Key Sustainability Issues (ESG Materiality)

The Aozora Group’s “Materiality” refers to “key challenge areas to realize the management philosophy in light of its importance to the Group’s corporate management as well as expectations/demands from stakeholders and social trends.”
Amid changing social trends and increasingly insightful and diverse expectations for the role of companies in addressing social challenges, the Aozora Group will strive to realize its management philosophy to “Contribute to the development of society through the creation of new value-added financial services” through the targeted allocation of limited managerial resources in key challenge areas (ESG materiality) and the maximization of social and economic value creation.

Key Sustainability Issues (ESG Materiality) Key Sustainability Issues (ESG Materiality)

Materiality Identification and Revision Process

In the process of identifying Materiality issues, we reviewed them in June 2022 in light of “Double Materiality,” which takes into account the importance to the Group’s corporate management as well as social trends and the importance to Aozora’s stakeholders. As a result, we selected the above eight items.
The Aozora Group will continue to flexibly review Materiality issues in response to changes in the business environment while developing a PDCA cycle and incorporating it into the management strategy, and will steadily promote Group-wide efforts to resolve issues.

  1. STEP 1

    Identification of Environmental and Social Issues

    Identify domestic and international environmental and social issues in light of the overlap between various guidelines and management strategies and businesses.

    <Examples of reference guidelines> (at the time of the 2022 review)

    • The United Nations Global Compact
    • GRI Guidelines
    • Stakeholder Capitalism Metrics
    • SASB Guidelines on the Commercial Bank Sector
    • Evaluation items of ESG rating and information provision agencies
    • SDGs Action Plan 2021 (SDGs Promotion Headquarters)
    • JBA SDGs Report 2020-2021 (Japanese Bankers Association)
  2. STEP 2

    Analysis and Prioritization of Significant Themes

    The identified issues are mapped along the two axes of “importance to stakeholders” and “importance to the Aozora Group.” The items that are determined to be particularly important on both axes are chosen as final candidates.

    Analysis and Prioritization of Significant Themes Analysis and Prioritization of Significant Themes
  3. STEP 3

    Interviews with Internal and External Stakeholders

    Through interviews with internal and external stakeholders, confirm whether there are any discrepancies in issues to be considered and recognized. (In FY2022, an Employee Satisfaction Survey and one-on-one meetings with investors were conducted.)

  4. STEP 4

    Discussions and Decisions at Management Meetings

    Based on the aforementioned process, multiple discussions are held by the Board of Directors and the Sustainability Committee consisting of all executive officers, and the final decision are made at the Board of Directors meeting.

ESG Materiality and Main Initiatives

Reasons for Identification as Materiality Issues

The Group has an important role to play and an opportunity to expand its business through financing and other means to support the movement toward a decarbonized society, such as advancing green transformation (GX) and transitions in companies, promoting renewable energy, and creating innovative new technologies and fields. At the same time, delays in response could pose risks that significantly affect corporate management.

Main Initiatives to Solve Challenges
  • Promotion of initiatives to achieve a decarbonized society under the “Aozora Carbon Neutral Initiatives”
    • Support for the decarbonization of companies by promoting sustainable finance, including environmental finance, and consulting on decarbonization
    • Reduction of CO₂ emissions as a business entity (Scope 1 & 2) and phased measurement and reduction of emissions (Scope 3) in the investment and loan portfolio
    • Improvement of a risk management framework, including enhanced climate change scenario analysis, and the strengthening of risk tolerance

Reasons for Identification as Materiality Issues

The Aozora Group has an important role and an opportunity to expand our business to support the structural transformation of customers who are taking on new challenges during the time of industrial transition by providing unique and value-added financial services and proactive involvement in their management though the promotion of Aozora’s Strategic Investments Business.

Main Initiatives to Solve Challenges
  • Support for customers’ structural transformation to address new challenges through the promotion of Aozora’s Strategic Investments Business
    • Support for structural transformation through equity investments with a primary focus on engagement, M&A advisory, LBO finance, transition support, real estate business, etc.
    • Support for solving management issues faced by regional financial institutions and their clients through Aozora’s network of regional financial institutions

Reasons for Identification as Materiality Issues

The Group has an important role to play and an opportunity to expand its business by ensuring that all individuals and companies have access to the financial services they need to obtain opportunities for economic activity and by contributing to corporate growth and community revitalization, particularly focusing on the two areas of support for the growth of start-ups and support for business recovery and restart in the community.

Main Initiatives to Solve Challenges
  • Support for funding, business, and human resources through the “Ecosystem for Start-up Support”
    • Support for funding with a focus on venture debt available through our venture capital subsidiary, Aozora Corporate Investment
    • Business support that contributes to business expansion and increasing corporate value at each phase of growth (GMO Aozora Net Bank, B Spark)
  • Revitalization of regional communities through support for business recovery at each stage of the recovery process
    • Support for companies’ business recovery and restart through recovery funds provided by Aozora Loan Services
    • Strengthening of collaboration with regional financial institutions and other partners, investment in business recovery claims, and provision of solutions at each stage of recovery

Reasons for Identification as Materiality Issues

The accelerated advancement of digital technology is having irreversible and widespread effects on all companies and individuals, including the loss of existing business areas and lifestyle changes. The Group increases its corporate competitiveness and provides new opportunities for business expansion by advancing digital transformation (DX) within the Group and improving the productivity of operations and the quality of products and services, while focusing on services that support its customers’ DX.

Main Initiatives to Solve Challenges
  • Transformation of business operations (products and services) and corporate culture through the use of information assets (data) and digital technology
    • Appropriate management, storage, and utilization of diverse information assets (data) and strengthening of digital marketing
    • Fostering open communications, improving business efficiency and productivity, and promoting working styles regardless of location
    • DX talent development
  • Provision of solutions to customers’ DX issues and improvement of customer convenience
    • Provision of DX solutions through B Spark, a DX support company for corporate customers, and GMO Aozora Net Bank, a bank with a next-generation tech-first approach, and support for the growth of start-ups
    • Improvement of UI/UX and customer convenience in the BANK™ app and online services

Reasons for Identification as Materiality Issues

In Japan’s aging society, the Group has an important role to play and an opportunity to expand its business by helping individuals lead fulfilling lives and pass on their assets to the next generation and by helping SMEs, which are a source of competitiveness in domestic industries, solve succession and human resource challenges for passing on the business to the next generation.

Main Initiatives to Solve Challenges
  • Support for wealth accumulation and business/asset succession needs of retail and corporate customers
    • Support for medium- to long-term wealth accumulation through the provision of “Aozora Core Funds” and other products
    • Expansion of non-financial services to meet a wide range of customer needs, such as business succession, asset succession, and utilization of real estate

Reasons for Identification as Materiality Issues

Improper corporate governance, neglect of compliance, triggering of damage to creditworthiness and delayed response to system failures are risks that have a material impact on all of the stakeholders involved in the operations of financial institutions as well as the sustainability of corporate management. It is extremely important to maintain management discipline and ensure soundness through the enhancement of the proper risk governance framework in response to external environmental changes and by upgrading compliance risk management.

Main Initiatives to Solve Challenges
  • Establishment of transparent corporate governance
  • Enhancement of a risk management framework, maintenance of financial strength, and reinforcement of compliance
  • Strengthening of an operational resilience framework (cybersecurity and crisis management)
  • Strengthening and improving the effectiveness of internal audit governance

Reasons for Identification as Materiality Issues

Any involvement in or neglect of human rights abuses may pose the risk of legal compliance violation, administrative penalty, as well as social criticism and damage to our reputation. While it is natural that we do not violate human rights as a business entity, it is extremely important to eliminate human rights abuse, discrimination, and corruption from all businesses and supply chains involving the Group and take proper measures through dialogue when improvements are necessary.

Main Initiatives to Solve Challenges
  • Efforts to establish a human rights due diligence framework based on international norms
  • Further raising of awareness of human rights and elimination of harassment in the workplace
  • Ensuring anti-bribery and corruption measures

Reasons for Identification as Materiality Issues

Any personnel shortage/outflow as well as insufficient progress of skill/expertise transfer to the next generation mainly due to the slow development of the HR system and working environment are risks that have a material impact on the sustainability of Aozora Group’s corporate management. On the other hand, in order to enhance corporate competitiveness, it is important to make investments in human capital that support the Group’s value creation, such as the provision of highly professional and distinctive financial services.

Main Initiatives to Solve Challenges
  • Developing, hiring, and deploying human resources in line with business strategies, and redeployment of human resources to focus areas
  • Support for career development, a creation of more comfortable workplace, and high job satisfaction
  • Creation of a work environment where personnel with a diverse range of backgrounds/values can play an active role; improvement of diversity, equity & inclusion