Sustainability Management

Aozora’s Basic Approach to Sustainability Promotion

Through communications with our stakeholders, we will use our imagination in identifying current and future issues,
and continue to take on the challenge of achieving both economic and social value

Governance

Sustainability Promotion System

Under the supervision of the Board of Directors, Aozora has established a sustainability promotion system led by the Sustainability Committee to advance sustainability initiatives that are integrated with its overall management strategy.

The Board of Directors, which is composed of directors with diverse backgrounds, including those with expertise and experience related to sustainability, resolves matters regarding the setting and reviewing of Aozora’s Sustainability Targets, which are management goals that cover areas on which the Aozora Group focuses. In addition to making resolutions to review Key Sustainability Issues (Materiality and Core Foundations), the Board of Directors regularly verifies the progress being made on the promotion of sustainability.

The Sustainability Committee is chaired by the Representative Director, President and CEO, with the Executive Officer in charge of Sustainability Management serving as deputy chair. Meetings of the Sustainability Committee are attended by the CFO, CRO, and all other executive officers. The Committee is responsible for identifying and assessing sustainability-related opportunities and risks across the entire Group, considering specific measures and confirming their progress, and submitting proposals and reports to the Board of Directors as necessary.

The status of progress and achievement of Aozora’s Sustainability Targets is considered an important qualitative factor in determining remuneration of full-time directors and executive officers.

Sustainability Promotion System Sustainability Promotion System

Status of Sustainability Committee Meetings Held in FY2024

Participants

CEO (Chairperson), the Executive Officer in charge of Sustainability Management (Deputy Chairperson), all executive officers including CFO, CRO, and Executive Officer in charge of Human Resources.
Standing Audit & Supervisory Board Member, etc.

The number of meetings held

6

Main agenda items
  • Incorporation of sustainability promotion into our operational planning
  • Progress of sustainability promotion measures
  • Reviews of Key Sustainability Issues (Materiality and Core Foundations)
  • FY2024 results and FY2025 plans relating to social contribution activities
  • Obtaining third-party assurance regarding GHG emission disclosures
  • Revision of Investment and Lending Policies regarding Environmental and Societal Issues
  • Revision of the Outsourcing Policy
  • Progress of initiatives toward carbon neutrality

Sustainability Policy Framework

Aozora’s management philosophy is to contribute to the development of society through the creation of new value-added financial services. To put this philosophy into practice, we have established the Code of Ethics and Conduct to serve as a guideline to which all Aozora officers and employees strictly adhere.

Aozora is also working to realize its Basic Approach to Sustainability Promotion by putting in place specific sustainability-related policies based on these guidelines and centered around the Group’s Human Rights Policy and Environmental Policy while covering business, operational, and social contribution activities.

In FY2024, we revised our Outsourcing Policy after taking into consideration the trends of various initiatives and movements to clarify responsibilities in the supply chain. At the same time, we clarified our expectations for suppliers, which include respect for human rights and consideration for the environment.

In addition, as part of our Investment and Lending Policies, we have newly established a policy for biomass power generation as a sector that has the potential to have a negative impact.

We will continue to review the Policies in response to trends in society.

Sustainability Policy Framework

Strategy

Materiality and Core Foundations

In light of social trends, the expectations as well as demands of stakeholders, and their importance to Aozora’s corporate management, Aozora defines Materiality as a key challenge area in terms of both opportunities and risks, and Core Foundations as items that underpin Materiality-based business operations.

Aozora’s ESG Support Framework

Aozora provides both financial and non-financial solutions to support customers’ initiatives to solve environmental, social, governance and other sustainability issues through the Aozora’s ESG Support Framework.

Promoting Sustainable Finance

Aozora has set the goal of sustainable financing at 1 trillion yen (including environmental financing of 700 billion yen) by FY2027 (for seven years) as part of Aozora’s Sustainability Targets.

Risk Management

Risk Appetite Framework / Key Risks

We have established a Risk Appetite Framework to appropriately manage risk toward achieving business strategies and financial plans, and to enhance corporate value in a sustainable way.

In addition, we have established an integrated risk management framework that categorizes risk by risk factors including credit risk, market risk, liquidity risk, and operational risk, and manage risk according to each risk characteristic to identify, evaluate, and control risk overall.

Risks related to sustainability are also incorporated into each key risk category, which are updated annually, and used in discussions for business plans by the Board of Directors, Management Committee, and Sustainability Committee. We have specifically identified the following as risks related to sustainability.

  • Increase in credit costs: Delayed responses to changes in the business environment, including climate change, and the decline in corporate value of investments and lending destinations that do not adequately respect human rights
  • Declining competitiveness due to changes in social/industrial structures: Deterioration in the funding environment and loss of financing opportunities due to low external evaluations of the Bank’s ESG responses

Investment and Lending Policies regarding Environmental and Societal Issues

Under our Investment and Lending Policies regarding Environmental and Societal Issues, we have in place policies on initiatives for addressing issues that may have a negative impact on the environment or society in order to prohibit or discourage investments in companies or projects that may have a negative impact. The Policies are also intended to reduce the risk of transactions with companies that do not take appropriate actions in responding to social issues such as environmental and human rights concerns.

The Policies are reviewed from time to time through discussions by the Management Committee and Sustainability Committee in response to changes in the business environment, societal demands, and business activities.

Polices Regarding Financing to Sectors That May Have a Negative Impact on the Environment or Society

Cross-sectoral

Credit prohibited

Businesses, etc., to which investments and lending are prohibited
  • Businesses which have a negative impact on wetlands registered under the Ramsar Convention
  • Businesses which have a negative impact on UNESCO World Heritage Sites (with the exception of businesses that have received the advanced consent of the government of the relevant country and UNESCO)
  • Businesses which violate the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) (in consideration of the reservation clause of each country)
  • Customers that are associated with businesses involved in child labor, forced labor, or human trafficking
  • Customers that are associated with businesses involved in, or intended to involve, illegal acts with respect to the laws and regulations of the country in which they are located, acts that violate international environmental or human rights norms if the country in which they are located is behind in environmental or human rights legislation, and acts against the public order / conventional morality, as well as antisocial forces

Credit that requires close attention
  • Businesses which have a negative impact on the regional societies of indigenous peoples
  • Businesses that require the expropriation of land leading to the involuntary relocation of inhabitants
  • Businesses which have a negative impact on areas of high conservation value
  • Businesses which cause or aid human rights violations in conflict areas

Specific sector (credit restricted/ prohibited)

Coal-fired power generation

Aozora will not provide financing for the construction of new coal-fired power plants or expansion of coal-fired power generation facilities. Furthermore, the Group will proactively provide investments and lending to support its customers’ initiatives that help contribute to the transition to a decarbonized society, including carbon dioxide capture, usage, and storage technologies.

Coal mining

When considering investments and lending for the development of a new coal mine, Aozora will verify the customer’s consideration of environmental and social issues. Aozora will not make any investments or lending for mountaintop removal (MTR) coal mining that has a substantial impact on the environment, nor for the development of new coal mines that supply power generation operators with coal.

Oil and gas

When considering investments and lending for oil sands, shale oil and gas, oil and gas pipelines, and development in the Arctic Circle (the area north of 66°33’ north latitude), Aozora will verify the customer’s consideration of environmental and social issues.

Large-scale hydroelectric power generation

When considering investments and lending for new large-scale hydroelectric power generation (with an embankment of 15 meters or higher, as well as output of 30,000 kW or above), Aozora will verify the customer’s consideration of environmental and social issues.

Biomass power generation

When considering investments and lending for biomass power generation, Aozora will verify the customer’s consideration of environmental and social issues.

Deforestation

When considering investments and lending for businesses involved in deforestation for timber, paper, pulp, etc., Aozora will verify the customer’s consideration of environmental and social issues.

Palm oil

When providing investments and lending for the development of palm oil plantations, Aozora requests that its customers publicly announce that they will make an NDPE (No Deforestation, No Peat, No Exploitation) commitment. When considering investments and lending for businesses associated with the distribution, etc., of palm oil, Aozora will verify the customer’s consideration of environmental and social issues, including whether it has obtained RSPO (Roundtable on Sustainable Palm Oil) certification.

Tobacco manufacturing

When considering investments and lending related to tobacco manufacturing, Aozora will verify the customer’s consideration of environmental and social issues, including health hazards as well as child and forced labor.

Inhumane weapons

Aozora will not make any investment or loan related to the manufacturing of inhumane weapons such as cluster munitions.

Nuclear power, plastics, shipping, mines

When considering investments and lending for related businesses, Aozora will gather information regarding the customer’s consideration of, and stance on, addressing environmental and social issues.

Project financing (Equator Principles)

When considering providing financing or project finance advisory services for projects which fall within the scope of the Equator Principles, Aozora will verify adherence to the requirements set out in the Principles.

Aozora’s Structure for Implementing Environment/Society-focused Investments and Loans

In accordance with the investment and lending policies approved by the Management Committee, the Aozora Group reviews all investment/loan transactions to assess any risk to or negative impact on the environment and society. If a risk or negative impact is identified, the transaction is screened in terms of risk/impact severity as well as the customer’s efforts to resolve corresponding environmental and social issues, and then submitted to the Credit Committee or the Investment Committee for their approval.

Aozora supports its business divisions and branch offices in gathering information regarding customers’ consideration of and stance on addressing environmental and social issues by presenting a prepared checklist and sharing specific cases internally.

Aozora’s Structure for Implementing Environment/Society-focused Investments and Loans Aozora’s Structure for Implementing Environment/Society-focused Investments and Loans

Metrics and Targets

Aozora’s Sustainability Targets

We have announced the establishment of Aozora’s Sustainability Targets aimed at creating economic and social value and shared across the entire Group.

Aozora’s Sustainability Targets comprise 15 issues linked to three Materiality issues. We have set medium- to long-term numerical targets centered on Aozora’s focus areas and commit to contributing sustainably to the environment and society.