Transition Finance: A New Means for Corporate Growth
A leading expert in the promotion of sustainable finance discusses the future of the industry
Aiming to achieve carbon neutrality through the strength of finance
In April 2021, MUFG announced its new purpose, “Committed to empowering a brighter future.” with a new set of goals dedicated to solving social and environmental issues as part of its sustainability management. The Group is now in the final year of its medium-term business plan (FY2021-FY2023), known as “Three years of new challenges and transformation.”
One of those core challenges and transformations is the “MUFG Carbon Neutrality Declaration,” which was announced in 2021, and is the first of its kind made by a Japanese bank. As part of the declaration, one of its most ambitious initiatives is its goal to “achieve net zero greenhouse gas (GHG) emissions across its finance portfolio by 2050,” which the Group is working towards with its stakeholders. As a financial group, MUFG supports companies that are proactive in reducing GHG emissions through finance.
Miyuki Zeniya, Chief Sustainability Officer (CSuO) of MUFG and MUFG Bank
MUFG announced a cumulative target for a sustainable finance total of 35 trillion yen by FY2030 in its work toward solving social and environmental issues. The Group has actively supported various renewable energy projects (e.g., offshore wind power and mega solar power) in the world, and has made steady progress in the three and a half years from 2019 to 2022, reaching a cumulative total of 19.4 trillion yen.
Alongside these projects, MUFG is collaborating with other companies to meet a diverse set of customer needs. The bank works closely with Zeroboard Inc., a cloud service provider that calculates and visualizes GHG emissions. Zeroboard Inc. supports over 2,000 companies in such visualizations.
In November 2022, in collaboration with Tokio Marine & Nichido Fire Insurance Co., Ltd., the Bank also launched a consulting service for disclosure of climate change-related risks and opportunities in line with implementing recommendations formulated by the Task Force on Climate-related Financial Disclosures, or TCFD, a special task force established by the Financial Stability Board (FSB). Also, Codo Advisory, Inc. will soon join this collaboration to provide a new service together to help clients developing a decarbonization/transition strategy.
In 2022, MUFG published the “MUFG Transition Whitepaper” in English, to underline the need for transition based on Japan’s regional characteristics and industrial structure (materials and power sector) and the interdependency among industries. The whitepaper summarizes the differences between perceptions in Japan, Europe, and the United States of the net zero movement in regards to (1) energy sources (major GHG emission sources, existing infrastructure, renewable energy potential, etc.), (2) connectivity with other regions/countries, (3) energy security, and (4) sociopolitical factors. Based on these findings, the Group developed a transition strategy necessary for Japan and Asia. With this in mind, MUFG has been contributing to global rulemaking discussions through actively participating in global/regional initiatives such as GFANZ (Glasgow Financial Alliance for Net Zero) and NZBA (Net-Zero Banking Alliance).
In the same year, MUFG also participated in COP27 (27th Conference of the Parties of the UNFCCC), where the Group discussed the need for an just and orderly transition, and spoke on the potential for Japan’s road to carbon neutrality to serve as a blueprint for Asia.
Views on sustainability gained through professional experience
Of course, MUFG’s reformation is ongoing. To further accelerate the Group’s commitment to achieving carbon neutrality at the management level, Miyuki Zeniya was appointed in October 2022 as the Chief Sustainability Officer (CSuO) of MUFG/MUFG Bank.
In her former position, Zeniya was the driving force behind the unification of global sustainability and business strategies at Dai-ichi Life Holdings. She is a leading figure in the promotion of sustainable finance, holds various public office roles, and regularly conducts lectures on the subject of SDGs/ESGs in Japan and abroad.
First, we spoke to Zeniya about how her perspective on Sustainable Development Goals were developed.
“Rather than one specific motive, I think it was more of an accumulation of experiences since my childhood. To provide one specific experience around the year 2000, I was working for a start-up that specialized in outplacement. At that time, CSR (Corporate Social Responsibility) was gaining traction, and many companies started asking for voluntary retirement, something not uncommon nowadays. I went there to provide support for those who were concerned about re-employment. That was one of the experiences that contributed towards my sense of social sustainability.”
Zeniya then moved to a role in management strategy at a regional bank. After gaining experience in establishing CSR-based investment funds and corporate revitalization at Private Equity, she moved to Dai-Ichi Life Holdings. “At that time, the Stewardship Code aimed at institutional investors was widely renowned as one of the main pillars of Japan’s Abenomics economic policy, which was introduced in 2014. This served as a guideline for shareholders to engage in value-enhancing activities with the companies they invest in.
“Up until that time, insurance companies rarely got involved in the business strategies of the companies in which they invested, but now they were said to ask companies to create strategies built around the mindset of sustainability. Companies were challenged to build their business strategies not under the scope of social contribution but as a sustainable business plan that recognizes societal changes and responds to new needs. Through this strategy, companies would not only gain sustainable growth and profit but would also be able to provide their employees with fair compensation.”
At the same time, Zeniya acknowledges that in terms of risk as a financial institution, her point of view was significantly impacted by the Green Swan Report and the IPCC (Intergovernmental Panel on Climate Change) report on climate change.
“The report stated that climate change was not a temporary phenomenon but rather an extreme weather event resulting from human economic activity that has been going on since the Industrial Revolution. In parallel with this, ESG investment and green finance (financing specifically for the environmental sector) had expanded, which led to a greater emphasis on the relationship between the environment and business.”
As the world changes, so does the industry
Next, we asked Zeniya what her new Chief Sustainability Officer (CSuO) role would entail.
“The CSuO is a role that has become increasingly common globally in the last five years or so. It’s a role that requires responding to society’s expectations and needs for sustainability, as well as developing corporate strategies. I think this reflects the fact that corporate growth can no longer be expected without taking sustainability into account.”
“Of course, materiality varies by company and industry. As a financial institution, we are required to identify what society demands in an unbiased way. In particular, going carbon neutral in response to climate change is something that all companies must address, and since there is a mutual relationship across the supply chain, we want to work with a variety of companies to make the transition as smooth as possible and provide financing solutions.”
Finally, we asked Zeniya about what the future holds for her position as CSuO.
“The world is in the midst of a major transition. We always keep in mind that the industrial structure will also likely undergo major transformations. It may be hard to predict what will happen, but as Mark Twain once said, ‘History doesn’t repeat itself, but it often rhymes,’ I believe that we can learn from the past.
As was noted at COP27, in addition to climate change, biodiversity issues will soon share the spotlight. This is not simply an issue of conserving nature, but of facing the reality that rising temperatures and the use of chemical substances are changing ecosystems, altering the food chain, and can lead to crop failures and, essentially, even food shortage. The TNFD (Task Force on Nature-related Financial Disclosures) disclosure framework will be finalized in September 2023, and I would like to incorporate such factors into the MUFG Group’s corporate strategy.”