Strategy

MUFG has launched a medium-term business plan covering the next three years from FY2024. We have integrated the contribution to address social issues into our management strategies and positioned this as one of the three pillars of the medium-term business plan, and will further strengthen our initiatives in this area.

MUFG has set priority sustainability issues to achieve a sustainable environment and society. Among those issues, achieving a carbon neutral society is one of key issues.

MUFG has been taking action based on three unwavering commitments: (1) to help achieve the 1.5°C target, (2) to support a smooth transition to a decarbonized society, and (3) to create a sustainable society by fostering a virtuous cycle between the environment and the economy. We also take into account the growing importance of natural capital, circular economy, human rights, just transition, and climate adaptation with our climate initiatives.

In order to achieve carbon neutrality, we are advancing initiatives toward net-zero GHG emissions in our financed portfolio, decarbonization through financing, and net-zero emissions from our own operations, as we take action to meet our targets for 2030, 2040, and 2050.

Based on the Carbon Neutrality Declaration announced in May 2021, MUFG aims to achieve net zero GHG emissions from the financed portfolio by 2050.

In April 2022, we set interim targets for 2030 at levels aligned with the Paris Agreement, and in April 2024, we added new target sectors. We recognize that the processes for achieving these targets vary depending on the characteristics of each region and business. We are also aware that our business is greatly affected by geopolitical risks and other factors, so we will share issues that we find through engagement (dialogue) with customers and support them to help resolve these issues.

Innovations which are still in the conceptual stage is another indispensable element for the world to achieve decarbonization. We believe that there is a gap between the real world and the goal that is yet to be materialized.

Therefore, our aspiration is to further contribute to the changes where the world advances more towards decarbonization by developing research on new technologies for implementation.

To reflect our stance mentioned above, we have set ranged interim targets in order to work together with our stakeholders to achieve net zero GHG emissions by 2050.

We have adopted the following four approaches to setting the interim target.

Going forward, we will reflect the changes in the IEA (International Energy Agency) scenario and various guidelines, as well as the increase in the quality of data disclosed by our customers, as appropriate.

MUFG will ensure that the interim target for 2030 is scientifically “well below 2˚C, preferably to 1.5˚C,” as agreed in the Paris Agreement.

As a benchmark for 1.5°C, we will refer to scientific scenarios published by IEA and others.

We use the best available data to set targets. However, there are limits to the amount and quality of data currently available, so we will use the PCAF data quality score to check the quality of emissions data disclosed by MUFG.

When data is updated or new data is disclosed, improvements in accuracy and quality will be reflected. MUFG will also contribute to improving data accuracy by being highly transparent when disclosing information.

MUFG believes that targets should be set from a global perspective using widely accepted and transparent methods. We participate in various initiatives, collecting insights and reflecting them in the targets we set.

We will proceed with target setting, incorporating guidelines and rules developed by NZBA, PCAF, PACTA, and SBTi etc., as well as the outcomes of the global working groups which we participate in.

Pathways and the methods to achieve carbon neutrality vary by sector, so for each sector we will take into consideration the characteristics of the business, the guidelines and the targets set by each customer.

By taking this approach, MUFG will identify issues in each sector and support customers’ efforts for achieving carbon neutrality.

Below table shows the FY2022 results of reducing emission from our financed portfolio and interim targets.

For detailed information on our approach for each sector and the respective interim targets we have set, please refer to Climate Report 2024 (P58-72).

According to estimates by the Ministry of Economy, Trade and Industry, Japan is aiming to mobilize over 150 trillion yen in funds from public and private investment. Private-sector investment will be attracted by implementing a combination of appropriate regulations and support measures, tailored to the business risks and environments of each sector.

In addition to Green Bonds and Green Loans to underpin investment plans, support for transition innovation in industries will also become a significant business opportunity for financial institutions.

MUFG will continue to identify new needs and issues through the solutions we provide while offering suggestions to policymakers in collaboration with industries and government agencies. As we deepen our relationships with clients, local governments, and various industries through management-level executive forums to engage with clients, and through efforts of our newly established specialized engagement team, we provide valuable insights to both industries and government agencies on emerging needs and issues related to decarbonization. We are here to collaborate with our clients towards decarbonization in a responsible manner.

MUFG has established a project team for the purpose of promoting climate change-related businesses, and is regularly consolidating and sharing knowledge with employees at the executive level and below. This is designed to strengthen our ability to engage with clients seeking carbon neutrality and provide high-quality products and services. Through our global sustainable business promotion structure, we provide solutions for our clients’ business transformation and innovations, directed towards addressing environmental and social issues.

In FY2023, we received the Gold Award in the Indirect Financing Category for the third consecutive year and our first Gold Award in the Financial Services (Securities) Category at the Fifth ESG Finance Awards Japan in recognition of our world-class track record for renewable energy projects and contribution to the development of the ESG finance market through spreading the concept of transition finance in Japan and abroad.

MUFG has identified supporting value chain in Green Transformation (GX) as a key strategy for ‘Expand & Refine Growth Strategies’ in the new medium-term business plan. We aim to accelerate our clients’ GX investments by providing solutions for management that go beyond financing, such as GX project co-creation and transition support. The four strategic pillars for achieving this are support for domestic GX investment, development and import of overseas clean energy and resources, support for Japanese companies entering overseas GX markets, and support for transitions in emerging markets through public-private partnerships. Through research, advocacy, and engagement activities, we will support our clients’ business development and originate value-chain based projects to deliver our financing solutions.

MUFG has raised its sustainable finance target from 35 trillion yen to 100 trillion yen by 2030, given strong progress that MUFG has made to date along with the growing demand for funds.

MUFG supports the promotion of sustainability through the provision of products and services to customers who aim to address climate change and other environmental concerns.

MUFG expands investment in renewable energy and invests in projects to generate and promote the adoption of carbon credits. We also invest in growing companies engaged in businesses that contribute to decarbonization and funds investing in this field. Through these activities, we aim to enhance the corporate value of our portfolio companies while contributing to realize a carbon neutral society.

Under our Sustainable Business Investment Strategy (hereinafter “the Investment Strategy”), we invest in funds that contribute to solving environmental and social issues. Through the Investment Strategy, we seek to acquire knowledge and explore new business opportunities. In addition, we aim to solve issues through our fund investment activities by creating positive impacts and innovation, and nurturing of new industries.

Generally, companies that engage in financing and investment, including banks, consider costs and returns when making investment decisions. For the funds under the Investment Strategy currently set by our bank, we are able to make investment decision taking account of the effect of carbon cost reduction added to the investment returns, in addition to the effects of the investment itself, through converting the reduced carbon cost, calculated by multiplying the reduction amount by the internal carbon pricing^(note), into revenue adjustments, in respect of the investments with disclosed impacts, especially those expected to reduce CO₂ emissions.

Based on this Investment Strategy, we have made five investments in advanced funds that incorporate impact investment mechanisms into their management processes and conduct impact evaluations. As a result, our bank's share of the investment is expected to generate an impact (CO₂ reduction effect) of approximately 121,000 tons annually. The internal carbon pricing used in this investment decision was USD 40/tCO₂ (as of the fiscal year 2023). By incorporating environmental impact into investment and financing decisions, in addition to risk and return, we are conducting equity investments. We aim to accumulate know-how and consider investments based on the international direction and development status of impact evaluation methods, to capture and disclose a broader range of environmental and social impacts in our business (investment and financing).

MUFG is actively involved in discussions to realize carbon neutrality through participating in various Japanese and international initiatives and committees hosted by the public sector, such as governments. Additionally, the contents of discussions held in committees and other forums are shared internally, and we ensure alignment between the policies of industry associations related to climate change and MUFG's policies. If there are any significant vulnerabilities, we engage in constructive dialogue to encourage a review of the stance of the relevant associations. Through this process, we ensure consistency with the stance taken by industry associations towards achieving carbon neutrality.

To achieve sustainability in a meaningful way, it is more important for financial institutions to support decarbonization of the real economy including carbon intensive sectors rather than focusing on greening their balance sheets (also the so-called “paper decarbonization”).

The decarbonization of the real-economy requires development and implementation of transition strategy which reflects regional characteristics, industry structure and relative strength, inter-dependency among industries, and differences in energy mix. Japan and Asia’s unique challenges include transition timelines and pathways being different from those of Europe and the United States because Japan and Asia are still highly dependent on fossil fuels, coal-fired plants in this region are relatively young, and potential to scale up renewable energy is limited at this moment. Also, it is crucial to balance the economic growth and decarbonization in Asia where energy demand is expected to continue to increase in the coming years. As a global leading financial institution with an extensive footprint across Asia and Japan, we believe it is important to facilitate a whole-of-economy transition in a responsible way by engaging with broad stakeholders, and acknowledge as well as respect regional, sectoral or individual client’s pathways.      

A transition implies a major overhaul of the whole-of-economy, and therefore requires significant amount of capital mobilization and risk-taking. In doing so, public finance plays a critical role in crowding-in private finance. MUFG is committed to creating an enabling environment where both real-economy and financial institutions can proactively promote transition. Below three items are the main initiatives for transition support. For details, please see Climate Report 2024 (P30-39).

MUFG has implemented a transition assessment framework, which evaluates our clients’ transition status, and a transaction screening process in order to provide managed transition support. We monitor the progress toward achieving our 2030 interim targets as we strengthen our client engagement activities through these activities, and we are implementing an escalation process that will apply to clients with whom we are unable to confirm any specific plans or directions for transition.

The Transition Plan Monitoring Meeting, jointly chaired by the CSO and CRO, will verify the effectiveness of these frameworks and the progress of our transition plan.

MUFG assesses the transition status of clients in carbon intensive sectors, looking at areas such as 1.5°C alignment with interim targets, transition plans, climate-related governance structure, and past emission reduction records. In addition to this assessment, other information obtained through engagement activities are reflected in the six-tier category to evaluate our clients’ transition progress.

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 risks, which may directly impact their own business activities and indirectly affected due to impacts on clients.

Based on this understanding, we are taking measures to mitigate the impact of business interruptions due to flooding by formulating a Business Continuity Plan (BCP) and other measures, considering physical risks for our assets.

Additionally, for financing that is deemed to have significant transition risks or physical risks, or both, we comprehensively examine our clients' responses towards these risks and proceed with the financing accordingly.

Based on the suggestions of the TCFD, MUFG has summarized the examples of physical and transition risks for each of the major risk categories. The timelines (short, medium, and long term) are also organized by risk category.

MUFG has organized examples of impact (potential risk scenarios) of transition risks and physical risks arising from climate change in each major risk category, based on our recognition that these risks may affect MUFG's entire value chain.

Risks are classified mainly around the following six categories. In the future, the classification of the risks and　examples will be reviewed in response to changes in the environment.

Since 2019, MUFG has been a participant in the pilot project led by the United Nations Environment Programme Finance Initiative (UNEP FI) with the objective of discussing and developing methods for climate change-related financial information disclosure. Based on the results of the pilot project, we conducted an analysis of transition risks up to the year 2050 and physical risks up to the year 2100.

In addition to the results of the above-mentioned pilot project, the scenario analysis reflects the results of verification by external experts. While engaging in dialogue with regulatory authorities, we also continuously examine ways to raise the level of our analytical approaches.

Based on the MUFG Carbon Neutral Declaration released in May 2021, we are working to reduce GHG emissions from our own operations to net zero by 2030.

In addition to emissions reduction activities such as energy efficiency & conservation and renewable energy, we will drive forward a wide range of initiatives contributing to resource conservation and recycling through partnerships with MUFG clients, including startup companies. Furthermore, we at MUFG will independently and proactively engage in these initiatives, thereby strengthening engagement with clients and fostering employee awareness.

In FY2023, GHG emissions were 175,000 tCO₂e reducing 14,000 tCO₂e (7%) from last year’s result (189,000 tCO₂e) and have achieved the interim target of FY 2025.

To achieve our remaining targets, we will continue to reduce GHG emissions in Japan and overseas through energy efficiency & conservation, converting electricity contracted by other companies to renewable energy, purchasing non-fossil fuel certificates, and achieving carbon neutrality for our business vehicles. In addition, we will further contribute to reducing our environmental impact by strengthening procurement of renewable electricity with additionality^(note).

In addition to in-house initiatives such as achieving carbon neutrality for business vehicles and setting energy efficiency & conservation targets, MUFG is driving forward to solving environmental and social issues through various types of business co-creation in partnership with clients.

These initiatives will focus on four priority areas: mobility, office buildings, energy, and resources.

For details and other measures to reduce environmental impact, please see the link.