At MUFG, we pursue our management vision as part of our mission as a financial institution to develop lasting relationships from a long-term perspective with both our clients and society to achieve shared sustainable growth. As part of this mission, we are advancing initiatives for protecting the global environment, promoting human rights and so on.
In 2018 MUFG established the MUFG Environmental Policy Statement as its fundamental approach to addressing environmental issues and declared its intention to realize a sustainable society by “actively working towards finding solutions to global environmental issues through our business activities” and by responding “appropriately when our operations result in environmental risks or negative impacts, by reducing the environmental impacts of our operations.”
Based on the belief that a sustainable environment and society are a key prerequisite for MUFG’s sustainable growth, we strongly support realization of “a world where no one will be left behind” as envisaged by the SDGs. To contribute towards achievement of the SDGs, we have determined seven priority environmental and social issues to be addressed by MUFG, and we regard initiatives to counter “global warming and climate change” as one such environmental and social issue.
MUFG’s Governance Structure for Countering Climate Change
Steps to Improve Our Governance Structure
We established the position of Chief Sustainability Officer (CSuO). CSuO is filled by the Group CSO, who is a member of the Board of Directors.
Moreover, we have invited external experts from the environmental and social fields to serve as permanent external advisors for MUFG. Through exchanging opinions and ideas with the Board of Directors, etc., we leverage the expert knowledge of these external advisors in our sustainability initiatives.
The TCFD recommendations propose that climate change-related risks and opportunities be disclosed upon grasping impacts on business strategy and finances.
MUFG have positioned global warming & climate change among our environmental and social priorities. We are thus endeavoring to address these issues while giving due consideration to both the opportunities and the risks arising from them.
Opportunities—Supporting the Transition to a Decarbonized Society
MUFG announced a target of providing a cumulative 20 trillion yen in sustainable finance by 2030.
We intend to commit ¥8 trillion of finance in the environmental field, including initiatives to counter climate change. We promote renewable energy through project finance, etc., issue MUFG Green Bonds, which ensure that the net proceeds are allocated to the Eligible Green Projects, provide commodities and services aimed at mitigating environmental loads, encourage the climate change countermeasure consulting business and so on. By doing so, we support the transition to a decarbonized society.
Risks—Transition Risks and Physical Risks
There are two kinds of climate change-related risk. First, there are risks arising in the course of the transition to a decarbonized society, such as stricter regulation and the introduction of decarbonizing technologies (transition risks), and second, there are risks arising from physical damage due to the growing occurrences of climate change-induced natural disasters and abnormal weather (physical risks).
Financial institutions are required to address both the danger of having their own business activities directly impacted by such risks, and the danger of being indirectly affected due to impacts on clients. MUFG has implemented scenario analysis to gauge the impacts that climate change-related risks can exert on its credit portfolio based on the TCFD recommendations.
１．Results of Scenario Analysis
Assuming the given targets, applied scenarios and prerequisites, the scenario analysis found the total transition risks in the energy and utility sectors to be between ￥10 to 90 billion each fiscal year and the physical risks (flooding) to be an accumulated total of around ￥38 billion. Accordingly, the impact of both transition risks and physical risks on the credit portfolio was deemed to be limited concerning the targets of this analysis.
２．Scenario Analysis Methods
In the scenario analysis, we targeted the two sectors of energy and utilities, which are defined as carbon-related assets in the TCFD recommendations. As the scenario analysis methods, based on the results of examination in the UNEP FI pilot project, an integrated approach to evaluating impacts is adopted by combining a bottom-up method in individual companies and a top-down method on the sector level.
As the scenarios, the International Energy Agency’s (IEA’s) “Sustainable Development Scenario ((below) 2 °C Scenario) and “New Policy Scenario (4 °C scenario)”, which are widely used in various evaluations, were assumed. Primarily concerning the below 2 °C scenario, analysis was implemented on the impacts on credit rating in each scenario, and the financial impact on the overall credit portfolio in the targetted sectors.
In calculating financial impacts, while recognizing that there currently is no standardised method even in discussions conducted within the UNEP FI pilot project, to reflect initiatives aimed at realizing the decarbonized society envisaged by MUFG, we have reflected the costs of renewable energy investment, carbon tax and so on necessary for realizing the world of below 2 °C.
We will continue to work on expanding target sectors and making improvements to the method of reflecting data.
Concerning risks of physical damage arising from climate change, we targeted flooding, which has occurred especially frequently and caused massive damage in Japan and other countries in recent years. The approach we adopted entailed using changes in default probability imparted by flooding on borrowers to measure impacts on the overall credit portfolio.
Assuming the RCP 2.6 and RCP 8.5 climate scenarios compiled by the Intergovernmental Panel on Climate Change (IPCC), we implemented analysis provided by various agencies to estimate flood damage primarily in the case of the RCP 8.5 scenario.
In calculating financial impacts, in consideration of discussions conducted within the UNEP FI pilot project, we have reflected business interruption periods, damage arising in held assets and so on.
The method we adopted here only reflects the IPCC scenarios in calculation of the occurrence probability of disasters, however, we are aiming to introduce a simulation technique that lets us reflect the IPCC scenarios in the actual disaster data and will continue to work on making improvements to the analysis method.
Climate Change Risks in Enterprise Risk Management
In the “Top Risk Management” approach that MUFG primarily adopts for enterprise risk management, we consider the risks arising from climate change as one of the Top Risks.
In MUFG and its core subsidiaries, management is regularly engaged in discussions regarding the Top Risks to gain a further understanding of the risk recognition, and to develop appropriate risk control countermeasures.
Environmental and Social Risk Management in Finance
We implemented MUFG Environmental and Social Policy Framework to manage environmental and social risks associated with our financing. Concerning coal-fired power generation, mining (coal), oil and gas, and other specific sectors in which concerns are raised over environmental and social impacts, including climate change, we have established our finance policy and a due diligence process to identify and assess the environmental and social risks or impacts associated with transactions has been introduced.
In May 2019, We announced that we will not provide financing for new coal-fired power generation projects. in the Environmental and Social Policy Framework.
In 2005, MUFG Bank, a group company of MUFG, adopted the Equator Principles, an international framework for private financial institutions and their clients to consider the environment and society that includes climate change.in infrastructure development and financing for resource development.
|Standard due diligence||The decision regarding categorization of the transaction as a “Prohibited Transaction” or “Restricted Transaction” is made by the department in the relevant business division responsible for communications with the client.|
|Enhanced due diligence||Transactions categorized as “Restricted Transactions” are subject to enhanced due diligence in addition to standard due diligence, if necessary. This is implemented by the department responsible for management of environmental and social risks.|
Discussions by executive management addressing reputational risk
|Transactions assessed as having the potential to have significant negative impacts on the corporate value of MUFG are evaluated with the involvement of executive management.|
Metrics and Targets
Progress in Sustainable Finance Goals
●Meric：Sustainable Finance Achievements efforts
●Target：The cumulative target of ￥20 trillion by FY2030 (of this, ￥8 trillion is for the environmental area)
|Fiscal 2019 performance||Fiscal 2030 target|
|Environment||Renewable energy finance projects,
development of project finances, etc.
|Green bond underwriting||0.5|
|Society||Finance for social infrastructure, energizing of local communities, etc.||0.9||12.0|
|Other||Fields spanning both environment and social||0.6|
Financing to Coal Fired Power Generation Projects
●Meric: Balance of project financing to coal fired power generation projects
●Target: Reduction by 50％ from FY2019 by FY2030, reduction to zero targeting by FY2040*
MUFG has decided that it will not provide financing to new coal fired power generation projects in principle, as outlined in the MUFG Environmental and Social Policy Framework. The balance of financing to new coal fired power generation projects, which stood at US＄3,580 million as of the end of FY2019, will be reduced by 50％ from FY2019 by FY2030 and reduced to zero targeting by FY2040.*
* Projects that contribte to transition to a decarbonized society are exceptional according to the MUFG Environmental and Social Policy Framework.
Basic unit of electricity use
●Meric: Basic unit of electricity use (electricity/ total floor space)
●Target: Reductions by 10.5% and 19.0% of the 2009 level by FY2020 and FY2030, respectively
As part of its efforts to reduce environmental impacts, MUFG Bank has set targets for FY 2020 and FY2030 to reduce the energy intensity index, both of which have already been achieved well ahead of schedule (FY2019 result: 27.9% reduction from FY2009).
Reducing CO2 Emissions Attributable to Our Business Activities
●Meric: Carbon dioxide emissions, Basic unit of CO2 emission and Basic unit of electricity use*
*：Scope of Reporting: Includes five companies: Mitsubishi UFJ Financial Group, MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities, and Mitsubishi UFJ NICOS. Data for Mitsubishi UFJ Morgan Stanley Securities includes data for Mitsubishi UFJ Securities Holdings, with the exception company automobiles(gasoline).
CO2 Emission Intensity Index in Project Finance in the Power Generation Business（*1）
●Meric: CO2 Emission Intensity Index in Project Finance in the Power Generation Business
- *1 Targeting the fossil fuel (coal/petroleum/gas)-burning thermal power generation and renewable energy power generation businesses
|Fiscal 2017||Fiscal 2018||Fiscal 2019 (April~December)
Status of Carbon-related Assets（*2）
- *2 Based on the TCFD recommendations, MUFG has categorized the value of lending for the energy and utility sectors other than lending for renewable energy projects as constituting carbon-related assets.
|End of March 2019||End of March 2020|