilising the financial system.
 In addition, as facilitated emissions are not included in the ISSB
standard (S2) and the measurement methodologies have just been
published by the PCAF, uniform measurement methodologies havenot been established at this stage, making simple comparison difficult.
To ensure reliable and comprehensive information disclosure, aconsiderable amount of time and workload will be needed. Therefore,
it is premature from a practical point of view to include facilitatedemissions in the Pillar3 disclosure requirements.
 If the disclosure of facilitated emissions has significance andknowledge on their calculation and other items has been accumulated,
we believe that such banks can proceed with the disclosure at theirdiscretion.

Effective date
Q52

What are your views on thefeasibility of the potential effective date of the Pillar 3

The BCBS should present how the proposed data are related toeach risk category before the finalisation and implementation.
For example, the effective date can be when the initial application
cycle of disclosure under the ISSB standards is completed and any

31Questions
climate-related
disclosure
requirements?

Comments
issues identified in this cycle can be addressed. The BCBS can firstreview the disclosure based on the ISSB standards after the
implementation of the ISSB standards. Only if there is a true
inadequacy from a perspective of bank supervision, the BCBS canestablish disclosure requirements to supplement the ISSB standards
only for that portion, and the effective date can also be set after the
implementation of the ISSB standards. In such cases, based on theinitial application date of the ISSB standards in each jurisdiction,
it can be, for example, one to two years later.

In the case of the proposed framework, the potential implementation
date of 1 January 2026 would be feasible if the implementation islimited to those items that are already disclosed under the TCFD
framework. However, given that the proposal contains numerous
requirements that are not specified by the ISSB standards, theproposed effective date is not realistic.

It is necessary to proceed in parallel with other disclosure
regulations, such as the ISSB standards and the practical burden
is large. The ISSB standards, in particular, will be incorporated
in each jurisdiction's disclosure framework after the initial dateof its application. It is not possible for banks to comply with the
Pillar 3 disclosure requirements in addition to the disclosures
under the ISSB standards as of 1 January 2026.
The proposal will result in the development of additional data,
the establishment of measurement methodologies and processes,
and the development and modification of systems in line with thefinalised disclosure requirements, in addition to the ISSB
standards.
 Therefore, banks need sufficient transition time before being
required to disclose, in particular, those items not required by the
ISSB standards. The BCBS is also requested to consider phased
implementation, allowing application to the extent possible, orvoluntary application.
Q53.
(General)Would
anytransitional  We understand that the application is scheduled to begin on 1 Januaryarrangements be required? If
2026, followed by the implementation of the ISSB standards.
so, for which elements andHowever, the timing of implementation of the ISSB standards is
why?
expected to be different depending on the situation in eachjurisdiction. A transition period should be established inaccordance with the initial application date of the ISSB
disclosures in each jurisdiction.
(Quantitative disclosure) In particular, quantitative disclosure requires not only thedevelopment of an organisational structure but also thedevelopment of a system. A transitional period of several years is
required.
Of which, the measurement of financed emissions requires thecooperation of investees and obligors if the BCBS requires thedisclosure of financed emissions. If it is necessary to measureemissions for the most recent fiscal year, there should be a grace
period to discuss this with investees and obligors.
 In addition to quantitative disclosure, there are many disclosure
requirements that are subject to uncertainty due to the fact that32

Questions

Liquidity risk
Q54.
What are your views on theCommittee
exploring
disclosure requirements for the
impacts of climate-related
financialrisks
ondeposits/fundingand 
liabilities?

Comments
methodologies are developing and information is difficult to obtain.
As transitional arrangements for such items, arrangements such as
the safe harbour rule should be considered so that disclosure withuncertainty does not result in posing risks to banks.
At this stage, it is not considered necessary nor appropriate toinclude liability risk. In the future, it is highly likely that ethicalconsumption behaviour will change depositors' behaviour and cause
an outflow of deposits to banks that have been slow to respond to theeconomic impact of climate change on banks. However, the BCBS
should first provide the rationale and opinion for disclosure.
There is much less research on the link between climate-related risks
and deposits/funds and liabilities than research on the asset size of thebalance sheet. It is considered more difficult to assess how
deposits/funding and liabilities will be affected by climate-related
financial risks than credit transactions, and there is no common
concept in this respect. Therefore, it is premature to define
meaningful exposures in this area. As a result, they may be exposed to
the risks of error and litigation. The relevance and materiality of theserisks should be assessed to avoid overburdening banks before
discussing them.
***We thank the BCBS for the opportunity to comment on the consultation and hope our comments will contributeto further consideration in the BCBS.
Yours faithfully,
Japanese Bankers Association

33