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Risk Management

Risk Management

Disclose how the organization identif­ies, assesses, and manages climate-related risks.

 

a．Describe the organization's processes for identifying and assessing climate-related risks.

b．Describe the organization's processes for managing climate-related risks.

c．Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management.

Risk Appetite Framework and Top risk Management

MUFG has established a system to properly manage climate change-related risks based on the Risk Appetite Framework and the Top Risk Management
Risk Appetite Framework and Top risk Management

Construction of a Management Framework to Address Change on a Group and Global Basis

MUFG has established a project team on a group and global basis to strengthen the response to risks related to climate change. The team will implement appropriate measures by identifying and sharing information on regulatory trends etc. and by establishing a framework for risk management on a group and global basis.
To consider a management framework for risks related to climate change, a project team is established with the Group Chief Risk Officer (CRO) as the lead and with participation of the CROs from the Bank, Trust Bank and Securities, as well as regional CROs.
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Main items to be considered and addressed

 

● Consideration of a method of classifying and analyzing risks related to climate change, clarifying risk appetite, establishment of a framework for clients transition evaluation as the way to reflect risk in the credit process, and incorporating risk quantification and management models.

● Organization of risk recognition related to transition risks and physical risks through studies.

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(note). 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.
  1. Credit, bond and equity underwriting for corporate clients of MUFG's main subsidiaries, the Bank, the Trust Bank and the Securities HD.

MUFG Environmental and Social Policy Framework

MUFG Environmental and Social Policy Framework

The Process of Identifying and Assessing the Environmental and Social Risks or Impacts of a Business to be Financed

The Process of Identifying and Assessing the Environmental and Social Risks or Impacts of a Business to be Financed
Policies on the Sectors Related to the Environment, Including Climate Change
Since its establishment in May 2018, the MUFG Environmental and Social Policy Framework has been periodically reviewed in response to changes in business activities and the business environment. In April 2024, we revised the MUFG Environmental and Social Policy Framework, adding mining (general) and biomass power generation to the sectors that involve transactions of high caution. This framework is applied in compliance with local laws and regulations.

Response to Climate Change-Related Risks Based on the Equator Principles

The Equator Principles is an international framework developed to identify, assess, and manage the potential environmental and social risks and impacts of large-scale projects, including infrastructure and natural resource development. The Bank conducts environmental and social risk assessments based on the Principles prior to loan decisions.

Regarding climate change risks, in addition to examining technically and economically feasible options that contribute to reducing GHG emissions, the Bank evaluates the status of project developers' measures to identify and manage physical and transition risks in line with the TCFD recommendations.

Climate Change-Related Responses Required under the Equator Principles
Applicable projects Responses required under the Equator Principles

Among the risk categories used in the Equator Principles, all Category A projects, and as appropriate, Category B(note) projects

・Identification of physical risks and measures to manage those risks
Projects with GHG emissions (Scope 1 and Scope 2), during its operational phase, of more than 100,000 tons of carbon dioxide equivalent per year

・Alternatives Analysis

・Assessment of transition risks and countermeasures

・Annual public reporting of GHG emission levels
  1. Category A refers to projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible, or unprecedented. Category B refers to projects with potential limited environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures.

Examples of Climate Change Risk Assessment

In environmental and social risk assessments prior to a loan decision, the Bank evaluates the project proponent’s countermeasures on climate change and confirms that they meet the requirements for climate change risk assessment in accordance with the Equator Principles. The following are examples of physical and transition risk assessments of individual projects for which the Bank conducted environmental and social risk assessments.
Physical risk (arterial road expansion project)
In order to expand an arterial road located in an urban area, the project’s physical risks were assessed as part of the environmental assessment submitted to host-country authorities. Increased flooding associated with extreme rainfall and increased frequency of bushfires were identified as key physical risks. We have ensured that the project proponent commits to management and mitigation of these risks.

Physical risks identified in the assessment

 

・Increase in flooding and landslides associated with extreme rainfall causing damage to road facilities

・Increased frequency of bushfires (associated with increase in average temperatures) resulting in damage to motorway corridor and/or associated infrastructures

Key actions taken by the project proponent

 

・Communication to contractors on increased likelihood of extreme rainfall and wind events occurring during construction; incorporation of extreme weather events in construction planning

・Adoption of a drainage design able to withstand projected extreme rainfall and flooding

・Augmented routine maintenance and inspections of structural components
Transition risks (refinery expansion project)
The refinery expansion project intends to increase the facility’s processing capacity to meet market demands. A climate change risk assessment report, which included an assessment of transition risks, was prepared in line with TCFD recommendations. In the report, policy, regulatory, and market risks were identified as key transition risks.

Transition risks identified in the assessment

 

・New costs associated with GHG emissions e.g., introduction of carbon tax

・Increasing obligations against measuring and reporting GHG emissions

・Decline in demands for oil manufacturing services

Key actions taken by the project proponent

 

・Evaluation of project economics with carbon tax (when introduced)

・Disclosure of climate-related risks and impacts on business and project’s initiatives to support low carbon transition

・Monitoring of global and emerging issues on the perceptions on oil and gas industry
(As of October 2024)

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