Practical guide for Scenario Analysis in linewith the TCFD recommendations 2022

Ministry of the Environment
March 2023

Table of Contents

3. Sector Analysis – Practice Cases bysector (continued)

1. Introduction
1-1. Purpose of this practical Guide

1-1

1-2. Significance of the TCFD
recommendations/positioning of
scenario analysis

1-5

2. Scenario Analysis - Key Points ofPractice
Scenario Analysis - Guide Key Pointsof Practice2-i

2-1. For beginning scenario analysis

2-72-2. STEP2. Assess materiality ofclimate-related risks

2-17

2-3. STEP3. Identify and define
range of scenarios

2-24

2-4. STEP4. Evaluate business
impacts

2-38

2-5. STEP5. Identify potential
responses

2-58

2-6. STEP6. Document anddisclose information

2-69

3. Scenario Analysis- Practice Cases by
Sector

3-1

ORIX Asset Management Corporation

3-11

Fuji Oil Company, Ltd.

3-28

Kyushu Railway Company

3-41

Nishi-Nippon Railroad Co., Ltd.

3-53

GUNZE LIMITED

3-67

Shin-Etsu Chemical Co., Ltd.

3-79

Nippon Paper Industries Co., Ltd.

3-91

Mitsui Mining & Smelting Co., Ltd.

3-107

UACJ Corporation

3-123

Maruha Nichiro Corporation

3-139

YASKAWA Electric Corporation

3-152

SCSK Corporation

3-165

ASKUL Corporation

3-178

4. Scenario Analysis Example Disclosure(Domestic and Overseas)
4-2. Domestic Disclosure Examples

4-1

4-3. Overseas Disclosure Examples

4-56

5. Scenario Analysis Parameters andTools for reference
5-1. Parameter List

5-1

5-2. Physical risk assessment tools

5-106

5-3. List of TCFD-related reports

5-112

1. Introduction
1-1. Purpose of this Practical Guide
1-2. Significance of the TCFD recommendations/
positioning of scenario analysis

Chapter 1. Introduction
This chapter explains the purpose of Practical Guide, concept andsignificance of the TCFD recommendations, and positioning of
scenario analysis

Structure and Use of this Practical Guide

Corporate Needs
Companies want to know what the TCFD
recommendations are and what scenario
analysis is in terms of the TCFD
recommendations in the first place
Companies want to know the specificsteps and practical points for scenario
analysis
Companies want to know the steps taken
to conduct the actual scenario analysis
by Japanese companies

Companies want to know disclosure
examples that could be used as
reference for scenario analysis

Companies want to know the reference
tools and literature for scenario analysis

Chapters and the Practical Guide and Their Summaries
Chapter 1. Introduction
This chapter explains the purpose of this practical guide, outlines the TCFD
recommendations and significance in the background, and positions of scenario
analysis

Chapter 2. Scenario Analysis - Key Points of PracticeThis chapter explains how to practically undertake scenario analysis and describes
key points of its practice, based on use cases performed by companies under the
support program of the Ministry of the Environment

Chapter 3. Scenario Analysis - Practice Cases by sector
This chapter explains how scenario analysis is carried out based on the support
cases of the Ministry of the Environment (13 companies supported in FY2020 and
FY2021)

Chapter 4. Scenario Analysis - Example disclosures (domestic andoverseas)
Provide examples of national and international disclosures on scenario analysis
based on the latest findings

Chapter 5. Scenario Analysis

Parameters and tools for reference

Provides useful materials for scenario analysis based on the support cases

TCFD's approach for scenario analysis in this Practical Guide has been developed based on a technical supplement to scenario analysis ("TCFD TechnicalSupplement: The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities" (2017.6)) as well as its own methodology andinterpretations.
Figures for each case are based on information at the time of acquisition.
ze Scenarios of Climate Risks

1. Introduction
1-1. Purpose of this Practical Guide
1-2. Significance of the TCFD recommendations/
positioning of scenario analysis

Chapter 1. Introduction
This chapter explains the purpose of Practical Guide, concept and significance of the TCFD
recommendations, and positioning of scenario analysis.

Purpose and target for this guidanceWith increasing demand for disclosures in line with the TCFD framework, thiscompanies are struggling to respond to. This guide is for all sectors
The Task Force on Climate-related Financial Disclosures (TCFD) has positioned itself as an important framework for disclosureamid a shift in corporate management toward decarbonization and increasing demands for disclosure of information on climate
risks and opportunities
Fearing that climate change will undermine the stability of the financial system, the Financial Stability Board established TCFD in 2015 at
the request of the G20
Since the Paris Agreement, countries have announced long-term goals for decarbonization. Japan also declared a goal for carbon
neutrality in 2020
These developments have led to increasing demands for climate-related disclosures as companies shift their operations todecarbonize
The TCFD recommendations also represent an important position in the framework of information disclosure, and many
companies and institutions are promoting information disclosure in line with the TCFD recommendations

Based on the above background, this guide provides commentary on
among the 11 recommended
disclosure items in the TCFD recommendation that companies are particularly struggling to respond to
The TCFD recommendations set out 11 recommended disclosure items for governance, strategy, risk management, and indicators andtargets
Out of the 11 recommended disclosure items, many companies are struggling to address the-related scenarios, including a 2 C or lower scenariothat was not mentioned in previous disclosure frameworks
Therefore, this guide focuses on scenario analysis and explains practical points, reference information, and reference cases tocarry out the scenario analysis

This guide is for all sectors and all positions
This guide is for all sectors and includes examples of wide-range of sectors as well as parameters and tools for reference
In addition, this guide is for all positions (management/ scenario analysts, etc.) and can be utilized for the following
Management: Understand the overview of TCFD recommendation and scenario analysis through chapter 1, and gain anunderstanding of the overall picture of the implementation of the scenario analysis
Scenario analyst: Capture the overall scenario analysis and implementation steps through chapter 1-3. Use chapter 4 and 5 toobtain information on references

Challenges for companies in implementing scenario analysis

There are roughly 6 difficulties that companies face in implementing scenario analysis.
(1) Scenario analysis is roughly understood, but no specific implementation process is known.
(2) The processes and departments involved in scenario analysis differ for each company and product, and the level of implementation of
scenario analysis cannot be determined uniformly.
(3) Efforts are required to ensure that internal management understands the purpose and the results of scenario analysis.
(4) The method for calculating business impact is unknown, and utilizable external data for scenario analysis is lacking.
(5) The direction for increasing the sophistication of scenario analysis is unknown (includes implementing 1.5 C scenarios and consideringtransitions).
(6) The direction for disclosing scenario analysis results is unknown (Securities reports, Integrated reports, Corporate Governance Code, etc.).

The above issues can be resolved in this Practical Guide.
(1) , (2) : In this practical guide, understandand. In the beginning. Therefore, check-

which category your company falls into.
(3) : Have management understand the significance of the TCFD recommendations and scenario analysis through1 Significance of
the TCFD recommendations / positioning of scenario analysis in this Practical Guide.
(4) : Then, conduct the scenario analysis by utilizing the implementation procedures and calculation methods described inandPractice Casesin this Practical Guide. Start a dialogue with management with the results of
the analysis. If necessary, refer to this practical guide`sfor available
external data.
(5) :Understand and practice the direction to take for making scenario analysis more sophisticated (example: after the second year) through2 Key Points of Practice in this Practical Guide. Also give thought to implementing 1.5 C scenarios and considering transitions.
(6) : Refer to the latest disclosure case studies for preparing Securities reports, Integrated reports, and Corporate Governance reports from thebest practice case studies-

The key is to begin scenario analysis with what you understand, and progress and deepen your knowledge and experience.
Example: First, conduct a qualitative scenario analysis. Then, try a quantitative scenario analysis.
Example: First, apply the scenario analysis to a certain segment. Then, apply to a greater part of your company.

hold dialogues withmanagement.
Seize opportunities by continuing the cycle and incorporate it into business plans.

Key points revised in this Guidance from versions from past fiscal years(1) Detailed explanations of international/domestic trends surrounding the
TCFD, (2) additional commentary explaining financial impact, and (3)improved reference information(1)

Explanations
added forinternational /domestic trends
surrounding the
TCFD

Updated with the latest domestic and international trends surrounding the
TCFD such as strengthening of regulations and rules for climate-related
disclosures by various national governments to be in line with the TCFD, ISSB
(International Sustainability Standards Board) trends for consideration ofinternational standard proposals, and amendments to domestic securities
reports; also contains more detailed explanations of the significance ofaddressing the TCFD recommendations
Chapter 1(2)

Explanations
added forbusiness impact
analysis

A detailed explanations for business impact analysis, which is an area
companies addressing scenario analysis struggles with. Concrete examples ofcalculations and patterns are included as well
Chapter 2

Enhanced practicalaspect through(3) inclusion of a listof TCFD-related
documentation

Enhanced practicality through inclusion of information that can be referenced
when addressing the TCFD recommendations or when considering
implementation of scenario analysis; this information includes explanationsof the latest disclosure case studies, an organized list of TCFD-related
documentation, and partial excerpts of parameters and tools that can beacquired without cost
It is now possible to learn about risk/opportunity analysis case studies in certain
sectors by referencing case studies of support from past fiscal years
Chapter 3,4,5

1. Introduction
1-1. Purpose of this Practical Guide
1-2. Significance of the TCFD recommendations/
positioning of scenario analysis

Chapter 1. Introduction
This chapter explains the purpose of Practical Guide, concept and significance of the TCFD
recommendations, and positioning of scenario analysis.

Trends toward Decarbonization
As countries and institutional investors declare decarbonization targets such as carbon
neutrality by 2050, companies are also being called on to implement decarbonized businesspractices

Declared target of net zero GHG
emissions by 2060 at UN General
Assembly

Declared targets for net zero by 2050 anda 50-52% reduction of GHG emissions
compared to 2005 levels by 2030

Glasgow Finance Alliance for Net Zero
(GFANZ) launched to consolidate
initiatives by financial institutions,investors and others to achieve net zeroby business category

Japanese business federation complied the

Declared target for net zero GHG
emissions by 2050

Declared target of a 46% reduction of GHG
emissions compared to FY2013 levels by
2030
Formulated the Green Growth Strategy forcarbon neutrality by 2050

which refers to reductions in domestic
emissions, strengthening partnerships,
promoting international contributions, anddeveloping innovative technologies

In response to these trends, companies are required to disclose more information,such as Scope3 disclosure* and net zero transparency. In Japan, there was a revisions
to the corporate governance code, which effectively required companies listed on the prime list
to disclose, and require sustainability information in securities reports*The ISSB is also considering temporarily exempting Scope3 from disclosure for first year when S2 is first applied (as of February 2023)

SourceCompiled by the Ministry of the Environment based on various publicly available information

Corporate Management and Climate Change

For corporate management, climate change has the potential to become a clear
risk and opportunity for the company as a whole

Business management
Risks (opportunities) increase
Business sustainability

Changes in modalities ofcompetition

Business common
sense and intelligence

Boycott and exclusionfrom market

Corporate value

Investor-analyst
dialogue
Corporate brand image

Non-financial reporting
disclosures

Credit-rating agencies

Climate change requires reportingon not just the environment
and CSR but all matters.

The environment and CSR department has responded to the climate change, however,there is a growing need for a company to respond to the issues as a whole, as climate-Management and Climate Change Risks (1)Environmental risks related to climate change are also being focused on by management around theworld; environmental risks are mentioned for all short, medium and long-term time frames, and there isa concern that serious environmental risks will increase with longer time framesTop

Environmental risks

Global Risk Report

By time frame and severity
Short term

2 years

10 years1

Cost-of-living crisis

2

Natural disasters and extreme weather events Failure of climate-change adaption

3

Geoeconomic confrontation

Natural disasters and extreme weather events

4

Failure to mitigate climate change

Biodiversity loss and ecosystem collapse

5Erosion of social cohesion and societal
polarization

Large-scale involuntary migration

6

Large-scale environmental damage incidents

Natural resource crises

7

Failure of climate-change adaption

Erosion of social cohesion and societal
polarization

8

Widespread cybercrime and cyber insecurity

Widespread cybercrime and cyber insecurity

9

Natural resource crises

Geoeconomic confrontation

10 Large-scale involuntary migration
SourceLong term

Failure to mitigate climate change

Large-scale environmental damage incidents

https://www3.weforum.org/docs/WEF_Global_Risks_Report_2023.pdf

Management and Climate Change Risks (2)In Japan, too, rising average temperatures and more frequent heavy rains are predicted, and physical risks
from climate change will affect the sustainable management of companies in time frames spanning fromshort- to medium- and long-term
The global average temperature for 2011 2020 is already about 1.1ºC higher than the pre-industrial (1850 1900) average. If
this trend continues, global warming will exceed 1.5ºC and 2ºC within the 21st century unless emissions of carbon
dioxide and other greenhouse gases are significantly reduced in the coming decades. (IPCC: the Sixth Assessment
Global warming is expected to cause increased risk of heat stroke, rising sea levels, and increased frequency/severity of
extreme weather events such as heavy rains, typhoons, and heatwaves. This will affect the viability of corporate activities
through supply chain disruptions, damage to facilities, and employee health risks.
Changes in the number of annual shortduration heavy rainfall events in Japan

Changes in annual averagetemperature in Japan(Difference from the 1991

Observation of high temperatures across Japan
July 2018
Highest temperature ever recorded at 41.1ºC in Kumagaya City,
Saitama Prefecture
Record number of emergency transports due to heatstroke from
July 16 22

2020 average)

Maximum daytime temperature on
Jul 23, 2018
(Source: Japan
Meteorological Agency)

Clear the trend for shortduration heavy rainfall events isincreasing

August 2020
Temperature tied for the record high of 41.1ºC in
Hamamatsu City, Shizuoka Prefecture
Maximum daytime temperature on
August 17, 2020
(Source: Japan
Meteorological Agency)

Climate Change Risks/Opportunities: Projected Changes in Carbon Pricing

Carbon pricing, which is being introduced in many countries in the transition to a low-carbon
economy, will rise to between 10,000 JPY and 30,000 JPY; price increases are expected tooccur worldwide in the future, which could be both a risk and opportunity
Carbon price linked to carbon tax and emission trading, etc.
According to IEA, the carbon price increases between 2030 and 2050 to meet targets such as,1.5 C target
JPY/t-CO2Market prices (2022) and future predictions
Price increase indicatedAdvanced Countries
IEA NZE Scenario
Advanced Countries
IEA APS Scenario
Emerging Countries
IEA NZE Scenario

Developing Countries
IEA NZE Scenario

SwedenSwitzerland
EU-ETS
Tradable Green
Certificates

FinlandDeveloping countries EU
IEA STEPS Scenario

FranceJ-Credits
renewableenergyTokyo`s excess
reduction amount

NorwayJ-Creditsenergyconservation

Netherland
IrelandDenmark
PortugalNon-fossil fuelenergy certificate

2022

2030

2040

2050

1 USD 130.43 JPY 1 EUR 140.75 JPY as of January 31, 2023
EU-ETS prices as of January 31, 2023, are used
Future projections for 2030, 2040, and 2050 are based on IEA WEO 2022 and uses exchange rates as of January 31 , 2023
Tradable Green Certificates have been temporarily determined as 3 JPY/kWh
https://ghg-santeikohyo.env.go.jp/calc
FY 2021 results- published by the
Ministry of the Environment and Ministry of Economy, Trade and Industry
Source non-fossil fuel energy certificates Agency for Natural Resources and Energy website https://www.enecho.meti.go.jp/category/electricity_and_gas/electric/nonfossil/katsuyou_joukyou/ , J-Credit
https://japancredit.go.jp/tender/ , Tokyo`s excess reduction amount: Tokyo Metropolitan Government websit http://www.kankyo.metro.tokyo.jp/climate/large_scale/trade/ , EU-ETS
https://tradingeconomics.com/commodity/carbon
IEA World Energy
Outlook2022
https://iea.blob.core.windows.net/assets/47be1252-05d6-4dda-bd64-4926806dd7f3/WorldEnergyOutlook2022.pdf
Price Rate 1 (highest price) from World Bank
https://carbonpricingdashboard.worldbank.org/

Increased Decarbonization Awareness in Investors (1)ESG investments continue to increase, with investments reaching 121
trillion USD globally and 494 trillion JPY in Japan
globally
The number of PRI signatures as of 2021 was
3,826
Number of signatures

ESG assets under management (globally)
As of 2021, the total amount of AUM wasapproximately 121 trillion USD

ESG assets under management Japan
As of late March 2022, the total amount of AUM
was approximately 494 trillion JPY

Trillions USD

Japan Sustainable Investment Forum

Increased Decarbonization Awareness in Investors (2)There are signs that companies will be required not only to set higher targets thatare faster and more effective but also to set interim targets for decarbonization
Investors setting decarbonization targets

Investor engagement with companies

In addition to declaring carbon neutrality, domestic financial
institutions that are members of the Net-Zero Banking
Alliance (NZBA) have set interim targets for sectors with highCO2 emissions
Mitsubishi UFJ Financial Group, Mizuho Financial Group,
Sumitomo Mitsui Financial Group, Sumitomo Mitsui TrustHoldings have set 2030 interim targets for the electric
power, oil and gas, and coal sectors, among others April
2022~

The Hague, Netherlands, orders Shell to reduce CO2
emissions
A lawsuit filed by several environmental protection groupscited that the biggest European oil company Royal Dutch
Shell (UK, Netherlands) lacked specificity, binding effect,and speed, and demanded that the company reduce its
emissions, including Scope 3 emissions, by 45% of
its 2019 net emissions by 2030 (May 2021)
Major institutional investors demand emission reduction
targets be set

Similarly, domestic financial institutions affiliated with the NetZero Asset Owner Alliance (NZAOA) and other organizations
have also set targets for sub-portfolio engagement transition
finance
Nippon Life Insurance and Dai-ichi Life Group set goals
for their sub-portfolios of listed stocks, internal
companies, real estate, etc., and also set goals forengagement and transition finance March 2021~

largest asset management firms, released a letter to top
executives of the companies BlackRock invests in,requesting that they set short, medium, and long-term
GHG emission reduction targets and perform
information disclosure in compliance with the TCFD
recommendations (January 2022)
In addition, several financial institutions put forward
proposals at shareholders meetings calling for stronger
measures on decarbonization
Environmental NGOs, financial institutions, and otherorganizations called several Japanese companies tostrengthen their response to decarbonization June
2022

Source UNEP FI HP https://www.unepfi.org/net-zero-alliance/resources/member-targets/ https://www.unepfi.org/net-zero-banking/members/
on each publicly available information, Compiled by the Ministry of the Environment based

Background of the TCFD
The Financial Stability Board established the Task Force on Climate-related Financial
undermine the stability of the financial system and threaten financial institutions

reassessment of the value of a large range of assets with a large volume of greenhouse gas emissions and destabilize theDr. Carney also refers to the possibility that a sudden reassessment could destabilize markets like the subprime loan crises.

Speech by Mark Carney, Chair of the Financial Stability Board(FSB),Then Governor of the Bank of England (September 2015)
There are three broad channels through which climate change can affect financial stability:
Physical risks: The direct impacts on property from climate related events, such as floods andstorms and indirect impacts on blocked global supply chain or depletion of resources;
Liability risks: The impacts that could arise if parties who have suffered loss or damage fromthe effects of climate change seek compensation from those, they hold responsible;
Transition risks: The risks which could result from reassessment of the value of a large
range of assets with a large volume of greenhouse gas emissions during the process ofadjustment towards a lower carbon economy.

Source: Financial Times Online, September 30, 2015

International trends surrounding the TCFD
Various national governments, including Japan, have developed / are in the process of developing
disclosure rules in line with the TCFD; the disclosure frameworks are also consistent with the TCFD, with
the TCFD playing a central role in disclosures related to climate change

Global participants: 4,194 groups
Various national
governments

1,202 of which are Japanese (as of January 31st, 2023)

EU:
Disclosure of information in line with the TCFD recommendations on ESG risks,
including climate change risks, is to be gradually made mandatory starting fromJanuary 2023
US:
The Securities and Exchange Commission is currently considering regulations thatwould require listed companies to list climate-related information in line with the
TCFD recommendations, including climate change risks (planned to be finalizedin April 2023)
Other countries including the UK, France, Singapore, Switzerland, and Brazil
have also made TCFD recommendations-compliant disclosure of climate-related
information mandatory / are considering making this mandatory
Japan:
Through a revision of the Corporate Governance Code, prime market-listedcompanies are requested to disclose information in line with the TCFD
recommendations starting from 2022
Furthermore, on January 31, 2023, the Financial Services Agency announced and put
into force amendments to Cabinet Office Ordinances, etc., related to the disclosure ofcorporate affairs, and a new column for entering sustainability-related informationconsistent with the TCFD recommendations was established for securities
reports, etc.*1

Disclosure
frameworks
ISSB (International Sustainability Standards Board):
Announced the final draft of its framework forsustainability-related disclosures based on the TCFD
recommendations, including disclosure of climatechange-related information, in order to establish
internationally consistent requirements for disclosure offinancial information (planned to be finalized in June
2023)
CDP:
Starting from 2018, the CDP asks companies to
respond to questions pertaining to the TCFD
recommendations in its climate change questionnaire
IIRC:*2
Reports that existing frameworks and standards are
generally consistent with the TCFD
recommendations based on survey results from CDP,
GRI, SASB, CDSB, etc.

*1: Applied starting with securities reports, etc. for the business year ended on and after March 31, 2023. However, early application starting with securities reports, etc.
submitted on or after the day of entry into force is also permitted*2: The IIRC merged with the SASB to form the VRF (Value Reporting Foundation), which works to build a comprehensive and unified corporate reporting frameworkusing the IIRC integrated reporting framework and SASB standards
Source: Prepared using various publicly available information sources

TCFD Recommendation Requirements and Disclosures

There are four elements of TCFD recommendations: Governance, Strategy, Risk Management,
Metrics and Targets. Implementation of climate change scenario analysis is recommended in

Recommended
disclosures

Areas in detail

Governance

Strategy

governance around climaterelated risks and opportunities

Metrics and Targets

Disclose how the organization
identifies, assesses, andmanages climate-related risks

Disclose the metrics and targets
used to assess and manage
relevant climate-related risks andopportunities where suchinformation is material

strategy, and financial planningwhere such information ismaterialof climate-related risks andopportunities

Recommended
Disclosures

Disclose the actual and potential
impacts of climate-related risks
and opportunities on the

Risk Management

in assessing and managing
climate-related risks andopportunitiesa) Describe the climate-relatedrisks and opportunities theprocesses for identifying andorganization has identified overassessing climate-related risks
the short, medium, and long terma) Disclose the metrics used by
the organization to assessclimate-related risks andopportunities in line with its
strategy and risk management
processb) Describe the impact ofclimate-related risks andopportunities on theb) Disclose Scope 1, Scope 2,
and if appropriate, Scope 3
greenhouse gas (GHG)
emissions, and the related risks

processes for managing climaterelated risks

strategy, and financial planningc) Describe the resilience of theinto consideration different
climate-related scenarios,
including a 2 C or lower scenarioc) Describe how processes for
identifying, assessing, andmanaging climate-related risks
are integrated into thec) Describe the targets used by
the organization to manage
climate-related risks andopportunities, and performanceagainst targets

management(Differences with the existing information disclosure system)
Implementation of scenario analysis:
Recommends disclosure of information using specific climate-related scenario analysis as recommended by the TCFD
Source: prepared by the Ministry of the Environment based on the Task Force on ClimateTask Force on Climate-ort - Recommendations of theRequirement of the TCFD Recommendations

The TCFD recommendations disclosure of information related to climatechange that poses financial risks and opportunities
Climate-relatedrisks

Climate-related
opportunities

Incorporating them in businessstrategies and risk management

Understanding financial impact
Disclosing information in financial
reporting
The TCFD recommendations request all companies to (i) use different climate-related
scenarios, including a 2 C or lower scenario to (ii) assess their climate-related risks andopportunities, (iii) incorporate such risks and opportunities in their business strategies andrisk management, and (iv) understand and disclose their financial impacts.
of the Task Force on Climate

Financial Impact

The TCFD recommendations present the scope of climate-related risks andopportunities, and financial impacts to be disclosed
Climate-Related Risks, Opportunities, and Financial Impacts
Transition Risks

Opportunities

Policy and Legal

Resource Efficiency

Risks

Technology
MarketOpportunities

Energy Source
Products / Services

Reputation

Strategic Planning
Risk Management

Physical Risks

Financial Impact

Resilience

Markets

Acute

Financial Impact

Chronic
Revenues
Expenditures

IncomeStatement

Cash Flow
Statement

Source: Prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-

Balance Sheet

Assets &Liabilities
Capital &Financingort - Recommendations of the Task Force on

Climate-related Risks

The TCFD Recommendations divided climate-related risks into two major
categories: transition risks related to the transition to a lower-carbon economy andphysical risks related to the physical impacts of climate change
Category

Transition
Risks

Definition

Risks related to thetransition to a lowercarbon economy

Type
Policy andLegalEnhancing regulations on GHG emissions, imposing greaterobligations on information disclosure

Technology

Replacing existing products with those based on low-carbon
technologies, investing in new technologies that eventually turnout to be a failure

MarketChanges in consumer behaviors, market signals with greater
uncertainty, a rise in materials and costs

Reputation

Physical
Risks

Risks related to thephysical impacts ofclimate change

Major aspects and policy actions

Changes in customer or community perceptions, criticism
against certain industries, increased concern among
stakeholders

Acute

Event-driven risks, including severity of extreme events such as
cyclones or floods

Chronic

Longer-term shifts in climate patterns, including sustained
higher temperatures, which may cause sea level rise or chronicheat waves

Source: prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-ort - Recommendations of the Task Force onClimate-related Opportunities

The TCFD recommendations identified the following five areas of climate-related
opportunities that organizations can produce in the course of their efforts to mitigate andadapt to climate change
Area

Policy actions

Financial impact

Use of more efficient models of transport
Use of more efficient production anddistribution processes
Use of Recycling
Move to more efficient buildings
Reduced water usage and consumption

Reduced operating costs (e.g., through efficiency gains and cost
reductions)
Increased production capacity, resulting in increased revenues
Increased value of fixed assets (e.g., highly rated energy-efficientbuildings)
Benefits to workforce management and planning (e.g., improved healthand safety, employee satisfaction) resulting in lower costs

EnergySourceUse of lower-emission sources of energy
Use of supportive policy incentives
Use of new technologies
Participation in carbon market
Shift toward decentralized energy generation

Reduced operational costs (e.g., through use of lowest cost abatement)
Reduced exposure to future fossil fuel price increases
Reduced exposure to GHG emissions and therefore less sensitivity tochanges in cost of carbon
Returns on investment in low-emissions technology
Increased capital availability (e.g., as more investors favor loweremissions producers)
Reputational benefits resulting in increased demand for goods/services

Products
andServices

Development and/or expansion of low
emission goods and services
Development of climate adaptation andinsurance risk solutions
Development of new products or services
through R&D and innovation
Ability to diversify business activities

Increased revenue through demand for lower emissions products andservices
Increased revenue through new solutions to adaptation needs (e.g.,
insurance risk transfer products and services)
Better competitive position to reflect shifting consumer preferences,resulting in increased revenues

Markets

Access to new markets
Use of public-sector incentives
Access to new assets and locations needing
insurance coverage

Increased revenues through access to new and emerging markets (e.g.,partnerships with governments, development banks)
Increased diversification of financial assets (e.g., green bonds andinfrastructure)

Resilience

Participation in renewable energy programs
and adaptation of energy-efficiency measures
Resource substitutes/diversification

Increased market valuation through resilience planning
Increased reliability of supply chain and ability to operate under various
conditions
Increased revenue through new products and services

Resource
Efficiency

Opportunities

Source: prepared by the Ministry of the Environment based on the Task Force on ClimateForce on Climate-ort - Recommendations of the Task

Guidance for Specific Sectors
additional context and suggestions for implementing the recommended disclosures for four
non-financial sectors (Energy; Transportation; Materials and Buildings; and Agriculture, Food,and Forest Products) potentially most affected by climate change
SectorIndustry

Recommended disclosure

EnergyOil and Gas
Coal
Electric Utilities

Assessment and potential impacts of legal compliance, operating
costs, changes in risks and opportunities; changes in regulations
and shift in consumer and investor preferences; and changes ininvestment strategy

Transportation

Air Transport, Maritime
Transportation
Land Transportation (RailTransportation, Tracking
Services)
Automobiles

Assessment and potential impacts of financial risks of enhanced
regulations and new technology on existing factories andequipment; R&D investment in new technologies; opportunities
for use of new technologies to lower emissions standards andregulations on higher fuel efficiency

Materials andBuildings

Metals and Mining
Assessment and potential impacts of enhanced regulations on GHG
Chemicals
emissions and carbon pricing; risk assessment of increased
Construction Materials,
severity of extreme weather events on construction materials andCapital Goods
property; and opportunities for products to improve energy
Real Estate Management efficiency or reduce energy consumption
and Development

Agriculture,
Food, and
ForestProducts

Beverages, Foods
Agriculture
Paper and Forest
Products

Assessment and potential impacts of GHG emissions reductions;
recycling and waste management; business of food and textile
products with lower GHG emissions, and shifts in consumer
preferences

Source: Prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-65

ort - Recommendations of the Task Force onGovernanceTo incorporate climate-related risks and opportunities in business strategy, an organization
should establish a system involving management. The TCFD recommendations require an-related risks and opportunities, and-related risks and opportunities
Processes and frequency by which the board and/or board committees are informed aboutclimate-related issues
Whether the board and/or board committees consider climate-related issues whenreviewing and guiding strategy, major plans of action, risk management policies, annual
monitoring implementation and performance, and overseeing major capital expenditures,acquisitions, and divestitures

governancearound climaterelated risks andopportunities

How the board monitors and oversees progress against goals and targets for addressing
climate-related issues

Management role in assessing and managing climate-related risks andopportunities
Whether the organization has assigned climate-related responsibilities to managementlevel positions or committees; and, if so, whether such management positions orcommittees report to the board or a committee of the board and whether those
responsibilities include assessing and/or managing climate-related issues
A description of the associated organizational structure(s)How management (through specific positions and/or management committees) monitors
climate-related issues

Source: Prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-ort - Recommendations of the Task Force on

Strategy
The TCFD recommendations require an organization to describe the climate-related risks andconsidering different climate-related scenarios, including a 2 C or lower scenario
The climate-related risks and opportunities the organization has identified over the
short, medium, and long term

Impact on the

A description of what they consider to be the relevant short, medium, and long-term time
horizons
The specific climate-related issues for each time horizon that could have a material financial
impact on the organization
The process(es) used to determine which risks and opportunities could have a material financial
impact on the organization

The impact of climatebusinesses,
businesses, strategy, and financial planning
strategy, andHow identified climate-related issues have affected their businesses, strategy, and financial
financialplanning
planning (where
The impact on their businesses and strategy in the areas of products and services; supply chain
relevant
and/or value chain; adaptation and mitigation activities; investment in research anddevelopment; and operations
information is
The impact of climate-related issues on operating costs and revenues; capital expenditures andcritical)
capital allocation; acquisitions or divestments; and access to capitalclimate-related scenarios, including a 2 C or lower scenario
How resilient their strategies are to climate-related risks and opportunities
Where they believe their strategies may be affected by climate-related risks and opportunities;
how their strategies might change to address such potential risks and opportunities; and theclimate-related scenarios and associated time horizon(s)Source: prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-21

ort - Recommendations of the Task Force on

Risk Management
for identifying, assessing, and managing climate-related risks, as well as how these-related
risks
Their risk management processes for identifying and assessing climate-related risks(An important aspect is how the organization determines the relative materiality ofclimate-related risks in relation to other risks)
Whether they consider existing and emerging regulatory requirements related to climatechangeTheir processes for assessing the potential size and scope of identified climate-relatedrisks; and definitions of risk terminology used or references to existing risk classification
frameworks used

How theorganization
identifies,
assesses,and manages
climaterelated risks-related risks
Their processes for managing climate-related risks, (including how they make decisions
to mitigate, transfer, accept, or control those risks)
Their processes for prioritizing climate-related risks, (including how materiality
determinations are made)How processes for identifying, assessing, and managing climate-related risks

How their processes for identifying, assessing, and managing climaterelated risks are integrated into their overall risk management
Source: prepared by the Ministry of the Environment based on the Task Force on ClimateClimate-22

ort - Recommendations of the Task Force on

Metrics and Targets

The TCFD recommendations require an organization to describe the metrics used
to assess climate-related risks and opportunities in line with its strategy and risk
management process; GHG emissions; the targets to manage climate-related risks
and opportunities, and performance against targets
The metrics used by the organization to assess climate-related risks and opportunities inline with its strategy and risk management process

The metrics andtargets used toassess andmanage relevant
climate-relatedrisks andopportunities
where suchinformation ismaterial

The key metrics used to measure and manage climate-related risks and opportunities (organizations
should consider including metrics associated with water, energy, land use, and waste management)
Whether and how related performance metrics are incorporated into remuneration policies (whereclimate-related issues are material)
Their internal carbon prices as well as climate-related opportunity metrics such as revenue fromproducts and services designed for a lower-carbon economy
Metrics should be provided for historical periods to allow for trend analysis. The methodologies used
to calculate or estimate metrics should also be included.

Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas (GHG) emissions, and therelated risks
GHG emissions calculated in line with the GHG Protocol methodology to allow for aggregation andcomparability across organizations and jurisdictions
Related, generally accepted industry-specific GHG efficiency ratios (as appropriate)
GHG emissions and associated metrics should be provided for historical periods. The methodologies
used to calculate or estimate the metrics should also be included.

The targets used by the organization to manage climate-related risks and opportunities
and performance against targets
Their key climate-related targets (such as those related to GHG emissions, water usage, energy
usage)
Other goals including efficiency or financial goals through the entire life cycle of products and services
Whether the target is absolute or intensity; time frames over which the target applies; key performanceindicators, etc.

Source: Prepared by the Ministry of the Environment based on the Task Force on Climateon Climate-23

ort - Recommendations of the Task ForceReprint
TCFD Recommendation Requirements and Disclosures
TCFD recommendations seeks all companies to disclose information about climate-relatedrisks and opportunities, and unlike the other existing frameworks, the TCFD recommends
companies to conduct the scenario analysis

Recommended
disclosures

Areas in detail

Governancegovernance around climaterelated risks and opportunities

Strategy
Disclose the actual and potential
impacts of climate-related risks
and opportunities on the

Risk Management

Metrics and Targets

Disclose how the organization
identifies, assesses, andmanages climate-related risks

Disclose the metrics and targets
used to assess and manage
relevant climate-related risks andopportunities where suchinformation is material

strategy, and financial planningwhere such information ismaterialof climate-related risks andopportunitiesa) Describe the climate-relatedrisks and opportunities theprocesses for identifying andorganization has identified overassessing climate-related risks
the short, medium, and long terma) Disclose the metrics used by
the organization to assessclimate-related risks andopportunities in line with its
strategy and risk management
process

in assessing and managingb) Describe the impact ofclimate-related risks andopportunities on theb) Disclose Scope 1, Scope 2,
and if appropriate, Scope 3
greenhouse gas (GHG)
emissions, and the related risks

Recommended climate-related risks andDisclosures
opportunities

processes for managing climaterelated risks

strategy, and financial planningc) Describe the resilience of theinto consideration different
climate-related scenarios,
including a 2 C or lower scenarioc) Describe how processes for
identifying, assessing, andmanaging climate-related risks
are integrated into thec) Describe the targets used by
the organization to manage
climate-related risks andopportunities, and performanceagainst targets

management(Differences with the existing information disclosure system)
Implementation of scenario analysis:
Recommends disclosure of information using specific climate-related scenario analysis as recommended by the TCFD
Source: prepared by the Ministry of the Environment based on the Task Force on ClimateTask Force on Climate-ort - Recommendations of the

Impact on companies who do not implement responses to the TCFD recommendations

Perceptions of lacking / having inadequate measures for addressing the TCFD
recommendations have a great risk of hindering sustainable management of thecompany in the short, medium, and long-term
Short term
Increased financing costs: Perceptions of inadequate measures against climate change will lead toincreased financial costs due to withdrawn investments and lost opportunities for ESG investment andgreen financing
Environmental reputation/branding: Decline in environmental reputation and branding due to lack ofcompliance with international disclosure rules
Lawsuits: Litigation by shareholders and other stakeholders for failure to uphold obligations for reporting
material information (example: Commonwealth Bank of Australia)

Short to medium-term
Regulations: Failure to comply with information disclosure rules and accounting standards may lead to a
(Corporate Governance Code revision in Japan, movement toward legislation in several countries in Europe)Long term
Weakening of business itself: If the company fails to cope with the uncertainties of climate change, it willlose opportunities / be exposed to risks that may jeopardize its long-term survival

five-year trajectoryMore companies are disclosing information in line with TCFD recommendations. Climatechange has come to be seen as a major consideration for business and investment, and morecompanies and investors sees that the prices of financial assets affected

TCFD Milestones and Progress
Disclosures become more complete,consistent, and comparable, and there ismore appropriate pricing of climaterelated risks and opportunities

Companies and investors see climate change as affecting
the price and valuation of financial assets. There is also a
growing body of literature showing that climate-relatedrisks are beginning to affect the price of assets
A growing number of jurisdictions are adopting TCFD
recommendations as a standard for climate-related financial
disclosures, and investors are demanding companies todisclose information in line with the recommendation. The
preparers and users of disclosures increasingly view climatechange as a major business and investment consideration

The number of companies implementing
the recommendations grows, and thetypes of information disclosed are further
developed

Preparers and users of disclosure
increasingly view climate-related issues asmainstream business and investment
considerations

Final TCFD Report
Released June 2017

In fiscal 2021, the number of companies
making disclosures in line with TCFD
recommendations increased approximately
5 times compared to fiscal 2017

Companies increasingly disclose climaterelated information in financial filings

More than 70% of companies disclosed
climate-related information in fiscal
2021, compared with 45% in fiscal 2017

Five Year Time Frame
Source

TCFD, Task Force on Climate-related Financial Disclosures 2022 Status Report

Status of support for TCFD
Japan ranks first in the world in terms of the number of organizations expressing support, withvarious sectors expressing support
93 countries/regions, 4,194 companies, governments, multilateral institutions, private organizations, etc., expressed their support for TCFD (As of January
31, 2023). The Ministry of the Environment on July 27, 2018, the Ministry of Economy, Trade, and Industries on December 26, 2018.
Total assets of financial institutions that have expressed their support already exceed 220 trillion USD and have continued to increase thereafter (from the2022 Status Report)

Number of Japanese Companies Presenting
Support by sector as of January 31, 2023

Top 10 supporting countries & regions
as of January 31, 2023

1400
1200

Sector, Number of supporters

Services, 1541202
ConsumerGoods,
Pharmaceutical,
90

1000

Financial, 264

800
600

504

Japanesecompanies

460

400
200
0

168 158 147 138

120

78

73

Electronics,
Machinery,
Telecommuni
cations,
166

Energy, 42

1,125Transportation,
78

Trading, Retail, 71
Materials and Buildings, 195
Agriculture, Food, and Forest Products, 65

See below (the Ministry of the Environment website) for the latest number of companies presenting support and theirnames http://www.env.go.jp/earth/datsutansokeiei.html
Source TCFD website* The number of organization presenting support in Japan is 1,202, and the number of companies presenting support in Japan (including general incorporated associations
and law firms in addition to general companies) is 1,125 companies. (as of January 31, 2023)

TCFD Recommendation Initiatives in Japan: Revision of Corporate Governance CodeIn Japan, the revised Corporate Governance Code requires disclosure
based on the TCFD recommendations for prime market listed companies
The Corporate Governance Code and guidelines for dialogue between investors and companies wererevised to enable companies to demonstrate more sophisticated governance (June 2021)

every year starting in 2022*1

Details of TCFD-related revisions*2
When disclosing
management strategies,
listed companies shouldmake appropriate
disclosure of their efforts
related to sustainability
Prime market listedcompanies*2 should
promote the quality andquantity of theirdisclosures based on the
TCFD recommendations
The Board of Directors
should formulate basic
policies on the

It is important for
listed companies toconsider andpromotesustainability
initiatives on acompany-widebasis (e.g.,
establishingcommittees onsustainability,
holding dialogue
with shareholders)initiatives and provide
effective oversight*1: The revisions in the Corporate Governance Code that cover prime market listed companies will come into effect on April 4, 2022. Reports based on the principles, etc., for prime market listed companies are required to besubmitted starting April 4, 2022; the Corporate Governance Reporting Guidelines (April 2022 version) will be effective starting April 4, 2022
*2: One of the market classifications after the Tokyo Stock Exchange listing classification change (scheduled for April 4, 2022). Generally equivalent to the current First Section of the Tokyo Stock Exchange

Source:Financial Services Agency website

TCFD Recommendation Initiatives in Japan : Announcement and entry into force of amendments to Cabinet Office
Ordinances, etc., related to the disclosure of corporate affairs

At the end of January 2023, the Financial Services Agency announced and put into force amendments toCabinet Office Ordinances, etc., related to the disclosure of corporate affairs; a new column for entering
sustainability-related information was established for securities reports, etc. *1

developed for disclosure of corporate sustainability-related initiatives and disclosure of information related to corporate
governance (June 2022)
On January 31, 2023, a revision was made to include disclosures of corporate sustainability-related initiatives in theitems for listing in securities reports, etc., based on the recommendations and public commentary

Revisions / announcements related to disclosure of corporate sustainability-related initiatives (excerpt)
Overview of revisions /announcements
Establishment of a newcolumn for entering
sustainability-related
information
Statements of forwardlooking information /liability for misstatements,
and references to otherpublished documents

Details of revisions / announcements

reports, etc. This is to be aandes
, and one for

Additionally, if the company has included sustainability-related information in any other column in securities reports, etc., thecompany must reference those entries in the sustainability-related information entry column
For forward-looking information, if a concrete explanation is provided to the extent that is generally considered reasonable, thecompany will not be held immediately liable for misstatements, etc., even if the actual results differ from the forward-looking
information stated in the securities registration statement.
Additionally, when providing the explanation in question, if, for example, the explanation is one that was reached as a resultof appropriate internal consideration of the forward-thinking information based on reasonable grounds, the company
must include a statement to that effect, providing an overview of the details of the consideration behind this (e.g., thefacts upon which the premise was built and the degree to which tentative assumptions and estimations were used)
For entries on sustainability-related information and the status of activities by the board of directors, etc., after entering the key
matters for inclusion in securities registration statements, the company must then reference other published documents for
information on the details for these entries. Furthermore, excepting cases where the act of referencing other published documents
may itself constitute a significant misstatement in the securities registration statement (such as where the company has knowingly
referenced other published documents that clearly include significant misstatements), the company will not be held immediately
liable for misstatements, etc., through documents referenced*1: Applied starting with securities reports, etc. for the business year ended on and after March 31, 2023. However, early application starting with securities reports, etc.
submitted on or after the day of entry into force is also permitted
Source: Financial Services Agency website https://www.fsa.go.jp/news/r4/sonota/20230131/20230131.html

TCFD recommendation initiatives in Japan: Disclosure in corporate and securities reports

In chapter 4 of this practical guide, a total of 28 disclosure examples ofcorporate scenario analysis are introduced, including overseas examples
RegionSectorFinancial

Sompo Holdings, Inc., Dai-ichi Life Holdings, Inc., The Norinchukin Bank, Mizuho Financial Group, Inc.

EnergyJ-POWER, The Chugoku Electric Power Company, Inc.

Transportation

Mitsui O.S.K. Lines, Ltd., East Japan Railway Company

Materials, Buildings

Domestic

Company NameKH Neochem Co., Ltd., JFE Holdings, Inc., TODA CORPORATION, LIXIL Corporation

Agriculture, Food, andKameda Seika Co., Ltd., Kirin Holdings Company, Limited, FUJI OIL HOLDINGS INC.
Forest Products
Trading, RetailElectricity, Machinery,Communication

J. Front Retailing Co., Ltd., Isetan Mitsukoshi Holdings, Ltd., Mitsubishi Corporation
NTT DATA Corporation, Ebara Corporation, Seiko Epson Corporation, NEC Corporation, PanasonicHoldings Corporation

Consumer Discretionary,
Shiseido Company, Limited, SEKISUI CHEMICAL CO., LTD., Nichirei Corporation
Pharmaceutical or Food
Service

Other

EnergyTransportation
Materials, Buildings
Overseas

Members Co., Ltd., Recruit Holdings Co., Recruit Holdings Co., Ltd.
NRG Energy Inc

Shell plc

Canadian National Railway

UK

CanadaThe Dow Chemical Company US

Agriculture, Food, andJ Sainsbury Plc
Forest ProductsElectricity, Machinery,Communication

USUK

Mondi Group

Woodside Energy Limited
FirstGroup plc

UK

Freeport-McMoRan Inc

Australia

Ford Motor Company US
US

Newmont Corporation

USUK

Eaton Corporation plc

US

Schneider Electric SE

Consumer Discretionary,
Burberry Group PLC
Pharmaceutical

UK

Unilever plc

FranceUK(Reference)
Nearly 70% of the 400 constituents of the JPX-Nikkei Index have disclosed 1 or more
disclosure items recommended by the TCFD, indicating that disclosure is progressing
Japan Exchange Group investigated the disclosure status of the TCFD recommendations for the 400
constituents of the JPX Nikkei Index (as of October 2022). About 70% of companies disclosed at least one
disclosure item from the recommendation
less

Source: Japan Exchange Group, Inc., Survey of TCFD Disclosure in JapanFY 2022https://www.jpx.co.jp/english/corporate/news/news-releases/0090/tcgh510000005j2x-att/tcfd2022en.pdf

TCFD Consortium Overview
In view of the increased awareness on corporate disclosure and use of climate-related information highlighted by the Task Force on Climate-related
Financial Disclosures (TCFD) in Japan, the private-led TCFD Consortium was established on May 27, 2019, by five founders.
* Founders of the consortium: Professor Kunio Ito of Hitotsubashi University; Chairman Hiroaki Nakanishi of Keidanren (Japan Business Federation); Chair Makoto
Takashima of the Japan Bankers Association; President and Chief Executive Officer Takehiko Kakiuchi of Mitsubishi Corporation; and Chairman of the Board Shuzo
Sumi of Tokyo Marine Holdings.

The Consortium aims to further discussion on effective corporate disclosure of climate-related information and their use by financial institutions forappropriate investment decision.
Published(October 2021)
which explains the perspective from which investors and others interpret disclosures based on TCFD recommendations, and published(October 2022)
In addition, the TCFD Summit has been held since 2019 where leaders from industry and finance that took world leading initiatives gather to. In October 2022, the 4th TCFD Summit 2022 was held to share best practices and engage in wideranging
Achieving a Virtuous Cycle of Environment and Growth through TCFD Consortium

step toward TCFD disclosure, thereby encouraging
disclosure by companies based on the TCFD
recommendations

Compiled the TCFD Guidance ver3.0 Addition of sectors and casestudies, etc.

Companies

Disclosure information
Visualization of companies
engaged in innovation

Initiatives forinnovation andcommercialization

See below for more information on the TCFD
Guidance ver3.0
https://tcfd-consortium.jp/news_detail/22100501

Financial institutions, etc.

Virtuous cycle

Based on the increase in corporate information
disclosure, it provides commentaries on perspectives
needed by investors and other stakeholders when
understanding the disclosed information.
It is also expected that companies will deepen theirunderstanding of the viewpoints of investors and otherstakeholders, leading to further disclosure.

Properly utilizing
and evaluating
disclosed information

Attracting ESG investment

ESG Investment

See below for more information on Green
Investment Guidance 2.0
https://tcfd-consortium.jp/news_detail/21100501

Compiled the Green Investment Guidance 2.0 for financial institutions, etc.
(Discussions on points to consider when investors evaluate disclosed information)
Source TCFD Consortium

Guidance/guides related to the TCFD in Japan-

Recommended for planning management
strategies using TCFD (Practical guide for
Scenario Analysis in line with the TCFD
recommendations 2022 this guide)

Investors

Guidance on Climate-related Financial
Disclosures 3.0(TCFD Guidance 3.0)
Issued by TCFD Consortium October 2022
Explains the recommended disclosure items in the TCFD
recommendations

Published by the Ministry of theEnvironment (March 2023)
Explains c) scenario analysis in Strategy
which is one of the recommended
disclosure items in the TCFD
recommendations
Covers all industries

Companies-

Covers all industries
Industry-specific guidance is also provided for the following industries:
automobiles; steel; chemicals; electrical machinery/electronics; energy; foodproducts; banking: life insurance; casualty insurance, international shipping

Promotion of climate changerelated initiatives

Disclosure of climate changerelated information

Assessment of climate changerelated information disclosure
Guidance for Utilizing Climate-related Information to
Promote Green Investment 2.0 (Green Investment
Guidance 2.0)

Published by the TCFD Consortium(October 2021)
Provides an explanation that includes the perspectives
needed by investors and similar stakeholders ininterpreting disclosure information for recommended
disclosure items in the TCFD recommendations
Sources: TCFD Consortium, Ministry of the Environment websites

See chapter 5 for TCFD-related literature

Status of various countries' TCFD initiatives (1/3)

TCFD disclosures are advancing in Europe and are becoming mandatory in
the EU as well as UK beginning 2023
EU

Final approval passed for TCFD-compliant Corporate Sustainability Directive.
Implementation will start gradually from January 2023

The final draft was announced for implementation of technical standards in line with initiatives such as the TCFD recommendations for disclosure of
ESG risks, including climate change-related risks. The standards apply to major financial institutions that have issued securities recognized for trade inmarkets regulated by the European Banking Authority and EU member states. The Capital Requirements Regulation (CRR), makes it mandatory as of June 28,2022, for major financial institutions to disclose information on ESG risks, including climate change-related risks (January 2022)
The TCFD recommendations-compliant Non-Financial Reporting Directive (NFRD) was revised, and the Corporate Sustainability Reporting Directive(CSRD) was announced, which newly expands the scope of the Taxonomy on disclosures and requires double materiality-based disclosure of ESG-related
The European Financial Reporting Advisory Group (EFRAG), an EU corporate reporting agency,
began discussion on the proposed standards for the Corporate Sustainability Reporting Directive (CSRD) in May 2022, and announced the draft for the
EU Sustainability Reporting Standards (ESRS). The European Parliament passed final approval for the CSRD in November 2022, and began its
application from 2023 based on the results of tripartite discussion between the European Parliament, European Council, and European Commission. The firstgroup will be required to perform disclosures in line with the CSRD beginning FY 2024 (November 2022 )Progress both in imposing companies to disclose climate-related information andimposing the companies to link the results with initiatives related to TCFD recommendations and biodiversity

FranceEnergy Transition for Green Growth Act, Article 173 makes it mandatory for companies to disclose information on climate-related risks in annual reports (2015)
The 40 major French companies listed in the CAC40 index declared their support of the TCFD recommendations. With a statement of support signed by multiple government
tment for building a financial system that is resilient
against climate change (December 2020)
As a result of civic discourse on plans to strengthen rules through Article 173 of the Energy Transition for Green Growth Act from the perspective of reporting on risks
related to climate change and biodiversity loss and from the perspective of TCFD-compliant reporting supported by G20, the French bureau of finance mandated
disclosure of information related to biodiversity loss and 2030 targets (June 2021)(Reference) Article 29 of the new Energy-Climate Law was announced, which contains rules on biodiversity-related reporting that make it mandatory for French financial institutions
to disclose information related to consistency with long-term biodiversity protection goals, with the objective of achieving consistency with the strengthened rules in Energy
Transition for Green Growth Act Article 173 and the SFDR (EU) (June 2021)
UK

TCFD-compliant information disclosures made mandatory through revisions to corporate law
in line with the TCFD

In October 2021, the Department for Business, Energy and Industrial Strategy announced a proposed corporate law rule that would make TCFD-based information
disclosures mandatory for major companies and specified financial institutions. As a result, mandatory disclosure of information in line with the TCFD
recommendations in the annual reports of listed companies and major asset owners was applied from the financial year starting from April 6, 2022. Consideration is
being made in 2023 of expanding the scope of applicable companies, with gradual mandatory implementation planned by 2025 (October 2021)
The Financial Conduct Authority (FCA) made anfrom 2023 it would be mandatory for listed companies and companies in specific financial sectors, such as asset management companies and regulated companies, to publish
their climate change transition plans. On November 8, 2022, it published the draft of its transition plan guidelines, for which it is currently requesting public commentary until
February 28, 2023 (November 2022)*As of the end of January 2023
European Commission websites

Status of various countries' TCFD initiatives (2/3)

The US and Canada are also recommending information disclosure; the US is
currently considering making TCFD-compliant disclosures mandatory
USThe Securities and Exchange Commission (SEC) is pushing forward with making disclosures in line with
TCFD recommendations mandatory

The SEC issued a report recommending that the US consider adopting its own version of the ESG disclosure framework. Standards from the
TCFD, GRI, and US Sustainability Accounting Standards Board (SASB) are recognized as being useful for preparing the ESG disclosure
framework (May 2020)
Public commentary was opened concerning mandatory disclosure of information on climate change-related risks, and a joint statement by 180
institutional investors, 155 global companies, and 58 NGOs was published calling for mandatory information disclosure based on TCFD
guidelines by listed companies (June 2021)
In March 2022, the SEC proposed a draft for rules on climate change disclosures based on TCFD recommendations and GHG Protocol.
,
by listed companies. The proposed rules
require third-party guarantee for Scope 1 and 2 risk-related disclosures; disclosure is also requested for Scope 3 risks in significant cases / cases
where targets have been set for these. These are expected to beforce. In June 2022, the
US Commodity Futures Trading Commission made a request for provision of information on public commentary concerning climaterelated market risks, and the rules will be finalized in April 2023 (November 2022)

CanadaGradual introduction from 2024 planned for TCFD-compliant disclosures by financial institutions

Financial institutions such as banks and the CSA (Canada Standard Authority) are leading consideration ofown version of theTaxonomy (September 2021)
The Canadian federal government released Budget 2022 and announced its intention to push forward with mandating reporting forclimateframework. In 2022, the Office of theSuperintendent of Financial Institutions (OSFI) held discussions on climate change-related disclosure guidelines for federally regulated financial
institutions. Starting from 2024, disclosures of climate change-related financial information in line with the TCFD framework will be mademandatory for federally regulated financial institutions, which is expected to be introduced in a gradual manner. Federally regulated
financial institutions include all Canadian banks, insurance companies, and federally incorporated or registered trust and loan companies. The
financial institutions will be expected to gather information from clients concerning climate change-related risks and emission levels, and toevaluate these. (April 2022)

Sources:various publicly available information sources such as Ministry of theEnvironment, European Commission, and Financial Services websites*As of the end of January 2023

Status of various countries' TCFD initiatives (3/3)
In Japan, disclosures in securities reports are becoming mandatory, and activity toward recommending
information disclosures can also be seen in ChinaJapan

The revised Corporate Governance Code requests listed companies to disclose
information in line with TCFD
1
The Ministry of Economy, Trade and Industry released its TCFD Guidance 3.0* , which encourages corporate disclosures based on the
TCFD recommendations, as well as providing an explanation of the finalized TCFD report (December 2018)
The
y for
companies to use as reference when conducting scenario analysis (revised every March starting from 2019)
The TCFD Consortium was established by founders including Professor Kunio Ito of Hitotsubashi University Graduate School (May 2019)*2
recommendation-based information
disclosures from an investor perspective. The Guidance is mentioned at the TCFD Summit (October 2021)
The Financial Services Agency revised the Corporate Governance Code, which also mentions sustainability and the TCFD. As a
supplementary principle, in order to enhance information disclosures, prime market-listed companies are requested to makedisclosures of information based on the TCFD recommendations. As of 2022, prime market-listed companies*3 are required to continue to(June 2021)
As a result of the recommendation in the June 2022 report of the Working Group on Corporate Disclosure of the Financial System Council andthe public commentary held in December 2022, proposed amendments to Cabinet Office Ordinances, etc., related to disclosure of corporate
affairs were announced and put into force. A new column for entering sustainability-related information in line with TCFD
recommendations was established for securities reports, etc. (January 2023)
China

Translation of the TCFD recommendations and Guidance moves forward with theaim of adopting the TCFD frameworkn its
intent to make TCFD compliance mandatory for all listed companies in 2020 (January 2018)
Joint pilot project launched in cooperation with the UK government, with a progress report issued for the second year (May 2020)
Industrial and Commercial Bank of China (ICBC) translated five documents aimed at adopting and implementing the TCFD
framework in China; the documents include the TCFD recommendations and guidance. The translation of even more documents
is planned in the future (January 2022)*1: Guidance on Climate-related Financial Disclosures; version 3.0 released October 2022
*2: Guidance for Utilizing Climate-related Information to Promote Green Investment 2.0*3: Companies with 800 or more shareholders, 20,000 or more units of tradable shares, aggregate market value of tradable shares worth JPY 10 billion or more, etc.
Sources:various publicly available information sources such as Ministry of the Environment, European
Commission, and Financial Services websites*As of the end of January 2023

(Reference) Global TCFD recommendation disclosures situation

Looking at the trends from 2019 to 2020, the percentage of companies
disclosing in line with the TCFD recommendations is on a rise
TCFD-Aligned Disclosures by Fiscal Year for 2019-2021a) Board OversightGovernance13%b) Management`s Role

10%

42%

b) Impact on Organization

31%c) Resilience of Strategy

6%a) Risk ID and Assessment Processes

Risk
Management

12%
16%
19%

b) Risk Management Processes17%c) Integration into Overall Risk Management

17%

40%

28%
27%

b) Scope 1,2,3 GHG Emissions

-

27%

0%

10%

20%

53%

61%

47%

34%
37%

34%

c) Climate-Related Targets

n=1,434

2021

29%
33%

a) Climate-Related Metrics

Metrics andTargets

2020

18%
22%

a) Risks and Opportunities

Strategy

Source

2019

25%
29%

30%

42%

46%
47%

40%
44%

38%
40%

49%
50%

60%

70%

(Reference) Use of Climate-related Disclosures in the Financial sector

Multiple companies in asset management has answered that climate-related
information is used for decision making in investment activities and lending
Use of climate-related disclosures in decision-making

Of those that use disclosure
information for decision-making,
86% use it for investment
activities and 19% for lending

The asset management sector dominated the breakdown ofcompanies that use disclosure information for decisionmaking

Source-Relationship with TCFD recommendations in the disclosure framework: ISSB trends
The ISSB was organized to develop unified international standards for sustainability-related-related
disclosures, the ISSB requires disclosures based on the TCFD recommendations
The IFRS Foundation established the ISSB, which develops international disclosure standards, on November 3, 2021, to address the needsof investors, etc.
The TRWG* released its prototype for climate-related disclosure standards in November 2021, which requests disclosures based on the
TCFD recommendations
On March 31, 2022, the proposed standards were announced based on TRWG consideration, and public commentary on the exposure draft
was opened until July 29, 2022. The standards are planned to be finalized by around June 2023, and S1 and S2 are expected to be applied
from January 2024
History and purpose of ISSB
Background behind establishment: On November 3, 2021, the IFRSFoundation Trustees announced the establishment of the ISSB
(International Sustainability Standards Board) at COP26
Purpose: Aims to develop international standards fordisclosure of ESG information such as climate change risk inorder to improve the consistency and comparability of corporate
sustainability-related disclosures[Organization structure]
IFRS Foundation
Monitoring BoardIFRS Foundation Trustees
IFRS
Advisory
Council

IASB

ISSB

(Role)
Public accountability
Governance,
strategy and administration
Independent standardsetting and related
activities*: The TRWG is composed of representatives from the CDSB, TCFD, IASB,
VRF, and World Economic Forum

Relationship between the ISSB and the
TCFD recommendations
TRWG is the working group for consideration of ISSB standards. Outof the deliverables forming the foundation for future consideration (8deliverables), it has released exposure drafts for the general
requirements for disclosure of sustainability-related financial
information (S1) and for climate-related disclosures (S2)At the ISSB meeting held January 17 to 19, 2023, the requirements
for evaluating climate-related resilience using scenario analysis
were established based on materials issued by the TCFD, and it
was stressed that companies could develop their capability over time
to strengthen their disclosures

1

2

Establishes the requirements for
related financial information, and calls
for disclosure of information on
governance, strategy, risk
management, metrics, and targets
based on the TCFD
recommendations

Sources: IFRS Foundation website: IFRS - Our structure, https://www.ifrs.org/groups/technical-readiness-working-group/#about, IFRS - Climate-related Disclosures,Prototype Climate-related Disclosures Requirements (Climate Prototype) (ifrs.org), the Nikkei-related Disclosures(Reference) Relationship with TCFD recommendations in the disclosure framework: Schedules for beginning application by
the ISSB, CSRD, and SEC

Three institutions are considering standards for disclosure of non-financial information concurrently: theISSB, which assumes the global application of standards; Europe sustainability
reporting directive, CSRD; and the US SEC
disclosures
2022
1

2

3

4

5

6

7

Exposure draft released
Calls for commentary

8

9

10

11

12

2023
1-3

4-6

Finalized

Redeliberation, finalization of standards basedon commentary

General requirements, climate-related disclosure (Exposure draft)

IFRS
ISSB 1

7-9

10-12

2024
1-3

4-6

Application begins

General requirements,
climate-related disclosure

Calls for opinion

Standards prepared

Other priority areas besides climate change
Draft CSRD adopted

Europe
CSRD 2Enter into force

EU member states develop national
legislature based on the CSRD

Non-Financial Reporting Directive (NFRD)*3 (2017 to current)
Corporate Sustainability
Reporting Directive (CSRD)
1st set (exposure draft) released
Calls for commentary

Corporate Sustainability Reporting
Directive (CSRD)

Standards finalized

ESRS*4 1st set (Exposure draft)
Proposed rulereleased

US
SEC

Calls forcommentaryStandards
finalized

AdoptedApplication begins 4

ESRS
1st setApplication begins

Proposed climate disclosure rule

Climate disclosure rule
Limitedassurance*1 ISSB: International Sustainability Standards Board, *2 CSRD: Corporate Sustainability Reporting Directive (Europe), *3 NFRD: Non-Financial Reporting
Directive (Europe), *4 ESRS: EU Sustainability Reporting Standards, *5: Application to companies outside of the NFRD scope will start from 2025
Source Compiled by the Ministry of Environment with information from SEC website https://www.sec.gov/rules/proposed/2022/33-11042.pdf
European Commission Corporate sustainability reporting (europa.eu)
IFRS Foundation website IFRS - Climate-related Disclosures

Relationship between CDP questions and TCFD recommendations

CDP's questions also conform to TCFD recommendations, and questions
related to TCFD recommendations have been established
CDP sends out questionnaires at the request of institutional investors and companies making ESG
investments to evaluate companies' environmental responses
The climate change questionnaire complies with the recommended disclosure items in the TCFD
recommendations and asks for information about companies' risks, opportunities, impacts on climate change
CDP Climate Change Questionnaire (2022) : Questions related to TCFD recommendation are included in C3.2, etc.

Source CDP website

Significance of Scenario Analysis (1)Information disclosure using scenario analysis is recommended for evaluating the impact
made by climate-related risks and opportunities; 1.5 C scenarios are becoming more
complete and are useful for companies to consider their decarbonization strategies

Usefulnessof scenario
analysisTargetScenario analysis is a useful method for organizations to use to strategicallyaddress issues that are long-term and have a high level of uncertainty
Disclosures should also include premises for key scenarios in industries
where climate change-related risks are a concern. Scenario analysis
requires ability / manpower, but it also holds benefits for organizations

Scenario groups that may be applied

Transition
risks

IEA WEO NZE IEA WEO APS IEA WEO STEPSNGFS Current Policies Delayed Transition Net Zero 2050
Deep Decarbonization Pathways Project the target of 2 C is achieved
IRENA REmap the renewable energy ratio is doubled by 2030
Greenpeace Advanced Energy [R]evolution the target of 2 C is achieved
PRI 1.5 C RPS Required Policy Scenario
PRI FPS Forecast Policy Scenario

Physicalrisks

RCP (Representative Concentration Pathways) scenarios employed by IPCC: RCP8.5
RCP6.0 RCP4.5 RCP2.6

Sources: Prepared by the Ministry of the Environment based on the Task Force on Climateport - Recommendations of
the Task Force on Climate- 20;
Task Force on Climate- Using scenario analysis for disclosing climate-related risks and
The scenarios listed in the IEA WEO have been updated to reflect the most recently published report

Significance of Scenario Analysis (2)Scenario analysis enables strategic planning and internal/external
dialogue in response to future uncertainties
In

In a longer term, where outcomes are highly

VisionTargetMedium term business plan (3-5 Years)

Assume multiple scenarios

Business strategy cannot respond to changes in the future
The discussion never reaches a consensus on future
perspectives
Suspected of lacking business resilience

Business management can flexibly respond to future change
The discussion takes places without any subjective
viewpoints on futureManagement can demonstrate business resilience

(Reference) Disclosure contents required by the TCFD recommendations

recommendations, disclosure of Scope 1,
Scope 2, and appropriate Scope 3 GHG emissions is recommended
Recommended
disclosures

Areas in detail

Governancegovernance around climaterelated risks and opportunities

Strategy
Disclose the actual and potential
impacts of climate-related risks
and opportunities on the

Risk Management

Metrics and Targets

Disclose how the organization
identifies, assesses, andmanages climate-related risks

Disclose the metrics and targets
used to assess and manage
relevant climate-related risks andopportunities where suchinformation is material

strategy, and financial planningwhere such information ismaterialof climate-related risks andopportunities

in assessing and managing
climate-related risks andRecommended opportunities

Disclosuresa) Describe the climate-relatedrisks and opportunities theprocesses for identifying andorganization has identified overassessing climate-related risks
the short, medium, and long terma) Disclose the metrics used by
the organization to assessclimate-related risks andopportunities in line with its
strategy and risk management
processb) Describe the impact of climaterelated risks and opportunities on processes for managing climaterelated risks
strategy, and financial planningb) Disclose Scope 1,
Scope 2, and if
appropriate, Scope 3
greenhouse gas (GHG)
emissions, and therelated risksc) Describe the resilience of thec) Describe the targets used by
the organization to manage
climate-related risks andopportunities, and performanceagainst targets

into consideration different
climate-related scenarios,
including a 2 C or lower scenarioc) Describe how processes for
identifying, assessing, andmanaging climate-related risks
are integrated into the
management(Definition of applicable Scope 3 emissions)
The notes to the revised Annex contain the following explanation on disclosure of Scope 3 emissions:
When considering whether to disclose Scope3 GHG emissions, organizations should consider whether such emissions are asignificant portion of their total GHG emissions. For example, see discussion of 40% threshold in the Science Based Targets Initiatives
Sources: Task Force on Climate-

Recommendations of the Task Force on Climate-related Financial Disclosures (Final Version) , 2017 postscript, TCFD-

(Reference) TNFD (Taskforce on Nature-related Financial Disclosures)With concerns over the negative impacts of environmental degradation, the Taskforce on
NatureTCFD framework
Establishment
periodLeaders behindestablishment

Taskforcemember groups

was launched on September 25, 2020)
United Nations Environment Programme Finance Initiative (UNEP FI),
United Nations Development Programme (UNDP), World Wildlife Fund (WWF),
Global Canopy (a UK environmental NGO)
Financial Institutions
AP 7, AXA, Bank of America, BlackRock, BNP Paribas, FirstRand, Grupo Financiero Banorte, HSBC,
Macquarie Group, MS&AD Insurance Group, Mirova, Norges Bank Investment Management, Norinchukin Bank,
Rabobank, Swiss Re, UBS
Private Companies
AB InBev, Acciona, Anglo American, Bayer AG, Bunge Ltd, Dow INC, Ecopetrol, GSK, Grieg Seafood, Holcim,
LVMH, Natura & Co, Nestlé, Reckitt, Suzano, Swire Properties Ltd, Tata SteelPrivate Companies (market service providers)

Who is expected
to use theframework

Disclosure
information

The following players are listed as targets in the beta version of the framework:
Investors, financial institutions, analysts, private companies, regulatory authorities, stock exchanges,
accounting firms, ESG data providers / credit rating agencies
Formulated in a manner consistent with the TCFD framework, such as conducting scenario analysis anddisclosing financial information in four frameworks (Governance, Strategy, Risk Management, Metrics andTargets). Based on the TCFD, a disclosure framework that accounts for the characteristics of natural
capital is being considered

Source: Compiled by the Ministry of Environment with information on the TNFD website

(Reference) TNFD overview
Due to concerns over the negative impacts of environmental degradation, the Taskforce on
Nature-1What is the TNFD?

2

Backgroundbehindestablishment

34

SourceThe Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative that was
launched with the aim of investigating a framework to be used by companies and financial institutions forvisualizing their level of dependence on the natural world, and evaluating, managing, andreporting their impact on the natural environment and ecosystems
In economic circles, there is increasing interest and concern about the negative impact thedeteriorating natural environment will have on economic activities
ecosystems.
The TNFD launch was also pushed forward by the emergence of new nature-related threats such as
the ocean plastic pollution issue and COVID-19

PurposeThe TNFD aims to improve the resilience of the global economy by reducing capital flows that are
detrimental to nature and people and shifting to capital flows that are beneficial for the naturalenvironment
Economic value worth a maximum of USD 10 trillion a year will be created by shifting to an economy
that is beneficial for the natural environment
Financial institutions and the French and Swiss governments have been active participants in the
TNFD since its conception

Future trends

Developing a framework and guideline for finance-related information and is aiming to finalize
them by September 2023
Showing the economic effects from achieving cash flows that are beneficial for the naturalenvironment will increase the level of interest from the general public
395 million new jobs will be created by 2030 through shifting to an economy that is beneficial for thenatural environment

Prepared by Ministry of Environment from the official TNFD website(Reference) TNFD overview: Published media
In March 2022, TNFD began the release of its beta version framework reports and online
portal; it aims to establish consistency with the new global baseline for the ISSB standards
The TNFD taskforce uses an open innovation approach to advance development of the TNFD framework
The online portal is updated together with the releases of the TNFD framework beta versions, with Beta
v0.1 released in March 2022, Beta v0.2 in June 2022, and Beta v0.3 released in November 2022
Using the TCFD approaches as its foundation, it aims to establish consistency with the new global
which are currently under development
The framework Beta v1.0 (set version) is expected to be released in September 2023; from 2022, theframework has been continuously updated to reflect opinions from market participants
Reports

Online portal

The reports are a collection of contents such as (1) core concepts
and definitions for understanding nature, (2) TNFD draft disclosure
guidance for nature-related risks and opportunities, and (3) theprocess business operators can use to perform integrated
evaluation of nature-related risks and opportunities (LEAP)

An overview of the TNFD and the latest information are posted on
the online portal. Creating an account allows users to share
feedback and receive information on the latest trends

SourcePrepared by Ministry of Environment from the official TNFD website

(Reference) TNFD framework development schedule

Aiming to release the set version in September 2023. In the version
released in November 2022, a guidance on scenario analysis was included

Framework
Beta v0.1
released
Taskforcelaunched

Framework
Beta v0.2
released
June 2022

March 2022

October 2021

Framework
Beta v0.3
released
Released together
with supplementarymaterials for thefollowing themes
TNFD LEAP
process and its
relationship with
SBTN

The societal aspectof nature-related
risk managementand disclosure

Prepared by Ministry of Environment from the official TNFD website

September
2023

March 2023

November 2022

Approaches toscenario analysis

SourceFramework
Beta v0.4
released

Framework
Beta v1.0
released(set version)

Aquaculture case
study

Implementation of pilot
program(July 2022 to June 2023)

Open innovation involving
market participants

Inputting of opinionsfrom knowledge partners