Response to Climate Change and TCFD Endorsement

Under the Tokyo Century Group’s management philosophy, the Group “will work alongside customers in pursuit of their growth as a highly specialized and unique financial services company and will contribute to the creation of an environmentally sound, sustainable economy and society.” We have recognized that addressing climate change is important for creating an environmentally sound, sustainable economy and society, identified materiality (key issues) linked to the SDGs, and have been working on these issues.

Tokyo Century announced its endorsement of the recommendations of the Task Force on Climate-related Financial Disclosures^* (TCFD) in April 2021. In addition, based on the results of a risk materiality assessment related to climate change, we identified climate change risks and opportunities under multiple scenarios such as the Sustainable Development Scenario (“well below 2°C” Scenario including 1.5°C) and the New Policy Scenario (4°C Scenario) published by International Energy Agency (IEA) and conducted qualitative and quantitative business impact assessments for the environment and energy businesses (solar power generation) (May 2021), the aviation business (aircraft leasing) (April 2022), and the Automobility business (corporate and individual auto leasing) (April 2023) in line with TCFD recommendations.

We will continue contributing to the realization of a decarbonized society by promoting sustainability management through our business activities, including renewable energy businesses such as solar power generation. Going forward, we will further consider how to address risks and seize opportunities as well as expand businesses subject to scenario analysis while also improving the accuracy of the analysis.

In the governance system of the Tokyo Century Group, the Sustainability Committee, responsible for planning, promoting, and overseeing Group-wide sustainability activities, deliberates the sustainability management strategy on climate change risks and opportunities. Key issues are reported to and discussed at the Management Meeting and the Board of Directors Meeting.

The Sustainability Committee is chaired by the president of the Corporate Planning Unit and composed of relevant officers and the presidents of each unit. The Sustainability Management Division in the Corporate Planning Unit serves as the secretariat, and the committee meets in principle twice a year. It works under the supervision of the Board of Directors to strengthen the PDCA cycle for sustainability management.

The Tokyo Century Group uses a materiality map to verify the importance of issues from the perspectives of Tokyo Century and its stakeholders and determines the five areas of materiality (key issues), which include climate change measures, that correspond with the SDGs. The Group then pursues sustainability management to promote businesses that contribute to the sustainable development of society in collaboration with partner companies.

The Tokyo Century Group recognizes climate change as one of the most important social issues facing global society. It is therefore a key management issue in the Group’s materiality as a “contribution to a decarbonized society.” Recognizing this, the Tokyo Century Group conducted a risk materiality assessment from the perspective of its stakeholders and the Group for businesses with particularly high climate change risk within its operating segments.

As a result of the assessment, we conducted scenario analyses for the environment and energy businesses (solar power generation) (May 2021), the aviation business (aircraft leasing) (April 2022), and the Automobility business (corporate and individual auto leasing) (April 2023).

We conduct the scenario analysis in accordance with TCFD recommendations following the four processes below.

The Tokyo Century Group has established the Basic Risk Management Policy and set up its Comprehensive Risk Management Committee to identify and evaluate Group-wide risks that may significantly impact management and to appropriately address both qualitatively and quantitatively as necessary to implement comprehensive risk management.

The Group has developed a risk heat map by assessing the yearly changes in its business for risk categories set forth in the Basic Risk Management Policy and the Comprehensive Risk Management Rules. It is also developing a matrix that will measure the level of impact and frequency of occurrence. Climate change risk is mapped on the heat map based on our assessment as a non-financial operational risk.

We have also established a system for monitoring operational risks, including climate change, and results are reported to the Board of Directors twice a year through the Comprehensive Risk Management Committee as a risk index for non-financial information.

Preliminary measurements of exposure to transition risks and physical risks are conducted and the results are reported regularly to the Comprehensive Risk Management Committee to determine the potential impact of climate change risks on Tokyo Century’s credit portfolio.

Exposure to transition risks is quantified through Monte Carlo simulations targeting sectors chosen based on TCFD recommendations after accounting for the potential impact of these risks on debtor ratings and asset value. Physical risk exposure is measured as the maximum loss projected to be incurred based on statistical simulations of specific business assets (solar power generation businesses, etc.) that have suffered damages from natural disasters.

The Tokyo Century Group announced its carbon neutrality policy for fiscal 2040 in September 2022. The policy describes our goal of achieving effectively zero greenhouse gas (GHG) emissions while also presenting a transition roadmap for the biomass co-firing power plant owned by Shunan Power Corporation, a consolidated subsidiary of Tokyo Century, which accounts for approximately 98% of the Group’s GHG emissions. The Transition Roadmap has received “Green 1 (T) (F)” for the highest overall evaluation of the Climate Transition Finance Evaluation by Japan Credit Rating Agency, Ltd.

In addition, the Tokyo Century Group is working to reduce its environmental load by adopting an ISO 14001-certified environmental management system (EMS) based on its Basic Environmental Policy.

We have set targets for contributing to environmental well-being through our business activities, including office activities and renewable energy business, and continuously manage these activities by calculating annual CO₂ emissions. In fiscal 2022, electricity consumption^* was 27,147,000 kWh, CO₂ emissions (market-based) were approximately 11,972 t-CO₂, annual power generation through the solar power generation business (Kyocera TCL Solar LLC and eight other companies) was 537,000 MWh, and contribution to reductions in CO₂ emissions was 208,000 t-CO₂.