Carbon Neutrality
Initiative 2023
- Provisional English version 16 February 2023

JAPANESE BANKERS ASSOCIATION

Foreword (Announcement of the Carbon Neutrality Initiative 2023)
Last year, multiple risk factors, including heightened geopolitical risks on a global scale, resulted in increased
inflationary pressure on resources, food, and other commodities triggered by Russia's invasion of Ukraine.
Japan depends on foreign countries for most of its natural resources, and soaring energy prices have had a major
impact on businesses and households. We recognise that the banking industry must play a greater role than everbefore in helping to achieve the Green Transformation (GX) of Japan's entire social economy.
At the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27)
in November 2022, the "Sharm el-Sheikh Implementation Plan"1 was agreed upon based on the "Glasgow Climate
Pact"2, which was adopted at the COP26 in November 2021, making it clear that the focus was shifting frompledges and commitments toward decarbonisation to the implementation of concrete efforts.
In Japan, the "Basic Policy for the Realisation of GX"3 was compiled by the GX Implementation Council in
December 2022. The policy outlines the measures to be taken over the next 10 years to transform Japan's
industrial and social structures and realise a society in which all people, including future generations, can live withhope.
The Japanese Bankers Association (JBA) has also been promoting various activities based on its "Carbon
Neutrality Initiative", which was compiled in December 2021. The JBA has reviewed its past activities andconducted an inventory/revision of the Initiative.
The JBA will continue to contribute to the realisation of carbon neutrality and net zero emissions in Japan throughthe continuous implementation of this Initiative in cooperation and collaboration with various stakeholders,
including clients, relevant ministries and agencies, and relevant industrial organisations.
© 2023 JAPANESE BANKERS ASSOCIATION

1Foreword (December 2021 "Carbon Neutrality Initiative")
In October 2020, the Japanese government declared its pledge to achieve carbon neutrality by 2050 and in April
2021 set its interim target to reduce GHG emissions by 46% from the FY2013 levels by FY2030. In response to
the commitments, a number of projects for carbon neutrality are currently being carried out in both public andprivate sectors in Japan.
At COP26 held in November 2021, global leaders reaffirmed their intent to pursue efforts to limit the temperature
increase to 1.5°C in accordance with the Paris Agreement, and agreed to invite further actions over the next 10
years to 2030 (which is being called a “critical decade”), taking into account IPCC’s Sixth Assessment Report4.
The JBA believes that it is also an urgent and critical issue for the Japanese banking industry to work on reducing
its own GHG emissions and to provide financial support to the economy to achieve a “Just Transition” to carbon
neutrality / net zero emissions. There is also increasing international pressure on financial institutions to manage
climate-related financial risks, including physical and transition risks that impact their portfolio. Supporting clients'
efforts toward carbon neutrality / net zero emissions is crucial for banks from the viewpoint of not only dealing withclimate-related financial risks, but also maintaining the international competitiveness of the Japanese economy.
Against this backdrop, the JBA set out the “Carbon Neutrality Initiative”, which identifies the JBA’s key policies andpriorities up to 2030 to further strengthen the efforts of the Japanese banking industry toward achieving carbon
neutrality. The JBA also established the Sustainability Promotion Office in July 2021 to foster those initiatives.
For this Initiative, the JBA carried out interviews with key stakeholders including its member banks, companies in
hard-to-abate sectors, leading companies actively working toward carbon neutrality and regional companies. The
findings and input from the interviewees are reflected in this Initiative.

© 2023 JAPANESE BANKERS ASSOCIATION

2

Table of Contents
Overview of the Carbon Neutrality Initiative
Ⅰ Key Policies

45

1. Financial intermediation

6

2. Cooperation with industrial sectors

7

3. Public advocacy

8

4. International discussions

9

Ⅱ Key Priorities by 2030

11

1. Engagement12

2. Assessment

13

3. Sustainable finance14

4. Climate-related disclosure15

5. Climate-related financial risks

16© 2023 JAPANESE BANKERS ASSOCIATION

3

Overview of the Carbon Neutrality Initiative
Achieving carbon neutrality by 2050 is a global commitment by more than 150 countries including Japan, which may bring about aglobal transformation to the industrial structure and the entire economy as a whole. While such a transformation may provide
significant growth opportunities, a disorderly transition to carbon neutrality could also bring about financial risks for banks.
Against this backdrop, the Carbon Neutrality Initiative provides a foundation for the JBA’s policies and actions for asociety/economy-wide “Just Transition”5 to carbon neutrality. The JBA will continue to review its focus, as necessary.
Objective
Support and achieve a “Just Transition” to carbon neutrality by 2050
Key Policies
Key policies to support and accelerate JBA member banks’ efforts for their clients’ orderly transition to carbon neutrality
1

Financialintermediation

2 Cooperation withindustrial sectors

3

Publicadvocacy

4International
discussions

Key Priorities
Key priorities in the next three years to achieve the 2030 interim GHG reduction targets
1

Engagement2© 2023 JAPANESE BANKERS ASSOCIATION

Assessment

3

Sustainablefinance

4 Climate-related

disclosure

5 Climate-related

financial risks

4Key Policies
Achieving carbon neutrality requires significant efforts by both the public and private sectors globally and nationally. It is therefore essential towork collaboratively, not just within the banking industry alone, but also with industrial sectors, the government and the international community.
The JBA, as the premier Japanese banking association, is committed to playing a leading role in such cooperation with key stakeholders,
working collaboratively to achieve carbon neutrality by 2050.

Key Policies

1

Financialintermediation

2

Cooperation
with industrial
sectors

3

4

PublicadvocacyInternational
discussions

Our Approach

Initiatives

 The banking industry, as the key financial intermediary in Japan,
has a social responsibility to provide financial support to theeconomy to achieve a Just Transition.
 At the same time, banks are expected to effectively manage
climate-related financial risks for their financial soundness and tomeet the stakeholders’ expectations.

 Host seminars inviting relevant ministries, agencies and experts.
 Run an information platform where JBA member banks can refer tokey policies and documents by theme.
 Continue to respond to JBA member banks’ needs and challenges.
Develop the JBA’s capabilities and expertise.

 The JBA will carry out sector-to-sector engagement with relevant
industrial organisations to collaboratively achieve carbon
neutrality.
 The JBA will act as a hub for sharing issues between the banking
industry and industrial sectors.
 The JBA will actively engage in public advocacy, sharing financial
issues and challenges for carbon neutrality and a Just Transition.
 In areas where concerted efforts are required for Japan’sinternational competitiveness, the JBA will work with relevant
industrial organisations as necessary.
 The JBA will actively participate in and contribute to international
policy/rule-making.
 It also promotes close cooperation with the International Banking
Federation (IBFed) and other bankers associations to addresscommon challenges and share good practices.

© 2023 JAPANESE BANKERS ASSOCIATION Deepen collaboration and cooperation with relevant industrialorganisations, and consider cross-industrial measures and initiatives.
 Host seminars inviting speakers from industries to foster mutual
understanding with those industrial sectors / Explain the banking
industry's initiatives at seminars hosted by relevant industrialorganisations.
 Participate in relevant government councils and share the banking
industry’s views.
 Advocate policy recommendations in relation to climate policy/rulemaking.
 Share the banking industry’s initiatives and challenges with
relevant ministries and agencies.
 Enhance the international presence of Japanese banks in thesustainable finance area.
 Actively participate in international discussions on
policy/rulemaking in cooperation with Japanese authorities.
 Continuously collaborate and cooperate with the IBFed and foreignbankers associations in other jurisdictions.

5[Key policy #1] Financial intermediation
The banking industry, as the key financial intermediary in Japan, has a social responsibility to provide financial support to the economy toachieve a Just Transition.
At the same time, banks are expected to effectively manage climate-related financial risks for their financial soundness and to meet the
stakeholders’ expectations.

Required funds

Funds required for carbon neutrality and the role of banks
Global

Japan

IEA6

USD
4 trillion
annually
by 2030JPY
Clean
150 trillion
Energy overthe next
10 years
Strategy7

Getting the world on track for net zero
emissions by 2050 requires nearly USD 4
trillion additional investment annually by2030 from current levels (USD 1 trillion on
average during 2016 to 2020).
Approximately JPY 150 trillion (approx. JPY 17
trillion in a single year in 2030) of investment
will be needed over the next 10 years toachieve carbon neutrality by 2050, undercertain assumptions. (*estimation and only key
areas of investment)

Potential impacts of climate-related risk on banks
Climate-related risk drivers can be classified into either physical or transition risks.
These risk drivers affect banks’ financial risks via micro- and macroeconomictransmission channels.
Financial risks from climate risk drivers (Basel Committee on Banking Supervision8)
Physical riske.g. Increasing severity andfrequency of extreme climatechange-related weather events

Transition risks

The banking industry, as the key financial intermediary, needs to play a newrole to support clients’ Just Transition in addition to the traditional roles.

Traditional role

Engagement in lending andinvestment activities to meet fundingneeds for clients (e.g., working
capital, capital investments).

New role
Engagement in supporting efforts forgreen initiatives, transition andinnovation not only by providing funds

e.g. Changes in public sector
policies, legislation and regulation,changes in technology and changes
in market and customer sentimentTransmission channels

Credit risk

Microeconomic

Macroeconomic

Market risk

Sources of variability

Liquidity risk

Geographical heterogeneity,
amplifiers and mitigants

Operationalrisk

The Basel Committee on Banking Supervision (BCBS) released “Principles for theeffective management and supervision of climate-related financial risks”. These
principles require banks to incorporate climate-related risks into their risk
management frameworks and assess the capital and liquidity adequacy forsuch risks9.

The JBA supports the efforts by its member banks to meet such significant funding needs and enhancetheir risk management of climate-related risks, both of which require cross-organisational efforts.
Approach

Host seminars inviting relevant
ministries, agencies andexperts.

© 2023 JAPANESE BANKERS ASSOCIATION

Run an information platform where JBA member
banks can refer to key policies and documents bytheme.

Continue to respond to JBA member banks’needs and challenges. Develop the JBA’s
capabilities and expertise.
6[Key policy #2] Cooperation with industrial sectors
The JBA will carry out sector-to-sector engagement with relevant industrial organisations to collaboratively achieve carbon neutrality.
The JBA will act as a hub for sharing issues between the banking industry and industrial sectors.

Environment surrounding industrial sectors and banking
industry

Challenges for industrial sectors10
Internal••

External
Technological
Cost•

Global climate change

Challenges for reaching a consensus within the company insetting company-wide targets.

Implementation of the Paris Agreement and Carbon Neutrality
declaration by each country

Challenges for calculating Scope 3 emissions11 (A number of
estimates and data to improve accuracy are required.)
Reducing GHG emissions throughout the supply chain including
SMEs requires significant efforts.

Decarbonisation demand

Industrial sector•

In some industrial sectors, key decarbonisation technologies havenot been established yet. Even if technologically feasible, it may bechallenging to reflect the higher cost into their product pricing.

•

While decarbonisation may bring additional cost/investment burdens,
it is uncertain whether those can be offset by additional revenue.
Ensuring competitive fairness between companies promoting
decarbonisation and those not dedicating efforts.

•(Decarbonisation demand fromglobal customers)

Requests to the supply chain
Large
SMEs
corporations

Investment

Divestment12

engagement

Decarbonisation demand

Financial institutions

Monitoring(Raising Issues)

Shareholders, investors, international community, etc.

Monitoring (e.g. disclosure,
regulations)Supervisory authorities

Achieving Carbon Neutrality by 2050 is a challenging task, and there are many industries that cannot achieve it immediately.
In order for banks to understand clients’ initiatives and challenges, it is necessary to work together and cooperate withindustrial sectors not only at the corporate level, but also at the sector-to-sector level.

Approach

Deepen collaboration and cooperation with relevant
industrial organisations, and consider cross-industrial
measures and initiatives.

© 2023 JAPANESE BANKERS ASSOCIATION

Host seminars inviting speakers from industries to foster mutual understanding withthose industrial sectors / Explain the banking industry's initiatives at seminars
hosted by relevant industrial organisations.
7[Key policy #3] Public advocacy
The JBA will actively engage in public advocacy, sharing financial issues and challenges for carbon neutrality and a Just Transition.
In areas where concerted efforts are required for Japan’s international competitiveness, the JBA will work with relevant industrial organisations.

Policy measures for achieving Carbon Neutrality
Key government’s councils

Key policy measures under the Basic Policy for the Realisation of GX (Financial, etc.)(Realisation and implementation of growth-oriented carbon pricing concept)• Massive upfront investment support through"GX Economic Transition Bonds“ (tentative)(investment promotion measures integrated withregulations and public support)• Incentives for upfront GX investment through carbon pricing• Implementation of new financial instruments(Global strategy)• Leading the creation of green markets andglobal cooperation in innovation to contribute to therealisation of GX on a global scale(Promoting GX throughout society)• Boosting a “Just Transition”• Promoting GX from the demand side
• Promoting GX of SMEs

(As of December 2022)

JFSA*
✔

METI*

MOE*

ObserverObserverCouncil✔

ObserverObserver✔

ObserverObserver✔

✔

✔

Taskforce on Preparation of the Environment for Effective
Transition Finance

－

✔

－

Taskforce for Formulating Roadmaps for Promoting Transition
Finance in the area of Economy and Industry

✔

✔

✔

Study Group on Financing from the Private Sector to Help
Corporate Initiatives for GX in Industries

ObserverObserverObserverObserver✔
✔

Green Finance Study Group

Expert Panel on Sustainable FinanceWorking Group on Financial Institutions’ Efforts towards the
Decarbonisation of the Economy
Working Group on Impact Investment

ESG Finance High Level Panel(Reference) Recent policies in other countries
U.S.

Decided to invest USD 369 billion over the next 10 years through tax credits and subsidies13 (August 2022)
Capital investment for the introduction of clean energy and the manufacturing of solar panels, andsupport for the purchase of EVs

EU

Green Deal Investment Plan providing EUR 1 trillion from public and private sources over the next
10 years14 (April 2020)
Support for improvement in energy efficiency of buildings and introducing clean energy

Achieving the targets set out in the Paris Agreement requires concerted efforts by the international community. Japan needs to mobilise all available policy
measures to achieve carbon neutrality and for a Just Transition. Those are also the keys for realising a “positive cycle of economic growth and theenvironmental protection”, thereby strengthening international competitiveness through business transformation.
ApproachParticipate in relevant government
councils and share the banking
industry’s views.

Advocate policy recommendations
in relation to climate policy/rule-making.

© 2023 JAPANESE BANKERS ASSOCIATION(*) JFSA: Financial Services Agency; METI: Ministry of Economy, Trade and Industry; MOE: Ministry of the Environment

Share the banking industry’s initiatives
and challenges with relevant ministries
and agencies.
8[Key policy #4] International discussions
The JBA will actively participate in and contribute to international policy/rule-making.
It also promotes close cooperation with the International Banking Federation ( IBFed) and other bankers associations to address common
challenges and share good practices.

International discussions on investment alignment with climate issue
Climate-related disclosure

Scenario analysis of climate-related risks

Climate-related risk management in financial institutions

Progress made at the IFRS Foundation in developing abaseline for international sustainability disclosure
standards

Pilot stress tests by overseas supervisory authorities andcentral banks (ECB, BOE, etc.) on climate-related risk
management in financial institutions

Disclosure standards, such as the TCFD
Disclosure Framework and the GRI15
Sustainability
Standards, are becoming increasingly
disclosurecomplex. There is a heavy burden on
challenges
disclosing companies and it is difficult forinvestors to make appropriate assessments.

Scenario
analysischallenges

The Financial Stability Board (FSB), the Basel Committee on
Banking Supervision (BCBS), and the Network for Greening the
Financial System (NGFS) have been considering frameworks forclimate-related risk management. The FSB compiles and publishes
the progress of these efforts in the "FSB Roadmap"18 (updated
July 2022).

Considerationof thedevelopment ofinternational
disclosure
standards

The Network for Greening the Financial
Discussion of System (NGFS) has published common
commonscenarios17 to improve the capacity for
scenarios
scenario analysis. (3rd version published in
September 2022)

The ISSB16 plans to publish disclosure
standards for general sustainability
information and climate-related information
as an international baseline in the first halfof 2023.

The specific methods and necessary data
for scenario analysis are not yet available inmany areas. Reference scenarios and risk
estimation methods vary among domestic
and international reference cases.

Discussionin Baselcommittee

In June 2022, the BCBS published "Principles
for the Effective Management and Supervisionof Climate-related Financial Risks" and in
December 2022, "Frequently Asked Questions
on Climate-related Financial Risks"19.

Discussions on the relationship with capital
Discussion requirements are progressing in Europe and theon capital UK, such as the public consultations on therequirements incorporation of environmental risks into theprudential framework held by the EBA20 in May 2022.

There are growing trends of global alignment, integration and standardisation of rules, as well as extraterritorial application ofcertain jurisdictional rules. In order to ensure Japan’s international competitiveness, it is important to actively participate ininternational discussions sharing Japan’s view.
Enhance the international presence of Japanese banks
in the sustainable finance area.
Approach(e.g., internationally share the Japanese government's andbanks' efforts)© 2023 JAPANESE BANKERS ASSOCIATION

Actively participate in international discussions on
policy/rulemaking in cooperation with Japanese authorities.
(e.g., share views at international conferences, provide
comments to public consultations)Continuously collaborate and cooperatewith the IBFed and foreign bankers
associations in other jurisdictions.

9Major Progress in Key Priorities

The JBA released explanatory documents about major initiatives on Japanese banking Industry in June 2022. A special website and materials
on climate were also released to enhance engagement with clients. In addition, the JBA hosted study sessions for its member banks (“JBA CNI
Compass Program”) 13 times, and submitted comments on 27 domestic and international public consultations.

Action Plan

Key Priorities
1.

1

Engagement

2.

3.

2

Assessment

3

Sustainablefinance

4.
5.
6.
7.

Publish explanatory documents regarding the banking industry’s efforts
and their background in order to facilitate clients’ understanding on thebanks’ intentions of engagement. [By the end of 2022]
Host study sessions, inviting stakeholders such as relevant industrialorganisations and ministries to better-understand sector-specific actionplans and economic/technological challenges.
[Initiated in FY2021]
Gather information of available assessment guidance/criteria.
(global, regional and domestic) [By the end of FY2021]
Share examples of leading cases/examples. [Start from 2022]
Participate and advocate in relevant government councils. [On-going]
Publish brief materials explaining general sustainable finance categories,
mechanisms and necessary actions. [By the end of 2022]
Cooperate with SME-related organisations to advocate for support
programs to complement the private sector’s efforts. [On-going]

8.

4

5

Climate-related
disclosure

Advocate through relevant government councils and the TCFD
Consortium. [Already initiated]
9. Monitor the progress of TCFD disclosure by our member banks. [Alreadyinitiated]
10. Cooperate with international fora such as PCAF on Scope 3 emissions
calculations.

Climate-related
financial risks

11. Participate in international discussions on climate-related financial risks.
[On-going] (e.g., share views at international conferences, provide
comments to public consultations)12. Provide comments on JFSA’s draft supervisory guidance on climatetransition support and risk management. [By the end of FY2021]© 2023 JAPANESE BANKERS ASSOCIATION

Major Progress (Corresponding Action Plan Number) February: Explained the banking industry's efforts at a seminar hosted by the
Tokyo Chamber of Commerce and Industry. (7) April: Released "JBA CNI Knowledge Platform“ on the JBA member banks-onlywebsite, which includes a compilation of global, regional and domestic
assessment guidance/criteria. (3) June: Published "Banking Industry's Efforts to Address Climate Change",
explanatory documents for customers (updated in August). (1), (6) June to November: Participated in a research and study project by theInternational Banking Federation (IBFed) (followed by a research reportpublished by IBFed in November21). (11) December: Published "Toward the Realisation of Decarbonisation in concert
with the Industrial Sector", a special website on the banking industry's efforts toaddress climate change. (1), (6) January 2023: Released "First Steps Toward Decarbonisation", a material tosupport engagement between bank representatives and their clients. (1) Year round: Hosted study sessions for our member banks (“JBA CNI Compass
Program”) 13 times inviting stakeholders, such as relevant industrialorganisations and ministries, as speakers. (2), (4), (7), (10), (11), (12)
1st: Support for SMEs (7)2nd to 8th: Roadmap by sector (2)9th: Response and adaptation to climate change in financial institutions (2), (12)10th: PCAF Standards (4), (10)11th: COP27, trends in international initiatives (2), (4), (11)12th: MUFG Transition Whitepaper (4)13th: Climate change and biodiversity (11)
 Year round: Submitted comments on 27 domestic and international public
consultations (5), (11), (12)Submitted comments regarding the JFSA's "Supervisory Guidance on Climaterelated Risk Management and Client Engagement (Draft)" (May). (12)
 Year round: Participated in discussions at the Expert Panel on Sustainable
Finance hosted by JFSA, other government councils, and at the TCFD
Consortium. (5), (8)10Key Priorities by 2030
The first step for clients to respond to climate change is to identify potential climate -related risks and opportunities and, based on their materiality,
develop a credible transition plan for decarbonisation, including specific actions during the “critical decade” up to 2030.
The starting point for banks to support such a transition is to engage with clients to build a common understanding on their challenges andissues. The JBA will actively play a key role to facilitate such engagement by its member banks and address industry-wide challenges.

Key Priorities
1

Engagement

2

Assessment

3

Sustainablefinance4

Climate-related
disclosure

5

Climate-related
financial risks

Challenges

Action Plan Currently, the advancement of client self-assessment on climate-relatedrisks and opportunities varies by sector and company.

 Support our member banks’ efforts, including the use of engagement-related
support tools such as "First Steps Toward Decarbonisation". [New] Host seminars/study sessions inviting stakeholders such as relevant industrialorganisations and ministries to better-understand sector-specific action plans
and economic/technological challenges. [On-going] The banking industry needs to build expertise on climate-related policies
and sector-specific challenges for engagement with clients and effective
management of climate-related risks.
 A globally consistent assessment framework/criteria on whether a client’s
activities and transition plan are credibly aligned with the Paris Agreement
and/or NDCs does not necessarily exist.
 There, however, is internationally growing pressure on banks to demonstrate tostakeholders how banks reduce their financed emissions.
 Further promotion of sustainable finance, including transition finance, isneeded to realise GX.
 For SMEs, transforming their business entails numerous challenges.
 Progress is being made in the development of a framework for climaterelated disclosures. Continuous engagement with clients is indispensable toenhance banks’ disclosure.
 Banking-industry-wide discussion is required to approach the challenge of
Scope 3 emissions calculation method/disclosure.
 In some jurisdictions, there are increasing signs of trying to incorporate
climate-related financial risks into stress testing and/or capital requirements.
The JBA needs to actively participate in international discussions.
 There are issues to be addressed, such as lack of available data andanalytical methods for scenario analysis to identify and manage climaterelated financial risks for banks.

© 2023 JAPANESE BANKERS ASSOCIATION

 Monitor the trends of available assessment guidance/criteria. (global, regionaland domestic) [On-going] Share examples of leading cases/examples. [On-going] Participate and advocate in relevant government councils [On-going] Participate in discussions to promote sustainable finance, including discussions
to ensure the eligibility and reliability of transition finance. [On-going] Cooperate with SME-related organisations to advocate for support programs tocomplement the private sector’s efforts. [On-going] Advocate through relevant government councils and the TCFD Consortium.
[On-going] Monitor the progress of TCFD disclosure by our member banks. [On-going] Cooperate with international fora such as PCAF on Scope 3 emissions
calculations. [On-going] Participate in domestic and international discussions on climate-related
financial risks. (e.g., presentation at international conferences, provide
comments during public consultations) [On-going] Participate in discussions to organise available data and methods for scenario
analysis. [New]11

[Key priority #1] Engagement
Currently, the advancement of client self-assessment on climate-related risks and opportunities varies by sector and company.
The banking industry needs to build expertise on climate-related policies and sector-specific challenges for engagement with clients andeffective management of climate-related risks.

Current status and challenges

Necessity to understand transition plans of the industrial sector

Engagement by banks

Sector/field-specific initiatives

Need to build relationships and engage with various stakeholders

Some hard-to-abate sectors are facing economic/technological challenges for
decarbonisation.

Local
community

International
community

Banks

Clients

Steel

Action in progress

7
8
11
9
13
10
15
11
18
10
18
11
0

20

Not considered

Under consideration

85
80
77
75
72
71
40

60

80

100

（%）

Source: Shoko Chukin Bank, “Survey on Carbon Neutrality awareness among SMEs” (July 2021)

ActionPlan

Support our member banks’ efforts, including the use of engagementrelated support tools such as "First Steps Toward Decarbonisation".
[New]© 2023 JAPANESE BANKERS ASSOCIATION

Gas

Petroleum

CementPaper
pulp

Automobiles

In addition to the efforts of individual companies and industries, it is necessary tounderstand the interconnections among related industries, as well as thetransition plans of each industry and efforts in the supply chain.

The progress of efforts toward decarbonisation varies by sector and company.
It is important for banks to deepen their understanding of clients’ opportunities andrisks/challenges, including efforts in the critical decade.
\0.5 bil. or lessOver \0.5 bil. up to \1.0 bil.
Over \1.0 bil. up to \2.0 bil.
Over \2.0 bil up to \5.0 bil.
Over \5.0 bil. up to \10.0 bil.
Over \10.0 billion

Electric
power

Shareholders

Challenges

Status of considering actions to address the impact ofcarbon neutrality (by size of business in sales)

Chemicals

Initiatives by relevant ministries and agencies- The JFSA established the "Working Group on Financial Institutions’ Efforts towards
the Decarbonisation of the Economy“ to discuss measures to stimulate engagement
between financial institutions and their client companies, including points to keep inmind when financial institutions take initiatives toward decarbonisation.
- The JFSA, the METI, and the MOE are currently studying the creation of guidance
to support the realisation of corporate transition plans by providing key points forbanks to follow-up after lending and investment.

Host seminars/study sessions inviting stakeholders such as relevant
industrial organisations and ministries to better-understand sectorspecific action plans and economic/technological challenges. [On-going]
12[Key priority #2] Assessment
A globally consistent assessment framework/criteria on whether a client’s activities and transition plan are credibly aligned with the Paris
Agreement and/or NDCs does not necessarily exist.
There, however, is internationally growing pressure on banks to demonstrate to stakeholders how banks reduce their financed emissions.

Challenges in assessing the client’s transition plan

Examples of available assessment guidance/criteria

GHG emissions Transition plans of investees/borrowers vary by sector and company.

There are various domestic and regional assessment guidance/criteria that can beused as a reference. However, the features of such guidance/criteria vary.

Company E (N industry)

Company C(Z industry)

Company A(X industry)

Company B(Y industry)？

Company D(M industry)

Net
Zero

Challenges

Today

Action
Plan

2030

2050

•

While transition plans vary by sector and company, criteria forassessing feasibility and reliability are yet to be established insome sectors.

•

Due to uncertainties of the business environment and resource
constraints, developing a long-term transition plan may bedifficult (in particular, for SMEs).

Monitor the trends of available
assessment guidance/criteria. (global,
regional and domestic) [On-going]© 2023 JAPANESE BANKERS ASSOCIATION

Taxonomy

Guideline EU Taxonomy22
 Green Bond Endorsed
Project Catalogue23
 IPSF24 Common GroundTaxonomy25
 ASEAN Taxonomy26

 Principles established by theInternational Capital Markets
Association (ICMA) Guidelines established by the MOE
 Basic Guidelines on Climate
Transition Finance establishedby the METI27, etc.

Scenarios/Roadmap

ESG ratings providers, etc.

 Paris Agreement
Compatible Scenarios NGFS Scenarios17
 IEA Scenarios28
 METI Roadmaps for
Climate Transition Finance The IOSCO published final
recommendations on ESG Ratingsand Data Products Providers29.

 The JFSA published the Codeof Conduct for ESG Evaluation
and Data Providers30.

It could be ideal to have a globally consistent assessment guidance/criteria from aperspective of ensuring objectivity, transparency and accountability. However, currently,
various assessment guidance/criteria exist, and both the banking industry and theindustrial sector are facing a challenge to choose the most suitable guidance/criteria.

Share examples of leadingcases/examples. [On-going]

Participate and advocate in relevant
government councils. [On-going]
13

[Key priority #3] Sustainable financeFurther promotion of sustainable finance, including transition finance, is needed to realise GX.
For SMEs, transforming their business entails numerous challenges. The public sector needs to play a complementary role in supporting andfinancing the transition.

Global sustainable investing assets (2016-2020)
12.0

Europe12.0

United States

8.7

2.4
1.7
1.1
2.9
0.5 2.2

CanadaJapan0• While there is progress in international positioning and the promotion ofunderstanding, with reports on transition finance released by the G20
Sustainable Finance Working Group and the OECD in October 2022 andGFANZ31 in November 202232 33 34, efforts to ensure eligibility and reliabilityof transition finance are needed.

14.1
17.1

12.0

2020
2018
2016

5

10

15

Source: GLOBAL SUSTAINABLE INVESTMENT REVIEW 2020 (Updated biannually)
The decrease in investment in Europe in 2020 is due to a change in the definitions.

Key challenges/global trends of transition finance20(in trillions USD)

• In order for financial institutions to further promote transition finance amidst thegrowing demand for achieving net zero, it is necessary to establish aframework for transition finance to be positively evaluated, while taking
into account international calculation methods and disclosure
requirements on financed emissions35.

Key challenges in regional and SME finance
Expectation for regional financial institutions• Discuss and share the goals of the region withstakeholders, conduct business feasibility assessmentsfrom a medium/long-term timeframe, and provide
finance and support for core business.
• Enhance awareness among local companies todecarbonise through engagement and support theirefforts.

SMEs’ challenges
Business and financial
resources are restricted fora significant business
transformation.

Global trends
towardsecuring theeligibility andreliability oftransition
financeCooperation with the SME Agency, local governments and SME-related organisations is
critical.

ActionPlan

Participate in discussions to promote sustainable finance, including
discussions to ensure the eligibility and reliability of transition
finance. [On-going]© 2023 JAPANESE BANKERS ASSOCIATIONGFANZIn September 2022, a report36 that help companies in the real
economy develop credible transition plans was published.

NZBA37The “NZBA Transition Finance Guide”38, which provides
principles to use as a reference and proposes policy measures tomainstream transition finance, was published in October 2022.

UK
TPT39

A framework is currently being developed to require listedcompanies and financial institutions in the UK to develop andpublish a transition plan. Public consultation40 was held regarding
the draft framework in November 2022. (To be finalised by theend of 2023)

Cooperate with SME-related organisations to advocate forsupport programs to complement the private sector’s efforts.
[On-going]
14

[Key priority #4] Climate-related disclosure
Progress is being made in the development of a framework for climate-related disclosures. Continuous engagement with clients is
indispensable to enhance banks’ disclosure.
Banking-industry-wide discussion is required to approach the challenge of Scope 3 emissions calculation method/disclosure.

Domestic development of climate-related disclosures

・・・Industrial sector

1200

・・・Other

1137

TCFD supporters of JBA member banks(As of the end of July 2022: 114 banks)

84

Companies

Overview of TCFD supporters

Organisations supporting the TCFD by country(As of November 2022)
・・・Financial institutions

Challenges of climate-related disclosure

1000
800

487

400

452

13

200
0

Japan

UK

US

Disclosed

Japan currently has the largest number of companies/organisations(1137) supporting the TCFD recommendations.

15

Not
Planning todisclosed support

2
Other

Banks

600

• Challenges for calculating Scope 3 emissions (a number of estimates anddata are required to improve accuracy).
• Information disclosed by certain companies is still limited*.
* For example, disclosure lacks descriptions of Scope 3 emissions, emissions bybusiness line, emissions from consolidated companies and reduction targets.

As Scope 3 emissions (Financed Emissions) amount for the majority of banks’ GHG
emissions, enhancing companies’ disclosures and enhancing banks’ disclosures areinterlinked.
• The metrics and calculation methods of Scope 3 emissions are still in thedevelopment phase. The limitation of clients’ GHG emission disclosures also limits
banks’ ability for Scope 3 disclosure.
• There are challenges related to scenario analysis (e.g. high uncertainty inanalyses and complicated scenario design).
• Improving the quality of TCFD disclosures is a challenge.

Enhancement of sustainability information disclosure in annual securities reports

Status of the development of sustainability disclosure standards

Based on the "Report of the Working Group on Corporate Disclosure of the Financial
System Council"41 of June 2022, the JFSA revised the "Cabinet Office Ordinance on
the Disclosure of Corporate Affairs"42 in January 2023. A new section was createdfor sustainability information, including climate-related information, in annual
securities reports for fiscal years ending on or after 31 March 2023.

Progress was made at the ISSB of the IFRS Foundation in developing a baseline forinternational sustainability disclosure standards in the first half of 2023. In Japan, the
SSBJ43 under the Financial Accounting Standards Foundation (FASF) is currently
discussing the development of a domestic sustainability disclosure standard basedon the ISSB standards that include climate-related information.

ActionPlan

Advocate through relevant government
councils and the TCFD Consortium. [Ongoing]© 2023 JAPANESE BANKERS ASSOCIATION

Monitor the progress of TCFD disclosure by
our member banks, and host study
sessions. [On-going]

Cooperate with international fora
such as PCAF on Scope 3 emissions
calculations. [On-going]
15

[Key priority #5] Climate-related financial risks

In some jurisdictions, there are increasing signs of trying to incorporate climate-related financial risks into stress testing and/or capitalrequirements. The JBA needs to actively participate in international discussions.
There are issues to be addressed, such as lack of available data and analytical methods for scenario analysis to identify and manage climaterelated financial risks for banks.

Impact of climate-related risks on the financial system and risk analysis
methodologies

Challenges and efforts for advancing scenario analysis
Examples of scenario analysis challenges include:

Financial risks from climate risk drivers
Impact ofclimaterelated risks

Physicalrisk
Transition
riskTransmission channels

Credit risk

Microeconomics

Market risk

Macroeconomics

Sources of variability

Geographical heterogeneity,
amplifiers and mitigantsLiquidity
riskOperationalrisk

The impacts of climate change materialise over time with a complex pathand depend on future policy and social economic conditions. These
potential impacts may be significant.
Given the nature of climate-related risks, “scenario analysis” is aneffective tool.
NGFS provides several scenarios and recommends quantitative
Risk analysis The
analysis that is used in stress testing as a scenario analysis approach
methodologies by regulators.
The FSB noted that the goal is for all financial risk decisions toappropriately take account of climate change.

ActionPlan

Participate in domestic and international discussions on
climate-related financial risks. (e.g., presentation at international
conferences, provide comments during public consultations) [On-going]© 2023 JAPANESE BANKERS ASSOCIATION

Scenario
analysischallenges

Trends inJapan

Considerationof capitalrequirements
in EU/UK• A lack of data on the impact of GHG emissions and reductions;• A globally accepted impact analysis method is yet to beestablished due to its long-term nature and geographicaldifferences; and• High uncertainty in analyses and complicated scenario design.
Pilot
exercise
Efforts toutilizedata

In August 2022, the JFSA and the Bank of Japan released a report44 ona pilot scenario analysis exercise conducted with three major banks andthree major non-life insurance groups. Many issues regarding scenario
analysis methods and data were identified.
At the “Working-level Meeting on Scenario Data for Climate-Related Risk
and Opportunity Assessment", discussion about data usage is ongoing between data providers (ministries and agencies, etc.) anddata users (industries and financial institutions, etc.).

Europe(EBA)

Require banks to identify, disclose and manage ESG risks as partof their risk management and to conduct regular climate stresstesting. Consider whether environmental and/or social risk factors
are to be incorporated into prudential treatments (by June 2023).

UK(PRA45)

Consider the possibility of incorporating forward-looking elementsof climate-related financial risks into Pillar 1 (by Q4 2022).

Participate in discussions to organise available data
and methods for scenario analysis. [New]16

Notes1.

“The Sharm el-Sheikh Implementation Plan” published in November 2022
https://unfccc.int/sites/default/files/resource/cma4_auv_2_cover_decision.pdf

2.

“The Glasgow Climate Pact” published in November 2021
https://unfccc.int/sites/default/files/resource/cma2021_10_add1_adv.pdf

3.

“Basic Policy for the Realisation of GX” published in December 2022 (Only available in Japanese)
https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/index.html (GX Implementation Council website)

4.

The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) published in August 2021
https://www.ipcc.ch/report/ar6/wg1/

5.

According to the ICMA, a “Just Transition” is defined as a transition that “seeks to ensure that the substantial benefits of a green economy transition
are shared widely, while also supporting those who stand to lose economically – be they countries, regions, industries, communities, workers or
consumers”. The Just Transition concept links to the United Nations’ Sustainable Development Goals (SDGs). (ICMA Climate Transition FinanceHandbook Related questions)
https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/CTF-Handbook-QA-09122020.pdf

6.

IEA (International Energy Agency), “World Energy Outlook 2022” published in October 2022
https://www.iea.org/reports/world-energy-outlook-2022 (IEA website)

7.

“Clean Energy Strategy Interim Report" published in May 2022
https://www.meti.go.jp/english/policy/energy_environment/global_warming/pdf/clean_energy_strategy.pdf (METI website)

8.

Basel Committee on Banking Supervision, “Climate-related risk drivers and their transmission channels” published in April 2021
https://www.bis.org/bcbs/publ/d517.pdf

9.

Basel Committee on Banking Supervision,“Principles for the effective management and supervision of climate-related financial risks” published in June 2022
https://www.bis.org/bcbs/publ/d532.pdf

10.

Based on the results of individual interviews and surveys conducted by the JBA.

© 2023 JAPANESE BANKERS ASSOCIATION

17

Notes11.

"Scope 3" emissions refer to indirect greenhouse gas emissions from business activities in a company’s supply chain, other than direct emissions(Scope 1: direct greenhouse gas emissions by the reporting company itself) and energy-derived indirect emissions (Scope 2: indirect emissions
from the use of electricity, heat or steam supplied by others.) (MOE and METI, “Basic Guidelines on Accounting for Greenhouse Gas Emissions
Throughout the Supply Chain” (2012))
https://www.env.go.jp/earth/ondanka/supply_chain/gvc/en/files/GuideLine.pdf

12.

"Divestment" is an investment method whereby, from ESG perspectives, securities and other instruments related to a specific company or industry
are excluded from the investment portfolio or are disposed of if they have already been purchased.

13.

Inflation Reduction Act of 2022
https://www.congress.gov/bill/117th-congress/house-bill/5376

14.

The European Green Deal Investment Plan
https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/649371/EPRS_BRI(2020)649371_EN.pdf

15.

The GRI (Global Reporting Initiative) is an organisation founded in 1997, led by the U.S. non-profit organisation CERES and the UN Environment
Programme (UNEP) to help companies and governments around the world understand and communicate critical sustainability issues such as
climate change, human rights, governance and social welfare.
https://www.globalreporting.org/ (GRI website)

16.

The ISSB (International Sustainability Standards Board) is a board established in the IFRS Foundation that intends to develop a comprehensive
global baseline of sustainability-related disclosure standards.
https://www.ifrs.org/groups/international-sustainability-standards-board/ (IFRS Foundation website)

17.

"NGFS Climate Scenarios for central banks and supervisors" published in September 2022
https://www.ngfs.net/sites/default/files/medias/documents/ngfs_climate_scenarios_for_central_banks_and_supervisors_.pdf.pdf

18.

Financial Stability Board (FSB), “FSB Roadmap for Addressing Financial Risks from Climate Change: 2022 progress report” published in July 2022
https://www.fsb.org/2022/07/fsb-roadmap-for-addressing-financial-risks-from-climate-change-2022-progress-report/

19.

Basel Committee on Banking Supervision, “Frequently asked questions on climate-related financial risks” published in December 2022
https://www.bis.org/bcbs/publ/d543.pdf

20.

European Banking Authority, “The role of environmental risks in the prudential framework” published in May 2022
https://www.eba.europa.eu/eba-launches-discussion-role-environmental-risks-prudential-framework (EBA website)© 2023 JAPANESE BANKERS ASSOCIATION

18

Notes21.

IBFed, “Banking on climate neutrality The global banking industry’s role in transitioning to a low-carbon economy” published in November 2022
https://www.deloitte.com/content/dam/assets-shared/legacy/docs/gx-Deloitte-IBFed-Climate-Release-copy.pdf

22.

EU Taxonomy (Sustainable finance taxonomy - Regulation (EU) 2020/852)
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32020R0852&from=EN

23.

China Green Bond Endorsed Project Catalogue
http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4342400/2021091617180089879.pdf

24.

The IPSF (International Platform on Sustainable Finance) is a multilateral forum that aims to enable exchange of practices and increaseinternational cooperation on matters related to sustainable finance. As of January 2023, policymakers from 19 jurisdictions have joined the IPSF,
including the EU, Japan, China, UK, Canada, Switzerland, Singapore, New Zealand, India, Indonesia, Hong Kong and Malaysia.
https://finance.ec.europa.eu/sustainable-finance/international-platform-sustainable-finance_en (IPSF website)

25.

The Common Ground Taxonomy is a project led by the IPSF for ensuring the comparability and interoperability of existing taxonomies acrossjurisdictions. It intends to provide more clarity and transparency about the commonalities and differences between approaches and potentiallycontribute to the analysis to lower the trans-boundary cost of sustainable investments and scale up the mobilisation of sustainable capitalinternationally.
https://finance.ec.europa.eu/sustainable-finance/international-platform-sustainable-finance_en (IPSF website)

26.

ASEAN Taxonomy (ASEAN Taxonomy for Sustainable Finance)
https://asean.org/asean-sectoral-bodies-release-asean-taxonomy-for-sustainable-finance-version-1/ (ASEAN website)

27.

JFSA, METI, MOE, “Basic Guidelines on Climate Transition Finance” published in May 2021
https://www.meti.go.jp/english/press/2021/0507_001.html (METI website)

28.

IEA Scenarios, “Global Energy and Climate Model”
https://www.iea.org/reports/global-energy-and-climate-model (IEA website)

29.

IOSCO, “Environmental, Social and Governance (ESG) Ratings and Data Products Providers Final Report” published in November 2021
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD690.pdf

30.

JFSA, “The Code of Conduct for ESG Evaluation and Data Providers” published in December 2022
https://www.fsa.go.jp/en/news/2022/20221215/20221215.html (JFSA website)© 2023 JAPANESE BANKERS ASSOCIATION

19

Notes31.

GFANZ (Glasgow Financial Alliance for Net Zero) is a private initiative across the financial industry that was established in April 2021 to accelerate
the transition to net zero by 2050. It is composed of more than 550 financial institutions in over 50 countries (as of November 2022).
https://www.gfanzero.com/ (GFANZ website)

32.

G20 Sustainable Finance Working Group, “2022 G20 Sustainable Finance Report” published in October 2022
https://g20sfwg.org/wp-content/uploads/2022/10/2022-G20-Sustainable-Finance-Report-2.pdf

33.

OECD (Organisation for Economic Co-operation and Development), “OECD Guidance on Transition Finance” published in October 2022
https://www.oecd.org/greengrowth/oecd-guidance-on-transition-finance-7c68a1ee-en.htm (OECD website)

34.

GFANZ, “Financial Institution Net-zero Transition Plans Fundamentals, Recommendations, and Guidance” published in November 2022
https://assets.bbhub.io/company/sites/63/2022/09/Recommendations-and-Guidance-on-Financial-Institution-Net-zero-Transition-Plans-November2022.pdf

35.

"Financed Emissions" refers to the GHG emissions of financial institutions that fall into Scope 3, category 15: "Investments". Financed emissions
account for the majority of banks' GHG emissions.

36.

GFANZ, “Expectations for Real-economy Transition Plans” published in September 2022
https://assets.bbhub.io/company/sites/63/2022/09/Expectations-for-Real-economy-Transition-Plans-September-2022.pdf

37.

NZBA (Net-Zero Banking Alliance) is a private banking industry initiative that was established in April 2021 to achieve net zero GHG emissions by
2050 through lending and investment portfolios. It is composed of 126 banks in 41 countries (as of December 2022).
https://www.unepfi.org/net-zero-banking/ (NZBA website)

38.

NZBA, “Net-Zero Banking Alliance Transition Finance Guide” published in October 2022
https://www.unepfi.org/industries/banking/net-zero-banking-alliance-transition-finance-guide/ (UNEP FI website)

39.

The UK TPT (Transition Plan Taskforce) was established to develop a framework to require listed companies and financial institutions in the UK todevelop and publish a transition plan.
https://transitiontaskforce.net/ (UK TPT website)

40.

UK TPT, "The Transition Plan Taskforce Disclosure Framework" published in November 2022
https://transitiontaskforce.net/wp-content/uploads/2022/11/TPT-Disclosure-Framework.pdf© 2023 JAPANESE BANKERS ASSOCIATION

20

Notes41.

Financial System Council, "Report of the Working Group on Corporate Disclosure" published in June 2022
https://www.fsa.go.jp/singi/singi_kinyu/tosin/20220613/03.pdf

42.

JFSA, "Public Comments Regarding the Revised Cabinet Office Ordinance on the Disclosure of Corporate Affairs" published in January 2023 (Onlyavailable in Japanese)
https://www.fsa.go.jp/news/r4/sonota/20230131/20230131.html

43.

The SSBJ (Sustainability Standards Board of Japan) was established in July 2022 by the Financial Accounting Standards Foundation (FASF) forthe purpose of providing input into the development of an internationally harmonised sustainability disclosure standard by the ISSB and to examine
disclosure standards in Japan.
https://www.asb.or.jp/jp/ (FASF website)

44.

JFSA, BOJ, "Pilot Scenario Analysis Exercise on Climate-Related Risks Based on Common Scenarios" published in August 2022
https://www.fsa.go.jp/en/news/2022/20220826.html

45.

“PRA” refers to Prudential Regulation Authority.

© 2023 JAPANESE BANKERS ASSOCIATION

21