Sustainable finance – underwriting ESG bonds

Tokai Tokyo Securities Co., Ltd. is engaged in the underwriting of green bonds, social bonds, sustainability bonds and other ESG bonds issued for the purpose of environmental conservation and addressing social issues.
Through these bonds, we provide financial support for initiatives aimed at creating a sustainable society, including climate change measures and assistance for developing countries. We also offer investors new investment opportunities that balance social and economic value.

Governance

As a financial instruments business operator, the Tokai Tokyo Financial Group recognizes the gravity of initiatives to address environmental issues such as climate change. It has established an environmental policy as a guiding principle to drive its initiatives.

The Social Value & Justice (SVJ) Office of the Corporate Communications Department plays a central role in promoting sustainability relating to climate change.

Strategies and policies regarding sustainability are reported to and discussed at the management level of the SVJ Council, and the issues about particularly critical initiatives are submitted to the Management Meeting and Board of Directors Meetings for decision-making.

Strategy

Awareness of Risks and Opportunities

The Group specifies “Green” as one of the established tasks of “Materiality,”and it takes on climate change as an urgent issue to be resolved.

There are 2 types of risks related to climate change: transition risks arising from moving to a low-carbon economy and physical risks where climate change has a direct impact on wealth, etc. The transition risks are classified into 1) policy and legal risks as a consequence of tightened regulations, 2) technology risks to be affected by new technologies, 3) market risks, and 4) reputation risks. The physical risks are classified into acute risks exemplified by typhoons or floods, and chronic risks which may have a mid- and long-term impact, like rising temperature or sea level rise. On the other hand, initiatives on climate change could present us opportunities for increasing revenue through sales of new products.

The Group is aware that when such risks and opportunities actually emerge, they may affect its financial standing and performance, depending on their nature. Therefore, the Group identifies specific risks and opportunities that climate change may bring about and may affect the Group’s business by sometime around 2050. For the said purpose, we are evaluating the Group’s resilience through a scenario analysis, etc.

The Group has therefore determined response policies based on the identification of risks and opportunities in which climate change may have an impact on the Group’s business, and is implementing initiatives to enhance resilience against climate change.

Examples of climate-related risks

* Short-term: 3 to 5 years; Mid-term: 5 to 10 years; and Long-term: 10 to 30 years

Examples of climate-related opportunities

Scenario Analysis

Under the scenarios published by the Network for Greening the Financial System (NGFS), the Group conducted quantitative and qualitative analyses and assessments of the impact on the Group’s finances (costs and revenues) based on the following three scenarios: Net Zero 2050, which may minimize both transition and physical risks; Delayed Transition, which may cause maximum transition risk; and Current Policies, which may cause maximum physical risk.

As a result, it was found that costs may increase by approximately 100 million yen annually if we use renewable energy and adopt mitigation measures such as the introduction of zero-emission cars, mostly associated with Tokai Tokyo Securities’ company cars. It was also revealed that heavy rains and flood disasters due to abnormal weather may cause physical damage to some of the Group’s sales offices.

As a result of a comprehensive evaluation of the impact on the Group’s entire business, it concluded that the impact on its finances is limited in scope, although with a certain level of risks remaining.

Nevertheless, the Group reaffirmed the possibility of expanding business opportunities, anticipating the growth of future investment needs in the green sector. Going forward, the Group will continue upgrading the level of its analyses and implement its initiatives to cope with different regulatory moves, one relaxed and the other rigorous, which incur high costs.

Scenario Analysis Overview

Transition Plan (Roadmap for the Early Realization of a Decarbonized Society)

As part of the medium-term management plan “Beyond Our Limits” launched in April 2022, the Group has established “Social Value & Justice” KPIs, including the goal of reducing CO2 emissions associated with our own operations to half (compared to fiscal 2021 actual results) by March 2027 and to net zero by 2030. In addition to the above targets, in December 2022 we formulated the Net Zero Declaration on Greenhouse Gas Emissions, which includes our endorsement of the Paris Agreement adopted in December 2015 and the 2050 Carbon Neutrality Declaration announced by the Japanese Government in October 2020, as well as our contribution to the realization of a carbon-free society through our operations that fulfill the role as a financial service provider. The transition plan will be reviewed as appropriate based on the TCFD and other frameworks, and the Company will promote measures toward the early realization of a carbon-free society.

Risk Management

Regarding the specific climate change risks and opportunities which are expected to emerge in the Group, the Social Value & Justice Office, which drives forward the sustainability, and the Comprehensive Risk Management Department are sorting out and evaluating the expected risks, taking into account the Group’s business characteristics. These risks are reported to and discussed at the SVJ Council, which comprises the Chairman and Representative Director, as well as the President and Representative Director of both Tokai Tokyo Financial Holdings and Tokai Tokyo Securities, along with their officers from the related departments. Then, the SVJ council reports to the management committee and the Board of Directors for discussions so that such matters can be managed on a company-wide basis.

Metrics and Targets

We have continuously reduced greenhouse gas emissions from our business activities. Going forward, we will further reduce emissions by further using renewable energy, which currently accounts for approximately 40% of the Group's energy consumption, and promoting energy conservation, with the goal of achieving “net-zero emissions by 2030.”