Can We Trust the banks?

MUFG: Yes - MUFG’s Corporate Social Responsibility Committee (a committee of the Board’s Executive Committee) engages in regular discussions centred on countermeasures to address climate change, and the Executive Committee approved MUFG’s recent Environmental Policy Statement.  We also reviewed MUFG’s Environmental and Social Policy Framework which provides insight into how the Board’s oversight is exercised.

SMFG: Yes - SMFG has a Corporate Sustainability Committee chaired by the SMFG Group Chief Strategy Officer and administered by the Corporate Sustainability Department, to assess the CSR implementation plans of the whole Group, and manage progress.  This committee reports to the management committee which reports to the Board of Directors. We understand that “individual themes such as plans for ESG and SDGs, approaches to climate change are also discussed in the committee, considered by Corporate Sustainability Department and relevant departments.”

Mizuho: Yes - Mizuho’s business plan, which includes an analysis of risks and opportunities related to climate change, was resolved by its Board of Directors. The Executive Management Committee established policies on specific sectors, including coal-fired power generation.

Methodology: responsibility for “sustainability” or “environmental, social or governance” (ESG) issues is not sufficient in this context; climate change or climate risk must be explicitly mentioned.

MUFG: No - Mainstream reports do not disclose the management’s responsibilities with respect to the climate-related risks and opportunities.

SMFG: No - Mainstream reports do not disclose the management’s responsibilities with respect to the climate-related risks and opportunities.

Mizuho: No - Mainstream reports do not disclose the management’s responsibilities with respect to the climate-related risks and opportunities.

Methodology: responsibility for “sustainability” or “environmental, social or governance” (ESG) issues is not sufficient in this context; climate change or climate risk must be explicitly mentioned.

MUFG: No -The information in the CDP report or other MUFG reporting does not clearly identify possible physical or transition risks linked to climate change (other than a mention of coal-fired power generation projects) in its lending and other financial intermediary business activities.  

In its 2018 CDP report, MUFG questions whether loans to customers or projects that emit greenhouse gases, such as coal-fired power generation projects, are being made to worthwhile assets. As part of management of climate-related risk, MUFG has stated that it has identified carbon-related assets, has developed a loan policy for the coal-fired power sector, and discusses some mitigation options. However, MUFG has not fully described significant concentration of credit exposure to carbon-related assets.  It has indicated what percentage of its project finance loan book is made up by coal-fired power projects, but has not disclosed other carbon-related assets.

SMFG: No - SMFG states in its 2018 Annual Report that it will identify sectors that have assets that are vulnerable to climate change, such as fossil fuels.  However, it has not described its concentration of credit exposure to carbon-related assets.

SMFG states that for new financing to a coal-fired power plants, examinations will be conducted in line with the certain criteria depending on where the plant will be constructed. As a result, it has created a policy limiting financial support to only coal-fired power plants using ultrasupercritical technology or more advanced technologies. However, it does not otherwise specify the transition risks or physical risks specifically linked to climate change in lending and other financial intermediary business activities.

Mizuho: No - Mizuho lists increased credit risk from reduced asset value for fossil fuels, increased reputational risk from supporting financing companies and projects with high environmental impacts and increased costs to comply with stronger environmental regulations, all of which are transition risks.  It also lists natural disasters as a potential physical risk to Mizuho’s facilities.  However, Mizuho has not described its concentration of credit exposure to carbon-related assets, and designates it as a future issue in its 2018 Integrated Report.

Methodology: climate risk (or the transition/physical impacts of climate change) must be explicitly described with information on the quantum of the risk over time.

The Supplemental Guidance also states that "Banks should describe significant concentrations of credit exposure to carbon-related assets. Additionally, banks should consider disclosing their climate-related risks (transition and physical) in their lending and other financial intermediary business activities."

MUFG: No - MUFG does not describe the impacts of climate-related physical or transition risks on its business strategy.

SMFG: No - SMFG does not describe the impacts of climate-related physical or transition risks on its business strategy.

Mizuho: No - Mizuho does not describe the impacts of these or other climate-related physical or transition risks on its business strategy.

Methodology:  'Detailed' disclosure means a discussion of the risks and opportunities posed by climate change, including the expected severity and likelihood of the impact, and the timeframe in which the impact may arise.

A key tenet of the TCFD recommendations is that climate risk information should be included in mainstream financial reporting. Such disclosures would then be readily accessible to investors, regulators and the wider public.

MUFG: No - MUFG has not published an analysis of how climate risks manifest and would be mitigated in various climate change scenarios.  The 2018 CDP report indicates that MUFG expects to perform such a scenario analysis in the next two years. This timing has not been communicated directly to shareholders in market disclosures.

SMFG: No - SMFG has not published an analysis of how climate risks manifest and would be mitigated in various climate change scenarios.  The 2018 CDP report indicates that SMFG expects to perform such a scenario analysis in the next two years. This timing has not been communicated directly to shareholders in market disclosures.

Mizuho: No - Mizuho has not published an analysis of how climate risks manifest and would be mitigated in various climate change scenarios.  The 2018 CDP report indicates that Mizuho expects to perform such a scenario analysis in the next two years. This timing has not been communicated directly to shareholders in market disclosures.

Methodology: Comprehensive analysis should include assumptions, multiple scenarios, cover the entire business, and provide some numeric output, not simply text.

Scenario analysis is one of the most important of the TCFD's recommendations, as it can provide clear measures of a company's future viability in situations where global warming is limited to less than two degrees. This is intended to encourage companies to understand that 'business as usual' is not a sustainable model. In turn, investors are able to determine the most appropriate, sustainable allocation of capital.

Comprehensive analysis should include assumptions, multiple scenarios, cover the entire business, and provide some numeric output, not simply text.

MUFG: No - MUFG does not identify climate risk as a material business risk.

 SMFG: No - SMFG does not identify climate risk as a material business risk.

Mizuho: No - does not identify climate risk as a material business risk.

Methodology: Given the fossil fuel exposure and the relative importance of these banks to the Japanese and global economy, climate risk (or the transition/physical impacts of climate change) must be explicitly mentioned as a principal or material risk in the annual report.

MUFG: Unclear -  MUFG's Environmental and Social Policy Framework has a process for identifying environmental and social risk which includes “enhanced due diligence” for restricted transactions, such as restrictions in the coal-fired power generation sector.  However, it is not clear that this includes broader climate-related physical and transition risk.

 SMFG: Unclear - While it has a policy for businesses associated with environmental and social risk, which include coal-fired power generation, SMFG does not disclose a process for identifying, assessing and managing climate-related physical and transition risk even within that sector.

Mizuho: Unclear - While Mizuho states that it “recognises the physical and transition risks associated with climate change and ha(s) constructed a system for addressing these risks through a comprehensive risk management framework that includes credit risk management and operational risk management,” the nature of this system is not described.

Methodology: the processes for management of risk must specify and include a discussion of climate risk.

MUFG: Unclear -  As MUFG has not identified or assessed climate-related risks as material business risks, it is unclear whether management of these risks are integrated into overall risk management.

MUFG has not allocated climate-related risks in the context of “traditional banking industry risk categories such as credit risk, market risk, liquidity risk, and operational risk,” as recommended under the TCFD Supplemental Guidance.

 SMFG: Unclear - As SMFG has not identified or assessed climate-related risks as material business risks, it is unclear whether management of these risks are integrated into overall risk management.

SMFG has not allocated climate-related risks in the context of “traditional banking industry risk categories such as credit risk, market risk, liquidity risk, and operational risk,” as recommended under the TCFD Supplemental Guidance.

Mizuho: Unclear - As Mizuho has not identified or assessed climate-related risks as material business risks, it is unclear whether management of these risks are integrated into overall risk management.

Mizuho has not allocated climate-related risks in the context of “traditional banking industry risk categories such as credit risk, market risk, liquidity risk, and operational risk,” as recommended under the TCFD Supplemental Guidance.

Methodology: According to the TCFD Supplemental Guidance, banks should consider characterizing their climate-related risks in the context of traditional banking industry risk categories such as credit risk, market risk, liquidity risk, and operational risk. Banks should also consider describing any risk classification frameworks used.

MUFG: Limited -  Metrics are limited to the disclosure of GHG emissions, rather than metrics related to credit exposure or equity or debt holdings.

 SMFG: Limited -  Metrics are limited to the disclosure of GHG emissions, rather than metrics related to credit exposure or equity or debt holdings.

Mizuho: Limited -  Metrics are limited to the disclosure of GHG emissions, rather than metrics related to credit exposure or equity or debt holdings.

Methodology: The Supplemental Guidance suggests metrics for banks related to credit exposure, equity and debt holdings, or trading positions, which could be broken down by industry, geography, credit quality or average tenor.  It also states that banks should “provide the amount and percentage of carbon-related assets relative to total assets as well as the amount of lending and other financing connected with climate-related opportunities.”  

MUFG: Limited -  Only Scope 1 + 2 emissions are disclosed.

 SMFG: Yes -  Scope 1 + 2 + 3 emissions are disclosed.

Mizuho: Yes -  Scope 1 + 2 + 3 emissions are disclosed.

Methodology:

Scope 1 - Direct emissions from company activities

Scope 2 - Indirect emissions from use / consumption of energy etc

Scope 3 - Indirect emissions as a consequence of company's activities, such as extraction and production of materials purchased by the company, transportation of purchased fuels, or use of products and services sold by the company

MUFG: Limited - MUFG has set a target to reduce its Scope 2 emissions by 2030.  No targets have been set around credit exposure or debt or equity holdings.

 SMFG: Limited - SMFG has set a target to reduce its Scope 2 emissions by 2030. No targets have been set around credit exposure or debt or equity holdings.

Mizuho: Limited - Mizuho has set a target to reduce its Scope 2 emissions by 2030. No targets have been set around credit exposure or debt or equity holdings.

Methodology: plans should have clear, measurable interim targets, along with detailed descriptions of how those targets will be achieved. In this context, carbon abatement - that is, the purchase of carbon offsets - is not considered an emissions reduction plan.