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 its response to climate change serves 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 its business, and categorized the opportunities created through developing and providing financial products and services, the Bank’s primary business, with the aim of realizing a decarbonized society.

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

Opportunities Related to Climate Change

Opportunities

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. (geothermal power, offshore wind power, storage battery systems, etc.)
  • Expand opportunities to provide decarbonization solutions in non-financial areas by capturing customer needs for implementing a transition plan toward decarbonization
  • Expand opportunities to provide asset management products for retail customers considering ESG from multiple perspectives
  • Identify new business opportunities through collaboration with emissions-trading and 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, transport sectors, and other 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 of incurring losses from impairment of the credit portfolio due to a deterioration in customers’ business performance or financial condition caused by policies, technological advances, changes in consumer preferences, etc.

Short- to long-term
  • Risks of incurring losses from impairment of the credit portfolio due to a 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 of incurring losses 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 of incurring losses 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 caused by 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 of incurring losses and suspending 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 a deterioration in 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 a deterioration in Aozora’s reputation and suspension of business due to the 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 carbon‑neutrality 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 aims to achieve net zero GHG emissions across its 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 environmental finance, including project finance for renewable energy projects, 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 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 the 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 is effectively sourced from renewable energy through the use of carbon offsets.

Converting to Ecofriendly Vehicles and Installing EV Battery Charging Devices

Aozora has made progress in replacing the Bank’s cars at its Head Office and branch offices with ecofriendly vehicles. In addition, 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 social and economic value by offering comprehensive support for our customers’ environmental initiatives.

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

an image about Customers’ Decarbonization Support System in Aozora’s ESG Support Framework an image about 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, 2026)

Sector

Loan Outstandings
(billion yen)

Percentage

Oil and gas

36.7

0.8%

Coal

－

－

Electricity*

97.0

2.2%

Energy sub-total

133.7

3.0%

Air cargo transportation

14.7

0.3%

Air passenger transportation

10.7

0.2%

Maritime transportation

6.7

0.2%

Rail

31.0

0.7%

Road transportation

16.1

0.4%

Vehicles/components

25.4

0.6%

Transportation sub-total

104.6

2.3%

Metals and mining

45.7

1.0%

Chemicals

132.4

3.0%

Construction materials

16.8

0.4%

Capital goods (buildings, etc.)

207.4

4.6%

Real estate management/development

1,001.2

22.3%

Materials, construction materials sub-total

1,403.4

31.3%

Beverages

24.2

0.5%

Agriculture

1.1

0.0%

Packaged foods/meat

15.4

0.3%

Paper/forest products

38.0

0.9%

Agriculture, beverages, and forest product sub-total

78.7

1.8%

Total for all sectors

1,720.4

38.4%
  • 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, 2026, showed no significant change compared to the end of the previous fiscal year. Moreover, the financial impact was assessed to be limited.

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.

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 an increase in investment burden in the future

Preliminary calculation of an 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, the development of technologies for reducing GHG emissions and changes in the electricity mix were important
  • For the energy and automotive sectors, it was important to respond to changes in market needs toward 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 were 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

Assessment of
financial impact,
etc.

Since there have been no significant changes in the loan portfolio, the composition of carbon‑related assets, and the underlying macroeconomic environment (outlooks for future carbon prices, energy mix, investment, etc.), we determined that the financial impact would not change significantly and therefore did not conduct a new analysis in FY2025. Looking ahead, we will review whether to conduct an analysis as necessary.

We did not conduct a new analysis in FY2025, as the assumption that the impact of increased natural disasters and extreme weather does not typically change significantly over periods of several years. Moving forward, we review whether to conduct an analysis 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 framework 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 as follows. 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.

  • For any 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

Metrics and Targets

Climate change-related metrics and targets are as follows. In addition to the GHG emission intensity and avoided emissions in the electricity sector (project finance) from the previous fiscal year, we newly measured emissions intensity in the real estate sector in the fiscal year under review.

FY2025 Results

Targets

GHG emissions as a business entity (Scopes 1 and 2)*1

91% reduction (vs. FY2020)

Net zero by FY2030

GHG emissions from the investment and loan portfolio (Scope 3: category 15)*1

Please refer to “GHG Emissions from the Investment and Loan Portfolio (Scope 3: Category 15)” below.

Net zero by FY2050

Amount of project financing for coal-fired power plants*1

Balance 13.6 billion yen

Zero balance by FY2040

Environmental financing amount*1

Total approx. 793 billion yen

1.5 trillion yen by FY2035 (15 years)

Emission intensity in the electricity sector

191g-CO2/kWh

-

Emission intensity in the real estate sector*2

65g-CO2/m2

-
  1. Aozora’s Sustainability Targets
  2. Emission intensity in the real estate sector was measured based on REITs (both publicly and privately placed) that disclose intensity data.

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

GHG emissions in financial institutions are primarily comprised of financed emissions (indirect emissions) associated with investments and loans. The Aozora Group has expanded the scope of assets covered to include stocks and bonds in addition to loans from current fiscal year measurements.

Financed Emissions (kt-CO₂)

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

Loans

Scopes 1 & 2

326

1,355

48

28

7

46

39

6

674

229

4

129

17

13

19

169

43

620

3,771

Scope 3

367

353

27

16

4

26

21

91

393

433

44

592

95

50

8

77

75

2,045

4,716

Loan
Outstandings
(billion yen)

48

166

18

6

3

23

11

32

36

109

16

174

553

16

1

14

31

1,546

2,802

Stocks and Bonds

Scopes 1 & 2

37

429

10

47

4

0

0

0

15

40

0

6

1

6

11

58

0

53

716

Scope 3

57

84

14

26

2

0

0

0

7

70

0

20

6

23

5

22

0

168

506

Investment
Outstandings
(billion yen)

5

39

11

10

2

0

0

0

1

19

0

4

65

5

1

2

0

180

345

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

Loans

Scopes 1 & 2

4.6

4.2

4.9

4.0

4.0

4.0

4.4

4.5

4.1

4.2

4.0

4.2

4.5

4.0

4.0

4.2

4.0

4.1

4.2

Scope 3

4.6

4.8

4.9

4.0

4.0

4.0

4.4

4.5

4.1

4.2

4.0

4.2

4.5

4.0

4.0

4.2

4.0

4.1

4.3

Stocks and Bonds

Scopes 1 & 2

4.0

4.0

4.0

4.0

4.0

-

-

4.0

4.0

4.0

-

4.2

4.6

4.0

4.1

4.0

-

4.7

4.5

Scope 3

4.0

4.0

4.0

4.0

4.0

-

-

4.0

4.0

4.0

-

4.2

4.6

4.0

4.1

4.0

-

4.7

4.5
  • The measurement coverage for each sector is 100% for both Financed Emissions and Data Quality Score.

Applicable assets (PCAF criteria)

Corporate loans, project financing, stocks and bonds

Applicable fiscal year

FY2024

Formulas used in calculations
(for PCAF scores 3–4)

Financed emissions = Attribution factor x GHG emissions
<Attribution factor> Investment and loan exposure ÷ (Interest-bearing debt + equity of customers or projects)
<GHG emissions> Customer’s disclosed values, or estimated values

Formulas used in calculations
(for PCAF score 5)

Financed emissions = Investment and loan exposure x Emission factors
  1. Investment and loan exposure refers to the balance as of the end of the applicable fiscal year. The coal sector is not listed due to a zero balance.
  2. Other sectors: A total of the sectors that fall outside the above 18 sectors, including communications, finance, retail and service
  3. Measurement coverage rate: Projects under construction are not subject to measurement.
  4. Measurement results may change significantly due to additional data availability and accuracy accompanying expanded disclosure by customers and advances in estimation methodologies.
  5. 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.
  6. 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

Non-verified emissions data calculated in accordance with the GHG Protocol can be used

Emissions from business activities

Estimated based on the energy consumption of the company and the emissions factor

Score 3

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

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

Avoided Emissions in the Electricity Sector (Project Finance)

The Aozora Group measures avoided emissions on a loan outstanding basis as of the end of each fiscal year for project financing for the electricity sector, following the concept developed by the PCAF.
As for avoided GHG emissions in accordance with “Avoided Emissions” under the PCAF guidance, we calculate “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.

（kt-CO₂）

FY2023

FY2024

199

193

  • In FY2024, where the location is within Japan, calculations are based on the national average emission factor for electric utilities.
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