Initiatives to Address Climate Change
(Response to TCFD Recommendations)

Governance

Aozora has established a program led by the Sustainability Committee to advance sustainability initiatives under the supervision of the Board of Directors.

Aozora has identified “Response to Environmental Issues” as a Materiality issue. In particular, we have positioned climate change as the most important issue to be addressed in tandem with management.

Strategy

Aozora is aware that our responses to climate change serve as a means of mitigating risk as well as a major business opportunity.

For this reason, Aozora has organized the climate-related risks that are anticipated to have an impact on our business, and categorized the opportunities created through developing and providing financial products and services, the Bank’s primary business, with the aim to realize a decarbonized society.

Based on this awareness of risks and opportunities, we will consider and promote strategic initiatives to enhance resilience against climate change.

Opportunities Related to Climate Change

Opportunity	Time frame
Generate further synergies with the Strategic Investments Business (structured finance, etc.) across the Group Expand initiatives in green energy finance, transition finance, etc. Expand opportunities to provide decarbonization solutions in non-financial areas by capturing customer needs for implementing a transition plan towards decarbonization Expand opportunities to provide asset management products for retail customers considering ESG from multiple perspectives Identify new business opportunities through collaboration with decarbonization-related innovative companies (including venture companies)	Short- to medium-term
Increase financing opportunities for new energy-related technology developments in areas such as hydrogen and ammonia, CCS and DAC^* Increase financing opportunities for fundamental fuel conversion and energy-saving promotion in the manufacturing and transport sectors Increase the scope of transaction opportunities with retail customers who embrace our value of “contributing to the realization of a decarbonized society”	Medium- to long-term

Opportunity

Time frame

Generate further synergies with the Strategic Investments Business (structured finance, etc.) across the Group
Expand initiatives in green energy finance, transition finance, etc.
Expand opportunities to provide decarbonization solutions in non-financial areas by capturing customer needs for implementing a transition plan towards decarbonization
Expand opportunities to provide asset management products for retail customers considering ESG from multiple perspectives
Identify new business opportunities through collaboration with decarbonization-related innovative companies (including venture companies)

Short- to medium-term

Increase financing opportunities for new energy-related technology developments in areas such as hydrogen and ammonia, CCS and DAC^*
Increase financing opportunities for fundamental fuel conversion and energy-saving promotion in the manufacturing and transport sectors
Increase the scope of transaction opportunities with retail customers who embrace our value of “contributing to the realization of a decarbonized society”

Medium- to long-term

CCS: Carbon Capture and Storage, a technology that captures and stores CO₂
DAC: Direct Air Capture, a technology that extracts and captures CO₂ directly from the atmosphere

Risks Related to Climate Change (Transition Risk, Physical Risk)

Risk Classification		Transition Risk	Time frame	Physical Risk	Time frame
Credit risk		Risks arising from impairment to the credit portfolio and losses due to deterioration in customers’ business performance or financial condition caused by policies, technological advances, changes in consumer preferences, etc.	Short- to long-term	Risks arising from impairment to the credit portfolio and losses due to deterioration in customers’ business performance or collateral damage caused by natural disasters Risks arising from a significant adverse impact on Aozora or customers’ businesses due to greater frequency in cases of heatstroke or viral pandemics	Short- to long-term
Market risk		Risks arising from incurring losses or damage resulting from fluctuations in the values of securities held, financial derivatives, etc., caused by such issues as a decrease in customers’ earnings or impairment in the value of existing assets	Short- to long-term	Risks arising from incurring losses or damage resulting from fluctuations in the value of the securities portfolio, etc., due to market disruption caused by the impact of extreme weather, or changes in the medium- to long-term outlook or the expectations of market participants	Short- to long-term
Liquidity risk		Risks arising from limited funding sources, deposit outflows or cash flow pressure due to a decline in Aozora’s creditworthiness due to factors such as a delayed response to transition risk	Short- to long-term	Risks arising from increased demand for funding from customers affected by extreme weather, and an increased outflow of funds for reconstruction and recovery	Short- to long-term
Operational risk		Risks arising from increases in equipment expenditures made to reduce GHG emissions or to strengthen business continuity	Short- to long-term	Risks arising from incurring losses or damage due to interruption of operations at the Head Office, branches, and data centers as a result of damage caused by extreme weather	Short- to long-term
	Reputation risk	Risks arising from deterioration in Aozora’s reputation due to lack of a response to climate change or assessments by stakeholders of our response being inappropriate or insufficient Risks arising from deterioration of Aozora’s reputation and adverse impact on employment due to continued transactions with customers who are not sufficiently environmentally conscious and due to our delays in its transition	Short- to long-term	Risks arising from deterioration of Aozora’s reputation and suspension of business due to lack of support for customers affected by extreme weather	Short- to long-term

Aozora defines short-term as up to 3 years (the period covered by the Mid-term Plan); medium-term as 3–10 years, and long-term as 10–30 years.

Roadmap to Becoming Carbon-neutral

As part of our medium- to long-term initiatives for the risks and opportunities related to climate change, Aozora has developed a roadmap and specific plan of action to achieve becoming carbon-neutral in line with the items of the Paris Agreement.

By FY2030, Aozora aims to achieve net zero GHG emissions as a business entity mainly through energy-saving initiatives and the conversion of consumed electricity to renewable energy sources.

By FY2050, the Bank intends to promote its initiatives for net zero GHG emissions from the investment and loan portfolio with a view to realizing decarbonization throughout the supply chain. We will continuously review our initiatives for reaching this goal in line with changes in the environment.

Moreover, we will provide renewable energy project finance and other forms of environmental finance to support customers’ initiatives for decarbonization, and will promote phasing out exposure in project financing for coal-fired power plants.

an image about Roadmap to Becoming Carbon-neutral

Initiatives to Achieve Net Zero CO₂ Emissions as a Business Entity

We continue promoting upgrades to energy-saving equipment and devices as well as seeking the cooperation of suppliers with the intent to “achieve net zero emissions in Scope 1 and Scope 2 by FY2030,” which is one of Aozora’s Sustainability Targets.

Conversion to Renewable Energies, Reduction of Electricity Used

Aozora’s Head Office, which is located in the Sophia School Corporation Sophia Tower, uses only renewable energy-driven electricity.

We are also gradually transitioning to green electricity at each branch office at the time of relocation or any other similar circumstances.

Upgrading to Energy-saving Equipment at Offices

Our Fuchu Annex proceeds with its upgrade to energy-saving equipment in consideration of impact on the environment. As one example, approximately 80% of lighting in the annex has been converted to LED, and the air conditioning system has been replaced with the latest water-cooled system. Moreover, the electricity consumed in the annex has been fully converted to renewable energy through the use of carbon offsets since August 2024.

Aozora has made progress in replacing company cars at our Head Office and branch offices with ecofriendly vehicles (which accounted for 92% of our fleet as of May 2025).

Converting to Ecofriendly Vehicles and Installing EV Battery Charging Devices

We installed battery chargers for electric vehicles and PHV on the first floor of the Head Office, which are also available for our customers’ use.

Supporting Customers’ Initiatives to Decarbonize

Supporting customers’ initiatives for decarbonization with a view to realizing a decarbonized society is an important role that Aozora should assume as a financial institution. This support also presents the potential for multiple business opportunities.

In addition to financial support, including renewable energy project finance as one of our strengths, we are also focused on developing and providing non-financial decarbonization solutions by collaborating with external business partners.

Aozora is promoting an environmental business that is balanced between economic and social value by offering comprehensive support for our customers’ environmental initiatives.

Customers’ Decarbonization Support System in Aozora’s ESG Support Framework

Power Purchase Agreement, under which power producers place solar power generation systems mainly on the unused land of consumers (municipalities and companies) and supply electricity

Status of Carbon-related Assets

Aozora discloses the status of outstanding loans and percentages by sector for carbon-related assets, taking into account the TCFD recommendations.

Carbon-related Assets (loan outstandings)

(As of March 31, 2025)

Sector	Loan outstandings (billion yen)	Percentage
Oil and gas	50.7	1.2%
Coal	－	－
Electricity^*	80.7	1.9%
Energy sub-total	131.4	3.1%
Air cargo transportation	18.3	0.4%
Air passenger transportation	5.7	0.1%
Maritime transportation	7.5	0.2%
Rail	22.6	0.5%
Road transportation	11.5	0.3%
Vehicles/components	31.7	0.8%
Transportation sub-total	97.2	2.3%
Metals and mining	40.6	1.0%
Chemicals	113.7	2.7%
Construction materials	15.8	0.4%
Capital goods (buildings, etc.)	176.3	4.2%
Real estate management/development	1,020.6	24.3%
Materials, construction materials sub-total	1,367.0	32.5%
Beverages	15.6	0.4%
Agriculture	0.8	0.0%
Packaged foods/meat	14.2	0.3%
Paper/forest products	30.6	0.7%
Agriculture, beverages, and forest product sub-total	61.3	1.5%
Total for all sectors	1,656.9	39.4%

Excludes renewable energy providers

Scenario Analysis

The results of our quantitative scenario analysis through 2050 are as follows. The breakdown of our carbon-related assets (loan outstandings) as of March 31, 2025, showed no significant change compared to the end of the previous fiscal year, and the assessment of financial impact was also similar to that of the previous fiscal year.

Looking ahead, we will expand our knowledge of analysis methods and strive to enhance accuracy, and work to assess climate resilience more effectively through scenario analyses.

Risk Classification	Transition Risk	Physical Risk
Scenario	IEA (International Energy Association) World Energy Outlook STEPS (3°C) scenario, NZE (1.5°C) scenario	IPCC (Intergovernmental Panel on Climate Change) RCP 8.5 scenario (4°C scenario) / RCP 2.6 scenario (2°C scenario)
Method of analysis	Preliminary calculation of loss reserves increases after assessing the degree of impact on corporate customers’ business results (damage to their creditworthiness) based on parameters and public information, etc., in addition to considering the increase in investment burden in the future	Preliminary calculation of increase in loss reserves arising from damage to properties after assessing the rate of damage due to the properties adversely impacted by flooding / high tides (effects of direct harm to properties and suspended business activities)
Subject of analysis	Electricity, energy, automotive, and real estate sectors (excluding non-recourse loans, REITs) as well as raw materials sector^* (accounted for 18.4% of total loan outstandings) As of March 31, 2023	Collateral for domestic and overseas real estate non-recourse loans (accounted for 15.1% of total loan outstandings) As of June 30, 2021
Results of analysis	The following has been confirmed: The electricity sector faced rising costs from carbon price increases, in addition to the importance of the development of technologies for reducing GHG emissions and changes in the electricity mix For the energy and automotive sectors, it was important to respond to changes in market needs towards a transition to a decarbonized society The raw materials sector was comparatively vulnerable to rising costs from carbon price increases	The following has been confirmed: There are only a limited number of properties with a risk of damage due to flooding / high tides as many properties were robust collateral and located in areas less susceptible to natural disasters
Loss reserves expected to increase	In comparison with current loss reserves, we expect an increase of up to 20 billion yen by 2040, and an increase of up to 4 billion yen in 2050 as our financial condition improves with the overall progress of a transition to a net-zero society	An increase of around 1 billion yen is expected in the period until 2050
Valuation of financial impact, etc.	Estimated loss reserves increased compared to the previous fiscal year, mainly due to considering the future investment burden in the analyzed sectors	New analysis was not conducted in FY2024, as the assumption that the impact of increased natural disasters and extreme weather is not of a nature that changes over several years. We will conduct a review as necessary

Transition risk analysis scope: Important sectors in the credit portfolio were identified using a risk map based on the degree of impact from climate change. The selected sectors were raw materials, real estate (excluding non-recourse loans and REITs), as well as the electricity, energy, and automotive sectors, which have comparatively small exposure but a significant impact.

Risk Management

We manage climate change risk as an important financial risk within the traditional financial risk categories, including credit risk, market risk, liquidity risk, and operational risk, and integrate the management of this risk into our existing risk management framework. In addition, we incorporate climate change risk into Aozora’s “Key Risks” and use it in discussions of our risk appetite and business planning to enhance the effectiveness of risk management.

When we initiate individual projects, we respond in accordance with the Aozora Bank Group Investment and Lending Policies regarding Environmental and Societal Issues. These policies are reviewed as necessary through discussions by the Management Committee and the Sustainability Committee in response to changes in the business environment, social demands, and business activities.

In FY2024, we added “biomass power generation” to the list of specific sectors, clearly stating that “Aozora will confirm the customer’s implementation of initiatives that take into account environmental and social issues.” The primary conditions of the Aozora Bank Group Investment and Lending Policies regarding Environmental and Societal Issues* are as follows:

For any credit transactions that are believed to fall under the prohibited credit category, the Credit Committee or Investment Committee is responsible for making credit decisions by comprehensively reviewing the background, features, and other factors of each transaction
Our policy prohibits the financing of new projects for coal-fired power plants as well as the expansion of existing power generating facilities
We identify, assess, and manage environmental and social risks based on Equator Principles when making investments or loans for large-scale development projects

Click here for more details on Investment and Lending Policies regarding Environmental and Societal Issues

Metrics and Targets

Climate change-related targets based on Aozora’s Sustainability Targets are as follows.

	Targets	FY2024 Results
GHG emissions as a business entity (Scopes 1 and 2)	Net zero by FY2030	70% reduction (vs. FY2020)
GHG emissions from the investment and loan portfolio (Scope 3: category 15)	Net zero by FY2050	Refer to the following “GHG Emissions from the Investment and Loan Portfolio (Scope 3: category 15)”.
Amount of project financing for coal-fired power plants	Zero balance by FY2040	17.6 billion yen
Sustainable financing amount	1 trillion yen by FY2027 (seven years) Including environmental finance of 700 billion yen	Approx. 860 billion yen Including environmental finance of approx. 667 billion yen

GHG Emissions from the Investment and Loan Portfolio (Scope 3: category 15)

[Loans] Financed Emissions (kt-CO₂)

(Note) The coal sector is not listed due to a zero balance.

	Oil and gas	Electricity	Air cargo transportation	Air passenger transportation	Maritime transportation	Rail	Road transportation	Vehicles/ components	Metals and mining	Chemicals	Construction materials	Capital goods (buildings, etc.)	Real estate management/ development	Beverages	Agriculture	Packaged foods/meat	Paper/forest products	Other	Total
Scopes 1 & 2	351	1,072	19	11	7	43	39	5	909	200	4	119	8	9	3	133	43	501	3,479
Scope 3	387	375	11	6	4	24	22	75	524	278	49	566	47	35	2	61	73	1,683	4,220

	Scopes 1 & 2	Scope 3
Oil and gas	351	387
Electricity	1,072	375
Air cargo transportation	19	11
Air passenger transportation	11	6
Maritime transportation	7	4
Rail	43	24
Road transportation	39	22
Vehicles/components	5	75
Metals and mining	909	524
Chemicals	200	278
Construction materials	4	49
Capital goods (buildings, etc.)	119	566
Real estate management/ development	8	47
Beverages	9	35
Agriculture	3	2
Packaged foods/meat	133	61
Paper/forest products	43	73
Other	501	1,683
Total	3,479	4,220

Data Quality Score (1 rated highest, 5 rated lowest)

	Oil and gas	Electricity	Air cargo transportation	Air passenger transportation	Maritime transportation	Rail	Road transportation	Vehicles/ components	Metals and mining	Chemicals	Construction materials	Capital goods (buildings, etc.)	Real estate management/development	Beverages	Agriculture	Packaged foods/meat	Paper/forest products	Other	Total
Scopes 1 & 2	4.6	4.2	4.8	4.0	4.0	4.0	4.0	4.2	4.0	4.0	4.0	4.1	4.2	4.0	4.0	4.0	4.0	4.1	4.2
Scope 3	4.6	4.9	4.8	4.0	4.0	4.0	4.0	4.2	4.0	4.0	4.0	4.1	4.2	4.0	4.0	4.0	4.0	4.1	4.2

	Scopes 1 & 2	Scope 3
Oil and gas	4.6	4.6
Electricity	4.2	4.9
Air cargo transportation	4.8	4.8
Air passenger transportation	4.0	4.0
Maritime transportation	4.0	4.0
Rail	4.0	4.0
Road transportation	4.0	4.0
Vehicles/components	4.2	4.2
Metals and mining	4.0	4.0
Chemicals	4.0	4.0
Construction materials	4.0	4.0
Capital goods (buildings, etc.)	4.1	4.1
Real estate management/ development	4.2	4.2
Beverages	4.0	4.0
Agriculture	4.0	4.0
Packaged foods/meat	4.0	4.0
Paper/forest products	4.0	4.0
Other	4.1	4.1
Total	4.2	4.2

Financed Emissions Measurements: Loan Outstandings (unit: billion yen), 100% Measurement Coverage Rate for Each Sector

	Oil and gas	Electricity	Air cargo transportation	Air passenger transportation	Maritime transportation	Rail	Road transportation	Vehicles/ components	Metals and mining	Chemicals	Construction materials	Capital goods (buildings, etc.)	Real estate management/development	Beverages	Agriculture	Packaged foods/meat	Paper/forest products	Other	Total
Loan outstandings	61	190	6	3	3	23	12	21	46	99	15	157	157	10	0	14	31	1,456	2,305

	Loan outstandings
Oil and gas	61
Electricity	190
Air cargo transportation	6
Air passenger transportation	3
Maritime transportation	3
Rail	23
Road transportation	12
Vehicles/components	21
Metals and mining	46
Chemicals	99
Construction materials	15
Capital goods (buildings, etc.)	157
Real estate management/ development	157
Beverages	10
Agriculture	0
Packaged foods/meat	14
Paper/forest products	31
Other	1,456
Total	2,305

Applicable assets	Corporate loans, project financing
Applicable fiscal year	FY2023
Formulas used in calculations (PCAF scores 3–4)	Financed emissions = Attribution factor x GHG emissions <Attribution factor> Loan outstandings ÷ (Interest-bearing debt + equity of customers or projects) <GHG emissions> Customer’s disclosed values, or estimated values
Formulas used in calculations (PCAF score 5)	Financed emissions = Loan outstandings x Emission factors

Outstanding loans refer to the balance as of the end of the applicable fiscal year.
Other sectors: A total of the sectors that fall outside the above 18 sectors, including communications, finance, retail and service
Measurement coverage rate: Projects under construction are not subject to measurement.
Measurement results may change significantly due to additional data availability and accuracy accompanying expanded disclosure by customers and advances in estimation methodologies.
The coefficients used when calculating estimated values are the emissions factors from the PCAF database.
These emission factors are subject to change as a result of future refinements, etc., which may have a significant effect on the calculation results.
Given the nature of Scopes 1, 2, and 3, multiple sectors and companies may report the same GHG emissions in duplicate.

Data Quality	Method to Estimate Emissions	Conditions, etc.
Score 1	Emissions reported by companies	Third-party verified emissions data calculated in accordance with the GHG Protocol can be used
Score 2	Emissions reported by companies	Non-verified emissions data calculated in accordance with the GHG Protocol can be used
Score 2	Emissions from business activities	Estimated based on the energy consumption of the company and the emissions factor
Score 3	Emissions from business activities	Estimated based on the production output of the company and the emissions factor
Score 4	Emissions from economic activities	Estimated based on the net sales of the company and the emissions factor per net sales for the sector
Score 5		Estimated based on investment and loan exposure to the company and the emissions factor per asset for the sector
Score 5		Estimated based on investment and loan exposure to the company, carbon intensity per net sales for the sector, and the asset turnover ratio for the sector

GHG Emission Intensity and Avoided Emissions in the Electricity Sector (project finance)

Aozora has measured financed emissions, GHG emission intensity and avoided emissions regarding project financing for the electricity sector, based on loan outstandings as of March 31, 2024, following the concept developed by the PCAF.
As for avoided GHG emissions in accordance with “Avoided Emissions” under the PCAF guidance, we calculated “GHG emissions reduced by providing renewable energy power in place of fossil fuel-fired power generation through a renewable energy electricity generation project financed by Aozora” using the emission factor for a fossil fuel that constitutes the largest part of the electricity generation mix in the region.

Financed Emissions (kt-CO₂)	1,447
Emission Intensity (g-CO₂/kWh)	131
GHG Emissions Avoided (kt-CO₂)	199

(On the basis of loan outstandings as of March 31, 2024)

電力セクター（プロジェクト・ファイナンス）におけるGHG排出原単位、削減貢献量に関する画像

Initiatives to Address Climate Change(Response to TCFD Recommendations)