May 27, 2022
Bank of Japan

Climate Change Initiatives: Disclosure Based on TCFD Recommendations

Introduction
The Bank of Japan, in its Medium-Term Strategic Plan (Fiscal 2019-2023), describes theenvironment surrounding central banks: in the broader context of the global economy andsociety, various entities are expected to address the Sustainable Development Goals (SDGs).
There is widespread acceptance both in Japan and overseas that climate change in particular
is a global challenge that could have a broad impact on society and economic activity into the
future, and that central banks are expected to address this issue from their particular
standpoints.

In this context, the Bank outlined its basic stance on and comprehensive approach to climatechange in The Bank of Japan's Strategy on Climate Change, released in July 2021, and ismoving forward with various measures on this basis. Among these measures, in terms ofexternal communication, the Bank announced that it will make disclosures that take into
account the recommendations of the Task Force on Climate-related Financial Disclosures(TCFD).

The TCFD recommends that each entity disclose climate change efforts in four thematic
areas: governance, strategy, risk management, and metrics and targets (Chart 1). The Bank's
initiatives regarding climate change are summarized below in line with the recommendations,consistent with the nature of the Bank's policies and business operations aimed at achieving
price stability and ensuring the stability of the financial system.
Chart 1: TCFD Recommended Disclosures
Theme
Governance

Recommended Disclosures
Disclose the organization's governance around climate-related risks andopportunities.

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Disclose the actual and potential impacts of climate-related risks andStrategy

opportunities on the organization's businesses, strategy, and financial
planning where such information is material.

Risk

Disclose how the organization identifies, assesses, and manages climate-management

related risks.

Metrics andDisclose the metrics and targets used to assess and manage relevanttargets

climate-related risks and opportunities where such information is material.

Source: Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures.

I. Governance
The Bank of Japan's Strategy on Climate Change was decided at the Policy Board meeting
held on July 16, 2021. At the meeting held on March 25, 2022, the Bank conducted an interim
review of the Medium-Term Strategic Plan (Fiscal 2019-2023). The Bank regarded
developments in climate change as one of the main challenges it has faced in conducting
business operations and organizational management since the formulation of the Plan. The
Bank also decided that it will continue to address climate change in line with its Strategy forthe remaining period of the Plan.

The Strategy outlines measures across a range of areas: monetary policy, the financial system,
research, international finance, and business operations and external communication. Under
these measures, the Bank will take important actions based on the decisions of the Policy
Board, with various departments of the Bank and officers in charge promoting a specificresponse in each area. To support this process, the Bank set up the Climate Coordination Hub(CCH), an internal network, and put in place a collaborative framework led by the Head of
the CCH to promote information sharing and coordination on various measures and address
issues related to climate change. At present, the CCH consists of members from theSecretariat of the Policy Board, the Monetary Affairs Department, the Financial System andBank Examination Department, the Payment and Settlement Systems Department, theFinancial Markets Department, the Research and Statistics Department, and the Institute for
Monetary and Economic Studies. The International Department serves as the secretariat for
the CCH, and meetings are held approximately once a month. Every fiscal year, the Bank
conducts performance reviews of related initiatives taken by each department as part of2

measures under the Plan.

II. Strategy
A. The Bank's Mandate and the Impact and Risks of Climate Change
To address climate change, various entities within society and the economy need to actively
play their roles, in tandem with governments and legislative bodies that formulate relevant
policies. As various stakeholders across jurisdictions, including governments and firms,
accelerate their efforts concerning climate change, the Bank, as the central bank of Japan, isfurthering its efforts on climate change consistent with its mandate of achieving price stability
and ensuring the stability of the financial system.

To this end, the Bank has categorized the impact and risks of climate change for economic
activity, prices, and the financial system as follows.

When individual firms and households engage in economic activity without due considerationof the impact of greenhouse gas emissions on climate change, this results in an excessive
amount of greenhouse gas emissions in society and the economy as a whole. If this situation
continues, it would result in significant negative social and economic costs. The impact ofexcessive greenhouse gas emissions is not limited to one country but spreads to othercountries, and such emissions have far-reaching future effects. Climate change has alreadyhad a sizable impact on daily life and social activities in recent years, including the global
rise in temperatures and the increasing frequency and severity of large-scale natural disasters.

In terms of the specific impact on economic activity, there has been an increase in constraints
on economic activity, such as supply chain disruptions caused by natural disasters in recent
years. In the medium to long run, energy price fluctuations and a decrease in investment andemployment in industries with significant greenhouse gas emissions may also exert
downward pressure on economic activity. On the other hand, new opportunities may arise,such as an increase in investment related to renewable energy. The future impact on economic
activity is highly uncertain. Prices and wages could be affected by both natural disasters andthe various measures introduced for the transition to a carbon-neutral society.

Climate change, through the channels of "physical risk" and "transition risk," can also impact

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the financial system. Physical risk refers to the risk that physical phenomena triggered byclimate change, such as large-scale disasters and rising sea levels, will have a negative impact
on firms and households. Transition risk refers to the risk of an economic impact on firms
and households due to changes in policies, technologies, or consumer preferences associatedwith the transition to a carbon-neutral society. Depending on the response, both risks could
adversely affect the financial system by changing the investment or lending behavior of
financial institutions, both qualitatively and quantitatively.

B. The Bank's Strategy on Climate Change
In light of the potential impact of climate change on economic activity, prices, and thefinancial system, the Bank in its Strategy on Climate Change is pursuing measures in fiveareas: monetary policy, the financial system, research, international finance, and business
operations and external communication (Chart 2).

Chart 2: Key Points of the Bank's Strategy on Climate Change
Monetary policy
・ Implement a new fund-provisioning measure to support various efforts in the private sector
to address climate change.
Financial system
・ Stability of the financial system: identify and manage climate-related financial risks.
・ Smooth-functioning of financial intermediation: support financial institutions with respect
to their customers' decarbonization.
Research・ Deepen the analysis on climate change impact. Improve data and analytical tools.
・ Examine the functioning of financial markets and infrastructure, and consider issues
relevant to payment systems and market infrastructures.
International finance・ Contribute to developing responses to climate change and climate-related financial
risks.
・ Promote investment in climate-related financial products as part of international
financial cooperation in Asia.

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・ Purchase green bonds issued by foreign governments based on the Bank's management
principles.
Business operations and external communication
・ Undertake operations by paying due consideration to climate change (e.g., reduction ingreenhouse gas emissions).
・ Make TCFD-consistent disclosures and enhance the Bank's communication on climaterelated conduct.

III. Risk Management
Various entities, including governments and firms, have been actively addressing climatechange. In light of the risk that climate change will exert an extremely large impact on
economic activity, prices, and the financial system from a medium- to long-term perspective,
the Bank will further its efforts on climate change in respective areas from a central bankstandpoint, consistent with its mandate of achieving price stability and ensuring the stabilityof the financial system. Specifically, it has made progress in the following five areas set out
in its Strategy on Climate Change and will continue to pursue initiatives.

A. Monetary Policy
As part of efforts through its conduct of monetary policy, the Bank introduced the FundsSupplying Operations to Support Financing for Climate Change Responses (Climate
Response Financing Operations) so that financial institutions can receive funds from the
Bank against their investment or loans that contribute to Japan's actions to address climatechange. Through the first operation in December 2021, the Bank provided funds
amounting to about 2 trillion yen to 43 eligible counterparties. It plans to offer loans
biannually in principle while accepting additional counterparties for the operations.

With a view to ensuring the proper conduct of the Climate Response Financing Operations,
the Bank designed them as follows.

The Bank requires counterparties to disclose a certain level of information, including thatbased on the TCFD recommendations. In this way, the Bank selects those thatorganizationally engage in investment or loans to address climate change under5

appropriate governance.

In order to avoid direct involvement in micro-level resource allocation as much as possible,
the Bank, while indicating a list of broad types of investment and loans against which it
will provide funds, leaves concrete decisions to counterparties. In doing so, the Bank
requires them to disclose criteria with which they determine which investment or loans
can be used for the operations so as to ensure that discipline will be exercised.

Moreover, since it will take a long time to address climate change, counterparties will beable to receive funds until the end of fiscal 2030 through the operations. Given that efforts
to address climate change will advance over time, the counterparties can make rollovers
while determining yearly which investment or loans can be used for the Bank's fundprovisioning.

B. Financial System
Climate change, through the aforementioned channels of "physical risk" and "transition
risk," could significantly affect the businesses of financial institutions, and consequently
the stability of the financial system. In addition, the proper functioning of financial
intermediation is vital for decarbonizing society and the economy. The Bank will actively
support financial institutions in identifying and managing their climate-related financial
risks, with a view to maintaining the stability of the financial system and the smoothfunctioning of financial intermediation.

Based on this thinking, through its on-site examinations and off-site monitoring, the Bankhas been having in-depth discussions with financial institutions on their efforts to address
climate-related financial risks and on their engagement with corporate customers in pursuitof decarbonization. These points were also spelled out in the On-Site Examination Policy
for Fiscal 2022 released in March 2022.

In doing so, quantitative assessment of climate-related financial risks is important. With
recognition of the usefulness of scenario analysis in measuring such risks, the Bank, incooperation with the Financial Services Agency (FSA), has been carrying out pilot
exercises of the scenario analysis based on common scenarios since fiscal 2021, targeting6some major financial institutions. The Bank will encourage financial institutions todevelop their climate scenario analyses in line with their size and characteristics, taking
into account the pilot exercises as well as international discussions on regulations,supervision, and risk management related to climate-related financial risks.

Efforts to conduct scenario analysis and quantify relevant risks require appropriate
reflection of differences in climate change impact arising from the natural environment
and industrial structure of each region. As part of its scenario analysis, the Bank has been
making quantitative analysis on the impact of floods on the real economy and financial
system, taking into account the risk characteristics of Japan, where floods are one of themost common natural disasters.

The Bank is also encouraging financial institutions to enhance their disclosures, both
qualitatively and quantitatively, based on the TCFD framework. To this end, the Bank istaking steps to gain better understanding, such as by holding a seminar for them throughits Center for Advanced Financial Technology (CAFT) to elucidate the content of the
TCFD recommendations.

C. Research
The Bank has been deepening its analysis of how climate change would affect themacroeconomy -- including economic activity and prices -- financial markets, and thefinancial system, as well as working to collect climate-related data and refine its analytical
tools to better conduct surveillance and identify risks. In addition to releasing its findings
through various research papers and reports on its website (Chart 3), the Bank has been
sharing and discussing such findings with stakeholders at home and abroad. Specifically,
besides holding an international research workshop on climate-related financial risks in
March 2021, the Bank is actively conducting interviews and hearings with individual
stakeholders.

Moreover, the Bank is examining the functioning of financial markets in relation to climatechange. It conducts the Market Functioning Survey concerning Climate Change, coveringa broad set of market participants, in order to assess the functioning of Japanese financial
markets in relation to climate change and to identify challenges for future developments.

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The Bank will continue to conduct research and analysis on climate change from multiple
perspectives and release its findings.
Chart 3: Research Papers and Reports related to Climate Change
Year

Title
How Do Floods Affect the Economy? An Empirical Analysis using Japanese Flood
Data*
Flood Risk Perception and its Impact on Land Prices in Japan*
Challenges for Japan's Economy in the Decarbonization Process*
The Economics of Climate Change: An Introduction to Major Studies in the U.S.
and Europe**

2022

Transmission of Flood Damage to the Real Economy and Financial Intermediation:
Simulation Analysis using a DSGE Model*
Physical risks from climate change faced by Japan's financial institutions: Impact
of floods on real economy, land prices, and FIs' financial conditions
Final Report on the Results of the Public Consultation on the Market Functioning
Survey concerning Climate Change
Public Consultation on the Market Functioning Survey concerning Climate Change
CO2 Emissions and Corporate Performance: Japan's Evidence with Double
Machine Learning
Addressing Practical Challenges toward the Development of ESG Investment**
Special Volume of IMES Newsletter: The Economics of Climate Change (5) -Empirical Studies**
Special Volume of IMES Newsletter: The Economics of Climate Change (4) -Climate Change and Unconventional Monetary Policy**

2021

Special Volume of IMES Newsletter: The Economics of Climate Change (3) -Climate Change and Technological Progress**
Special Volume of IMES Newsletter: The Economics of Climate Change (2) -Climate Change and Optimal Taxation**
Special Volume of IMES Newsletter: The Economics of Climate Change (1) -Capturing the Relationship between Climate Change and Macroeconomics: The
DICE Model**Quantitative Analysis of the Impact of Floods on Firms' Financial Conditions

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How Does Climate Change Interact with the Financial System? A Survey
International Developments of Issues around Climate-related Financial Risks: A
New Discussion on Financial Stability**
2020

Some Reflections on the Relationship between ESG Investment and Fiduciary
Duties of Institutional Investors: Based on the Perception of Directors' Duties in
the United Kingdom**
Trends among Japanese Institutional Investors in ESG Investment**

2019

Recent Trends in ESG Investment**

Note: As of April 2022.
* The English version will be forthcoming.
** Available only in Japanese (the English title is based on the Japanese original).

D. International Finance
The Bank has been making contributions in terms of developing measures against climatechange by learning from other jurisdictions' experiences at international forums, such as
the Group of Seven (G7), the Group of Twenty (G20), and the Executives' Meeting of East
Asia-Pacific Central Banks (EMEAP), sharing the experiences gained through its
measures, and taking part in multilateral discussions. The Bank has contributed tointernational discussions on climate change responses, actively participating indeliberations on topics such as promoting sustainable finance and transition finance, witha view to taking into account circumstances unique to each region, such as Asia. By taking
part in such discussions and other activities on climate change, the Bank will continue tomake contributions in terms of developing measures to address climate change globally.

On the financial system front, the Bank, in close collaboration with the FSA, has exploredthe effective management of climate-related financial risks, as well as research that aims
to develop scenario analysis at international forums such as the Basel Committee on
Banking Supervision, the Financial Stability Board (FSB), and the Network of Central
Banks and Supervisors for Greening the Financial System (NGFS). The Bank iscontributing in terms of sharing best knowledge and practice in managing climate-related
financial risks. In addition, regarding data gaps, the Bank is working with financial
institutions and relevant authorities to contribute to international initiatives for improving
the availability of data necessary for assessing climate-related financial risks.

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Meanwhile, with the aim of helping to catalyze further deepening of the local currencydenominated green bond markets in Asia, the Bank, in consultation with other EMEAP
member central banks and stakeholders, has promoted investment in green bonds throughthe Asian Bond Fund. Regarding the Bank's foreign currency assets, it has been purchasing
foreign currency-denominated green bonds issued by governments and other foreign
institutions based on the existing management principles.

E. The Bank's Business Operations and External Communication
The Bank has been undertaking its business operations by paying due consideration toclimate change, in accordance with its existing principle of conducting proper and efficient
central bank business operations. In this regard, the Bank to date has been making efforts
to reduce greenhouse gas emissions and promote energy saving in its management of the
Head Office and branch facilities, in order to achieve the targets set by central and local
governments. At the same time, from the standpoint of the stable conduct of central
banking operations, the Bank continues to steadily strengthen its business continuity plan
to cope with an increasing flood risk.

As for external communication, a series of speeches have been delivered on climatechange and the Bank is working to enhance the content of the "climate change" page on
its website. Also, it has made disclosure based on the TCFD recommendations andexplained its ongoing climate-related conduct in this Climate Change Initiatives:
Disclosure Based on TCFD Recommendations document. The Bank will update thedisclosure yearly as part of its efforts to provide appropriate external communication.

The impacts of climate change on economic activity, prices, and the financial system arehighly uncertain and could greatly vary over time. The risk management efforts outlined in
sections A. to D. above constitute a process whereby the Bank, after having conductedsufficient research and analysis on the impact and risks of climate change on economic
activity and the financial system, will pursue, from a long-term perspective, initiatives that
contribute to stabilizing the macroeconomy and measures to maintain the stability of thefinancial system. Through its ongoing pursuit of these initiatives, the Bank will help to shape
an appropriate response in society and the economy as a whole to the impact and risks ofclimate change. Additionally, through the efforts outlined in section E. above, the Bank will10

continue to address climate change in its business operations and adequately communicate its
climate-related conduct to the public.

IV. Metrics and Targets
With regard to business operations and external communication mentioned in Chapter III. E.,
the Bank has resolved to measure and disclose direct (Scope 1) and indirect (Scope 2) carbon
dioxide (CO2) emissions arising from its own business operations every fiscal year (Chart 4).
Efforts so far have yielded a decrease in CO2 emissions in recent years compared to previous
levels.

In addition, the Bank is required to reduce energy consumption intensity by an annual averageof 1 percent or more over the medium to long term, under the Act on the Rational Use ofEnergy (Energy Saving Act) enacted by the Japanese government. The Bank continues toachieve this target (Chart 5).

Data for fiscal 2021 will be released on the Bank's website around this summer.
Chart 4: CO2 Emissions from the Bank's Business Operations
t-CO2
Item

Scope 1
(Direct CO2
emissions)

Scope 2
(Indirect CO2
emissions)

FY2016FY2017FY2018FY2019FY2020City gas

2,331

2,605

2,642

2,661

2,973

Heavy oil

352

341

331

309

341

Kerosene

672

670

600

682

578

Light oil

215

235

251

266

261

Gasoline

248

204

169

144

111

Subtotal

3,818

4,056

3,993

4,062

4,265

Electricity

34,24634,88035,60429,841

22,732

Hot water

410

393

400

404

445

Cold water

512

544

500

472

546

Subtotal

35,16835,81836,50430,717

23,722

38,98639,87440,497

34,77927,987

Total CO2 emissions

Notes: 1. Figures are those for the Head Office, branches, and local offices in Japan.
2. CO2 emissions are calculated according to the method based on the Act on Promotion of
Global Warming Countermeasures. CO2 emissions of electricity are calculated based on thebasic emissions factors of individual electricity companies.

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Chart 5: The Bank's Energy Consumption
FY2016FY2017FY2018FY2019FY2020

Energy consumption (kl)

19,814

19,864

19,50618,99518,718Energy consumption intensity (kl/m )20.04190.0421

0.04130.04020.0397

Annual average change over 5 years (%)

-3.3

-3.8

-3.2

-2.8

-1.3

Notes: 1. Figures are those for the Head Office, branches, and local offices in Japan.
2. Data for energy consumption cover city gas, heavy oil, kerosene, electricity, hot water, andcold water.
3. Figures for energy consumption are converted into crude oil equivalent by using the energy
conversion factors based on the Energy Saving Act. Energy consumption intensity is energy
consumption per unit of the floor area of the Bank's buildings.

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