Carbon Neutrality
Initiative 2024
- Provisional English version March 15, 2024

JAPANESE BANKERS ASSOCIATION

Foreword (Announcement of the Carbon Neutrality Initiative 2024)
In 2023, the Act on Promotion of a Smooth Transition to a Decarbonized Growth-Oriented Economic Structure (GX PromotionAct)[1] was enacted and put into force in Japan. The year saw the country step forward to achieve GX investment of more than
150 trillion yen over the next ten years in the public and private sectors.
In addition, the Leaders’ Communiqué at the G7 Hiroshima Summit[2] and the G7 Finance Ministers and Central Bank Governors’
Statement[3] stated that transition finance has a significant role in advancing the decarbonisation of the economy as a whole,which shows the growth in international understanding regarding the necessity to support the transition efforts of hard-to-abate
sectors.
On the other hand, discussions for securing the reliability and effectiveness of transition finance are becoming more important.
Along with the progress of such discussions by mainly regulatory authorities and private initiatives, active discussions are also
taking place on achieving goals toward the decarbonisation of financial institutions and handling financed emissions that
accompany efforts made by the companies receiving investments.
Moreover, in the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) heldin Dubai, the United Arab Emirates, the participating countries agreed on transitioning away from fossil fuels and recognised thenecessity of reducing greenhouse gas emissions by 43% by 2030 (compared to 2019) and 60% by 2035 (compared to 2019)
toward achieving carbon neutrality in 2050.
Under the above circumstances and with the increasing expectation of the banking industry being the key financial intermediary,
the Japanese Bankers Association (JBA) is engaged in various activities, based on the JBA Carbon Neutrality Initiative(hereinafter referred to as the JBA Initiative). The JBA has reviewed its activities carried out in 2023 and conducted aninventory/revision of the JBA Initiative.
The year 2024 marks the third anniversary of the JBA Initiative, which began in December 2021. The JBA will continue tocontribute to the realisation of carbon neutrality and net zero emissions in Japan with various stakeholders, including customers,
relevant ministries and agencies, and related economic organisations.
© 2024 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.

© 2024 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© 2024 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 to achieve the 2030 interim GHG reduction targets
1

Engagement2© 2024 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.

© 2024 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
GlobalIEA6

USD
4 trillion
annually
by 2030JPY
GX
150 trillion
Japan Promotion over the next
Strategy7
10 yearsGetting 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).
Based on the trial calculation from the Clean
Energy Strategy Interim Report (May 2022) withthe amounts of decarbonisation-related
investments in major sectors accumulated under
specified assumptions, investing over 150 trillion
yen will be necessary in the next ten years toachieve carbon neutrality in 2050.

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 new role
to support clients’ Just Transition in addition to the traditional roles.
To enhance efforts through cooperation between public and private sectors, thebanking industry will contribute to the establishment of a GX promotion Agency(scheduled in FY 2024) and support other activities.

Traditional role

New role

Engagement in lending and investment
activities to meet funding needs for clients(e.g., working capital, capital investments).

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.

© 2024 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.

© 2024 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 GX Promotion Strategy(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 (CP)• Implementation of new financial
instruments(Global strategy)• Leading the creation of green markets
and global cooperation in innovation
to contribute to the realisation of
GX on a global scale(Promoting GX throughout society)• Boosting a “Just Transition”• Promoting GX from the demand side
• Promoting GX of SMEs

JFSA*

METI*

MOE*

Council

ObserverObserver

Expert Panel on Sustainable FinanceObserverObserverWorking Group on Impact Investment(As of December 2023)

Taskforce on Preparation of the Environment for Effective
Transition FinanceJapan Public and Private Working Group on Financed
Emissions to Promote Transition FinanceConference of Organisations Related to Scenarios and Data for
Evaluating Climate Change Risks and Opportunities
ObserverObserverESG Finance High Level Panel

ObserverObserverGreen Finance Study Group(Reference) Recent policies in other countries

Source: 7th GX Implementation Council Document 1

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.

© 2024 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
Transition finance

Scenario analysis of climate-related risks

Climate-related risk management in financial institutions

The progress regarding international understanding of thenecessity for the transition toward the decarbonisation of
the entire economy, such as a reference to the necessity
in the Leaders’ Communiqué in the G7 Hiroshima
SummitPilot stress tests and scenario analysis by the authorities
and central banks (ECB, BOE, JFSA/BOJ, FRB, etc.) on
climate-related risk management in financial institutions

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"17 (updated inJuly 2023).

To secure the reliability and effectivenessof transition finance, discussions toward
the establishment and disclosure oftransition plans are carried out by mainly
overseas authorities and private initiatives

Transition
planchallenges

Financedemissiondiscussions

The Japan Public and Private Working
Group on Financed Emissions to Promote
Transition Finance published the“Addressing the Challenges of Financed
Emissions”15 (October 2023)

Scenario
analysischallenges

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.

The Network for Greening the Financial
Discussion of System (NGFS) has published common
commonscenarios16 to improve the capacity for
scenarios
scenario analysis. (4th version published in
November 2023)

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"18.

The BCBS released a consultation paper titled
Discussions“Disclosure of climate-related financial risks”19
onin November. Discussions are underway
disclosure
regarding the incorporation of climate-related
regulations
risks into Basel framework disclosures.

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)© 2024 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 (January 2023 to February 2024)

Particularly from the perspective of engagement, the JBA provided information through climate change dedicated website and other sources, andreleased materials to support interactions between banks and their customers. In addition, the JBA hosted the JBA CNI Compass Program 13
times, inviting speakers from relevant ministries and agencies, and submitted comments on 21 domestic and international public consultations.

Action Plan

Key Priorities
1.

1

Engagement

2.

3.

2

3

Assessment

Sustainablefinance

4.
5.
6.
7.

Support member banks' initiatives, including the use of engagement
support tools, such as “First Steps Toward Decarbonisation” [New]
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]

Follow the trends in global, regional and domestic assessment
guidance/criteria [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 credibility of transition finance[On-going]
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. [On-going]
9. Monitor the progress of TCFD disclosure by our member banks. [Ongoing]
10. Cooperate with international fora such as PCAF on Scope 3 emissions
calculations. [On-going]

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. Participate in discussions to develop data and methodologies for
scenario analysis [New]© 2024 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: Explained the progress of efforts by the JBA at the Net-Zero Banking
Alliance (NZBA) (1), (7), (11) February 2024: Released CO2 Visualisation and Beyond, a document that helps
small and medium-sized businesses promote decarbonisation management (1),(7), (9) Year round: Hosted the JBA CNI Compass Program 13 times, inviting speakers
from relevant ministries and agencies (1), (2), (3), (4), (6), (7), (9), (10), (11), (12)January 2023: Climate change and biodiversity (11)February: Utilization of “First Steps Toward Decarbonisation” (1), (7)March: Pro-Growth Carbon Pricing Concept and GX League (2)April: Long-term CCS roadmap (2)May: Automobile sector roadmap (2)June: Guidelines Concerning the Activities of Enterprises, etc. Toward theRealization of a Green Society Under the Antimonopoly Act (2)July: Progress and challenges of sustainable finance/Transition Finance Followup Guidance (2), (6)September: The status of development of sustainability disclosure standards(IFRS S1, S2 standards, etc.) (3), (9), (10)October: TNFD v1.0, SMBC Group TNFD Report 2023 (3), (4), (10), (11)November: MUFG Transition White Paper 2023, Decokatsu (4)December: BCBS public consultation document “Disclosure of climate-related
financial risks” (11), (12)January 2024: COP28, Asia Zero Emission Community (11)February: NFGS Scenarios (11), (12)
 Year round: Submitted comments on 21 domestic and international public
consultations (5), (6), (11)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), (6), (8), (11), (12)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

2

3

Engagement

Assessment

Sustainablefinance

Challenges

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

 Support member banks' initiatives, including the use of engagement-related
support materials, such as “CO2 Visualisation and Beyond”. [On-going] 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.

4

Climate-related
disclosure Progress is being made in the development of a framework for climaterelated disclosures. Continuous engagement with clients is indispensable toenhance banks’ disclosure.
 For banks' climate-related disclosures, industry-wide discussions onactions and measures are required to meet the challenge of Scope 3
emissions calculations.

5

Climate-related
financial risks

 Discussions are carried out for the management of climate-change risks forbanks, including the Basel framework. The JBA needs to actively
participate in international discussions.
 It is necessary to address issues, such as a lack of data and methodologies for
scenario analysis, to identify and manage climate-change risks.

© 2024 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 secure the eligibility and effectiveness of transition finance [On-going] Cooperate with SME-related organisations to advocate for support programs tocomplement the private sector’s efforts. [On-going] Support initiatives to achieve environmental and social effects (impacts) [New] Advocate through relevant government councils and the TCFD Consortium.
[On-going] Monitor the progress of sustainability disclosures by our member banks, andsupport initiatives using “CO2 Visualisation and Beyond” [New] 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. [On-going]

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

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.

Total

17

Manufacturing

210Under consideration

27

50

26
20

Not considered

56
29

16

Non-manufacturing

Action in progress

59
40

60

80

100（%）

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

ActionPlan

Support member banks' initiatives, including the use of engagementrelated support materials, such as “CO2 Visualisation and Beyond”[On-going]© 2024 JAPANESE BANKERS ASSOCIATIONElectric
power

Gas

Petroleum

CementPaper
pulp

Automobiles

Shareholders

Challenges

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

Chemicals

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.

Initiatives by relevant ministries and agencies
・The Financial Services Agency released the "Report by the Working Group on Financial
Institutions’ Efforts towards Decarbonization of the Economy" as a guide for financial
institutions' initiatives towards net zero (June 2023)20
・The Financial Services Agency, the Ministry of Economy, Trade and Industry, and theMinistry of the Environment released “Transition Finance Follow-up Guidance” asguidelines for the steady accomplishment of transition strategies and the improvementof corporate value, particularly after financing (June 2023) 21

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]© 2024 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 Scenarios16
 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 (2016-2022)
EuropeEuropeUnited States
UnitedStatesCanadaJapan Japan
0.5

0

0

2.4
1.7
1.1
4.3
2.9 2.9
2.2
2.2
0.5

5 5

8.4
8.7
8.7

12.0
12.0
12.0
12.0
12.0

14.1
14.1
14.1

17.1
17.1

12.0

10
10

Key challenges/global trends of transition finance

202020222018 202020182016 2016

15
15

20 20

Source: GLOBAL SUSTAINABLE INVESTMENT REVIEW 2022 (Updated biannually)(in trillions USD)
The decrease in investment in Europe in 2020 is due to a change in the definitions. The decrease ininvestment in the United States in 2022 is due to a change in the calculation method.

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.

Cooperation with the SME Agency, local governments and SME-related organisations is
critical.

ActionPlan

Participate in discussions to promote sustainablefinance, including discussions to secure thereliability and effectiveness of transition finance[On-going]© 2024 JAPANESE BANKERS ASSOCIATION• While there is progress in international positioning and understanding, such as theLeaders’ Communiqué in the G7 Hiroshima Summit held in May 2023 that statesthat transition finance has a significant role in advancing the decarbonisation of theentire economy, discussions toward the establishment and disclosure of“transition plans” are carried out to secure the reliability and effectiveness oftransition finance.
The progressof discussions
for securing
the reliability
andeffectivenessof transition
finance

GFANZ31

In September 2023, public consultations were held regarding“defining transition finance and considering the method of
calculating contributions to decarbonization32. ”

UK
TPT33

In October 2023, a framework to require listed companies andfinancial institutions in the UK to develop and publish a transition
plan34 was released.

Japaneseauthorities

In October 2023, the Financial Services Agency, the Ministry of
Economy, Trade and Industry, and the Ministry of theEnvironment, in cooperation with private financial institutions,released the paper titled “Addressing the Challenges of Financed
Emissions”15

Initiatives to achieve environmental and social impacts• In November 2023, the Impact Consortium35 was established to achieve a positive
cycle, where the solution of environmental and social challenges, including carbon
neutrality, leads to sustainable growth.

Cooperate with SME-relatedorganisations to advocate for support
programs to complement the private
sector’s efforts. [On-going]

Support initiatives to achieveenvironmental and social effects(impacts) [New]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 toenhance banks’ disclosure.
For banks' climate-related disclosures, industry-wide discussions on actions and measures are required to meet the challenge of Scope 3 emissions
calculations

Global sustainability disclosure standards

S1• General Requirements for Disclosure of Sustainability-Related Financial
Information
Comprehensive baseline for ISSB standards. Applied to the disclosure ofsustainability-related risks and opportunities for which theme-specificrequirements, such as those specified in S2, have not been developed.

S2• Standards that stipulate thematic requirements for Climate-Related
Disclosures
S2 cannot be applied alone and has to be applied with S1.
Established according to TCFD recommendations and it requires more
specific disclosures than those recommended in TCFD.

The status of on-going considerations in Japan• The SSBJ37, which was established in the Financial Accounting Standards
Foundation, is currently developing a domestic sustainability disclosure standard
that is based on the ISSB standards. It will be finalised by the end of FY2024.

ActionPlan

Advocate through relevant government
councils and the TCFD Consortium. [Ongoing]© 2024 JAPANESE BANKERS ASSOCIATION

Companies
Banks• In June 2023, the ISSB36 of the IFRS Foundation finalised and released S1 General
Requirements and S2 Climate-Related Disclosures as global sustainability
disclosure standards. They came into effect in January 2024. (Regulatory
authorities in each jurisdiction are responsible for determining when to apply the
ISSB standards to specific disclosure rules in their jurisdictions.)

Challenges of climate-related disclosures• 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 Emissions38) amount for the majority of banks’
GHG emissions, enhancing companies’ disclosures and enhancing banks’disclosures are interlinked.
• 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.

Initiatives for fostering awareness of climate-related disclosures• In February 2024, the JBA, the Regional Banks Association of Japan, and theSecond Association of Regional Banks released “CO2 Visualisation and Beyond”39,
a document that helps SMEs promote decarbonisation management and supports
fostering awareness of climate-related disclosures, including the calculation anddisclosure of greenhouse gas emissions.

Monitor the progress of sustainability disclosuresby our member banks, and support initiatives
using “CO2 Visualisation and Beyond” [New]

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

[Key priority #5] Climate-related financial risks
Discussions are carried out for the management of climate-change risks for banks, including the Basel framework. The JBA needs to actively
participate in international discussions.
It is necessary to address issues, such as a lack of data and methodologies for scenario analysis, to identify and manage climate-change risks.
Impact of climate-related risks on the financial system and risk analysis
methodologies

Challenges and efforts regarding advanced scenario analysis, etc.
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]© 2024 JAPANESE BANKERS ASSOCIATION

Scenario
analysischallenges

Trends inJapan• 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.).

The progress of The BCBS released the public consultation document “Disclosure of
considerations climate-related financial risks”19 in November 2023.
for the third The document aims to determine how banks' climate changepillar of the related risks should be disclosed according to the third pillar
Basel(market discipline) of the Basel disclosure framework. Its final
framework suggestions will be summarised in the latter half of 2024.

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

Notes1.

The Act on Promotion of a Smooth Transition to a Decarbonized Growth-Oriented Economic Structure (GX Promotion Act) enforced in June 2023
(Only available in Japanese) https://wwwˌmetiˌgoˌjp/press/2023/06/20230620003/20230620003ˌhtml

2.

The Leaders’ Communiqué in the G7 Hiroshima Summit (May 2023)
https://wwwˌmofaˌgoˌjp/mofaj/gaiko/summit/hiroshima23/documents/pdf/Leaders_Communique_01_enˌpdf?v20231006

3.

The G7 Finance Ministers and Central Bank Governors’ Statement (May 2023)
https://wwwˌmofˌgoˌjp/policy/international_policy/convention/g7/g7_20230513_2ˌpdf

4.

The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) published in August 2021
https://wwwˌipccˌch/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://wwwˌicmagroupˌorg/assets/documents/Regulatory/Green-Bonds/CTF-Handbook-QA-09122020ˌpdf

6.

IEA (International Energy Agency), Net Zero Roadmap A Global Pathway to Keep the 1.5ºC Goal in Reach, published in September 2022)
https://ieaˌblobˌcoreˌwindowsˌnet/assets/9a698da4-4002-4e53-8ef3631d8971bf84/NetZeroRoadmap_AGlobalPathwaytoKeepthe1ˌ5CGoalinReach-2023Updateˌpdf

7.

The Strategy for Promoting Structural Transition based on Decarbonization (GX Promotion Strategy), published in July 2023
(Only available in Japanese) https://wwwˌmetiˌgoˌjp/press/2023/07/20230728002/20230728002ˌhtml

8.

Basel Committee on Banking Supervision, “Climate-related risk drivers and their transmission channels” published in April 2021
https://wwwˌbisˌorg/bcbs/publ/d517ˌpdf

9.

Basel Committee on Banking Supervision,“Principles for the effective management and supervision of climate-related financial risks” published in June 2022
https://wwwˌbisˌorg/bcbs/publ/d532ˌpdf© 2024 JAPANESE BANKERS ASSOCIATION

17

Notes10.

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

11.

"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://wwwˌenvˌgoˌjp/earth/ondanka/supply_chain/gvc/en/files/GuideLineˌpdf

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://wwwˌcongressˌgov/bill/117th-congress/house-bill/5376

14.

The European Green Deal Investment Plan
https://wwwˌeuroparlˌeuropaˌeu/RegData/etudes/BRIE/2020/649371/EPRS_BRI(2020)649371_ENˌpdf

15.

“Addressing the Challenges of Financed Emissions”, published in October 2023
https://www.fsa.go.jp/en/news/2023/20231013.html

16.

"NGFS Climate Scenarios for central banks and supervisors" published in September 2022
https://wwwˌngfsˌnet/sites/default/files/medias/documents/ngfs_climate_scenarios_for_central_banks_and_supervisors_ˌpdfˌpdf

17.

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

18.

Basel Committee on Banking Supervision, “Frequently asked questions on climate-related financial risks” published in December 2022
https://wwwˌbisˌorg/bcbs/publ/d543ˌpdf

19.

The Basel Committee on Banking Supervision, Disclosure of climate-related financial risks, published in November 2023
https://wwwˌbisˌorg/bcbs/publ/d560ˌpdf

20.

The Financial Services Agency "Report by the Working Group on Financial Institutions’ Efforts towards Decarbonization of the Economy", publishedin June 2023
https://www.fsa.go.jp/en/news/2023/20230627.html© 2024 JAPANESE BANKERS ASSOCIATION

18

Notes21.

The Financial Services Agency, the Ministry of Economy, Trade and Industry, and the Ministry of the Environment, "Formulation of the Transition
Finance Follow-up Guidance ~ Guidance for an effective dialogue with fundraisers ~ ", published in June 2023
https://www.fsa.go.jp/en/news/2023/20230721.html

22.

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

23.

China Green Bond Endorsed Project Catalogue
http://wwwˌpbcˌgovˌcn/goutongjiaoliu/113456/113469/4342400/2021091617180089879ˌpdf

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 February 2024, policymakers from 20 jurisdictions have joined the IPSF,
including the EU, Japan, China, the UK, Canada, Switzerland, Singapore, New Zealand, India, Indonesia, Hong Kong, and Malaysia.
https://financeˌecˌeuropaˌeu/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://financeˌecˌeuropaˌeu/sustainable-finance/international-platform-sustainable-finance_en (IPSF website)

26.

ASEAN Taxonomy (ASEAN Taxonomy for Sustainable Finance)
https://aseanˌorg/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://wwwˌmetiˌgoˌjp/english/press/2021/0507_001ˌhtml (METI website)

28.

IEA Scenarios, “Global Energy and Climate Model”
https://wwwˌieaˌorg/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://wwwˌioscoˌorg/library/pubdocs/pdf/IOSCOPD690ˌpdf

30.

JFSA, “The Code of Conduct for ESG Evaluation and Data Providers” published in December 2022
https://wwwˌfsaˌgoˌjp/en/news/2022/20221215/20221215ˌhtml (JFSA website)© 2024 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 50 countries and 675 financial institutions (as of February 2024).
https://wwwˌgfanzeroˌcom/

32.

GFANZ, Defining Transition Finance and Considerations for Decarbonization Contribution Methodologies, published in September 2023
https://assetsˌbbhubˌio/company/sites/63/2023/09/Defining-Transition-Finance-and-Considerations-for-Decarbonization-ContributionMethodologies-September-2023ˌpdf

33.

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://transitiontaskforceˌnet/ (UK TPT website)

34.

UK TPT, The TPT Disclosure Framework, published in October 2023)
https://transitiontaskforceˌnet/wp-content/uploads/2023/10/TPT_Disclosure-framework-2023ˌpdf

35.

The Impact Consortium is an organisation that enables a wide range of entities to collaborate and interact with each other to achieve a positive
cycle, where the solution of environmental and social challenges leads to sustainable growth.
(Only available in Japanese) https://goodwayˌcoˌjp/fip/htdocs/event/20231128_impact/

36.

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://wwwˌifrsˌorg/groups/international-sustainability-standards-board/

37.

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://wwwˌasbˌorˌjp/jp/

38.

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

39.

The JBA, the Regional Banks Association of Japan, and the Second Association of Regional Banks, CO2 Visualisation and Beyond, published in
February 2024
(Only available in Japanese) https://wwwˌzenginkyoˌorˌjp/news/2024/n022901/© 2024 JAPANESE BANKERS ASSOCIATION

20

Notes40.

JFSA, BOJ, "Pilot Scenario Analysis Exercise on Climate-Related Risks Based on Common Scenarios" published in August 2022
https://wwwˌfsaˌgoˌjp/en/news/2022/20220826ˌhtml

41.

The Financial System Council, Report of the Working Group on Corporate Disclosure, published in June 2022
(Only available in Japanese) https://wwwˌfsaˌgoˌjp/singi/singi_kinyu/tosin/20220613ˌhtml

42.

JFSA, Public Comments Regarding the Revised Cabinet Office Ordinance on the Disclosure of Corporate Information, published in January 2023
(Only available in Japanese) https://wwwˌfsaˌgoˌjp/news/r4/sonota/20230131/20230131ˌhtml

43.

The Sustainability Standards Board of Japan (SSBJ) 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.ssb-j.jp/en/

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.

© 2024 JAPANESE BANKERS ASSOCIATION

21