Response to climate change
(Working on TCFD Recommendations)

Since the adoption of the Paris Agreement, the imperative to address climate change concerns continues to grow. In October 2020, the Japanese Government announced a net-zero emissions goal for 2050, committing to achieving a transition toward a decarbonized society.

Given these circumstances, SMBC Group is committed to achieving net zero emissions across its overall investment and loan portfolio by 2050, as well as in its groupwide operations by 2030.

We endorse the Government's policy mentioned above and strive to achieve greenhouse gas (GHG) emissions reductions in line with the goals of the Paris Agreement. Moreover, we will support the activities of our clients contributing to the transition toward and realization of a decarbonized society.

Working on the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations

SMBC Group announced its support to the TCFD (*1) at the "One Planet Summit" held in Paris in December 2017. We will continuously support our customers in their efforts to reduce GHG emissions by such measures as promoting the introduction of environment-friendly technologies through their business operations. Being committed to reducing GHG emissions, we will conduct business in a manner that contributes to the growth of both our customers and society, and will further enhance our actions towards climate change.

For more information please refer to SMBC Group TCFD Report.

  1. (*1)   The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board(FSB) in April 2015 to urge individual companies to disclose their impact on climate change in their financial reports.

Content and Location of Disclosure Consistent with TCFD Recommendations

We have summarized our thinking on climate change, which has also been categorized into the four thematic areas of disclosure set out by the TCFD (Governance, Strategy, Risk Management, and Metrics and Targets).

Overview of TCFD Recommendations References (click on link to relevant page)
Disclose the organization's governance regarding climate change-related risks and opportunities.
Describe the board's oversight of climate change-related risks and opportunities.
Describe management's role in assessing and managing climate change-related risks and opportunities.
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization's business, strategy, and financial planning where such information is material.
Describe the climate-related risks and opportunities that the organization has identified over the short, medium, and long term.
Describe the impact of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning.
Describe the resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2℃ or lower scenario.
Disclose how the organization identifies, assesses, and manages climate-related risks.
Describe the organization's processes for identifying and assessing climate-related risks.
Describe the organization's processes for managing climate-related risks.
Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management.
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
Disclose GHG emissions and the related risks of Scope1, Scope 2, and Scope 3 if appropriate.
Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

Governance on Climate Change

Concerning the urgency to act on global environmental and social issues, SMBC Group revised its Group Mission in April 2020 to add the following statement: “We contribute to a sustainable society by addressing environmental and social issues”. This signals our commitment to making an even greater contribution to the sustainable development of society.

We then established the SMBC Group Statement on Sustainability, which lays out the basic principles of how the Group will drive forward its efforts to actualize sustainability. Within the Statement on Sustainability, we outline our aim to realize the SDGs and to resolve social issues. We also commit to engaging and cooperating with customers and other stakeholders to contribute to the global transformation into a better society. Moreover, the statement clarifies the Group’s intent to support the spirit of the Paris Agreement and contribute to resolving environmental issues based on the understanding that innovation is essential to resolve such issues including climate change.

Furthermore, our Group Environmental Policy recognizes the importance of realizing a sustainable society. To this end, we are making continuous efforts to harmonize environmental preservation and pollution prevention with corporate activities.

Our policies on climate change are reflected in our business strategy based on discussions of the Sustainability Committee, an internal committee of the Board of Directors, the Corporate Sustainability Committee in the execution side and the Management Committee, while details of our sustainability initiatives are regularly reported to the board. Under this structure, we capture business opportunities and control the risks presented by climate change.

Please refer to the link below for details about our structure concerning supervision/execution of sustainability.

SMBC Group TCFD Report 2021 : Supervision/Execution of sustainability P11-P17 (3,753KB)

Impact of Climate-Related Risks and Opportunities on the Organization's Businesses

[Physical Risks]

There is a risk that the increase in extreme weather associated with climate change will negatively affect our customers' business. In light of frequent climate change-related natural disasters in Japan in recent years, SMBC performed a climate change scenario analysis for physical risks to assess impacts through 2050.

Our analysis specifies as the risk event water disasters such as storms and flooding, which account for the majority of climate change-related natural disasters. We apply the RCP (*2) 2.6 (2℃ scenario) and RCP8.5 (4℃ scenario) scenarios used by the Intergovernmental Panel on Climate Change (IPCC) as GHG concentration pathways used as the basis for research. Also, we are conducting scenario analyses through the collaboration with MS&AD InterRisk Research & Consulting, while applying AI technology developed by a US start-up, Jupiter Intelligence (*3). We quantitatively measured risk in the event of a water disaster, by analyzing various climate related data and satellite images of landforms, etc., while the AI technology conduct machine learning.

SMBC uses this analysis to calculate the estimated increase in credit-related costs for its corporate customers associated with water disasters in Japan through 2050, taking into consideration the effects on collateral held by SMBC and customers' financial condition as well as the probability of a water disaster occurring (*4) in each climate change scenario. Based on our analysis, the estimated increase in credit-related costs through 2050 was 55-60 billion yen, or a simple annual average of approximately 2.0 billion yen. We thus conclude that at this stage, climate change-related water disasters will have a limited impact on SMBC's financial condition in a particular year.

The results of the above calculations are tentative, based on certain assumptions for natural disasters and analysis targets. Going forward we will analyze risk volume in greater detail while expanding the scope of analysis.

  1. (*2)   Representative Concentration Pathways Scenario
    For example, RCP2.6 assumes radioactive forcing (the difference between energy absorbed by the earth and radiated back into space, which influences changes to the earth's climate system) is 2.6w/m2.
  1. (*3)   A US startup specialized in climate change risk analysis, which enables prediction on occurrence of natural disasters, through gathering diverse data (including satellite data) as well as through using AI analysis. Its employees include a researcher of IPC, a Nobel Prize winning entity, and the concept creator of the “Princeton Ocean Model” which is a world-famous oceanic circulation model used in 70 countries, etc.
  1. (*4)   Based on data from the paper below
    "Hirabayashi Y, Mahendran R, Koirala S, Konoshima L, Yamazaki D, Watanabe S, Kim H and Kanae S (2013) Global flood risk under climate change. Nat Clim Chang., 3(9), 816-821. doi:10.1038/nclimate1911.

< Process of Analyzing Physical Risks >

[Transition Risks]

In the process of transitioning to a decarbonized society, we anticipate risks of a decline in the value of affected assets (asset stranding). SMBC conducted a climate change scenario analysis for transition risks based on our Carbon-related assets (*4), which account for 6.5% (*5) of all loans by SMBC in FY2020.

In this analysis, we apply the NGFS’s Current Policies scenario (*6, 3℃ scenario) and Net Zero 2050 scenario (*7, 1.5℃ scenario) on the premise that carbon neutrality will be realized by 2050; and IEA’s Net-Zero Emissions scenario (*7, 1.5℃ scenario).By estimating the impact on credit risk of each sector from the expected changes in resource prices and demands including crude oil and natural gas, and power generation costs (*7) in each scenario, we estimate the total credit costs expected by 2050. Under the 2℃ scenario, estimated credit costs are expected to increase approximately 2~24bln yen per fiscal year on or before 2050, compared to the Current Policies scenario. Going forward, we will strive to enhance our scenario analysis methods as well as to reduce relevant risks by supporting our customers in their efforts toward the transition to a decarbonized society.

  1. (*5)   TCFD: The Task Force on Climate-related Financial Disclosures defines carbon-related assets as those of the energy and utilities industries (excluding water companies, independent power producers, and renewable energy companies) in the Global Industry Classification Standard (GICS). The FY2020 loan balance tied to carbon-related assets represents 4.4% of Sumitomo Mitsui Banking Corporation’s (including consolidated subsidiaries) total assets (total on-balance sheet assets + off-balance sheet assets, etc.)
  1. (*6)   A scenario where the current climate change measures implemented by each government will be maintained but the measures will not be strengthened further.
  1. (*7)   A scenario compatible with the Paris Agreement which expects less than 1.5℃ temperature increase in 2100 relative to pre-industrial level through strict polices for climate change and tech innovation.
  1. (*8)   In Japan, the restarting of nuclear power plant is considered in align with the IEA scenario.

< Process of Analyzing Transition Risks >

[Opportunities of climate change]

The roles of financial institutions are to provide financial support for technological innovation and equipment investment toward the realization of a decarbonized society. With the transition to a decarbonized society, various opportunities will arise such as follows: expansion of finance needs and business reorganization; needs for new financial products and services; needs for leasing of decarbonation-related facilities, etc. Thus, we recognize there would be increasingly more opportunities to provide finance-related services for financial institutions.

Under the “SMBC Group GREEN×GLOBE 2030” announced in 2020, the Group established initiatives for achieving sustainability based on the concept to "create the future of the earth and humanity with our customers." As a part of this plan, the Group sets a target to execute green finance and finance that contributes to realizing sustainability equivalent to JPY 30 trillion between FY2020 to FY2029. In order to achieve this target, will work with customers to tackle climate change.

Furthermore, SMBC Group holds the Sustainable Business Promotion Department within the Wholesale Business Unit. The department is in charge of gathering up-to-date sustainability knowledge and network on a global scale, and it serves as a hub where we present proposals on our customers’ management issues related to the transition to a decarbonized society on the global/groupwide basis. To realize a decarbonized society, we will help our customers resolve their management issues related to sustainability through supporting projects that contribute to the mitigation of climate change, such as renewable energy and green buildings, for example, as well as provision of multi-layered solutions (including consulting).

Please refer to the link below for details about our promotion of businesses for decarbonization.

Management of Climate-Related Risks

As a framework for risk management, SMBC Group follows the PDCA (Plan, Do, Check, Act) procedure to identify external environmental and risk events, analyze their impact, and establish a system to undertake necessary management.

Recently, events related to climate change, such as the occurrence of large-scale disasters due to extreme weather and the deterioration of carbon-related assets in accordance with transition to a decarbonized society, have been newly selected as top risks. Under this framework, efforts to strengthen scenario analysis and consider countermeasures at the management level have begun. These measures are reported to the Management Committee and the Risk Committee and reviewed by external directors at Board of Directors meetings.

Going forward we remain aware of the increasing emergence of the effects of climate change, strive to understand the external environment and the risks on our business, and take action as appropriate.

Metrics and Targets

SMBC Group is applying a variety of metrics regarding GHG emissions, exposure, etc. for the purposes of measuring/controlling climate change risk/opportunities, to comply with the Paris Agreement, and to establish a path to achieve the net zero target. These metrics are regularly reported to the Management Committee, the Corporate Sustainability Committee and the Board of Directors, and are reflected in SMBC Group’s oversight and business strategies.

Strategy Metrics (KPI) FY2019
Reduce Operational GHG Emissions GHG emission volume of SMBC Group*1 140k tons 140k tons Net zero in
Enhance Risk
Carbon-related asset ratio*2 6.9% 6.5% -
Loan balance for coal-fired power generation
(project finance)*3
- JPY 300 billion 2030:
Zero balance
Reduce Financed Emissions GHG emissions per sector*4 - 382g-CO2/kWh
(Power sector)
Net zero by 2050
(currently setting mid-term target)
Promote Business addressing Decarbonization Green finance and financing which contributes to sustainability (executed amount)*5 - 2.7 trillion Total of JPY 30 trillion by 2030
(of which JPY 20 trillion is green finance)

*1 Metrics and targets have been revised on May 12, 2021.
Previously: Sumitomo Mitsui Banking Corporation would reduce its CO2 emissions by 30% from FY2018 to FY2029.
Revised: SMBC Group will become net zero in its groupwide operations by 2030.
*2 Excludes loans to renewable energy projects in order to more accurately reflect exposure on transition risks.
*3 Mid-term target (halve our loan balance by FY2030) were added in 2021.
Excludes projects that contribute to the realization of a carbon neutral society.
*4 FY2020 result is the trial calculation based on the current loan balance of Sumitomo Mitsui Banking Corporation (including consolidated subsidiaries).
(369g/kWh if calculated based on the credit amount)
We will continue to measure financed emissions on other sectors.
(Metrics will be absolute emission or carbon intensity.)
*5 Metrics and targets have been revised on May 12, 2021.
Previous: Execute green finance equivalent to JPY 10 trillion between FY2020 to FY2029
New: Execute green finance and finance that contribute to realizing sustainability equivalent to JPY 30 trillion between FY2020 to FY2029(of which JPY 20 trillion is green finance).
FY2020 result only account for execution amount of green(due to the revision on metrics and targets).

Future activities

In responding to the TCFD recommendations, SMBC Group has strengthened the management of climate-related risks by including the matter to our Top Risks, quantitatively assessing anticipated future risks by scenario analyses and discussing countermeasures at the management level.

Going forward, we will formulate and execute business strategies in a forward looking way by constantly refining scenario analyses and grasping potential risks. We will lead the resolution of climate change issues in a global level by deepening our engagements with customers based on our calculation of financed emissions and actively promoting green finance both domestically and internationally.

Additionally, we will encourage in constructive engagements with stakeholders including customers and strive to create mutual understanding on the approaches we are taking on climate change, how customers contribute to achieving the goals of the Paris Agreement and their efforts to reduce their own GHG emissions.

Based on these engagements, we will demonstrate leadership in addressing climate change issues by supporting our customers' efforts to transition to a decarbonized society. Going forward, we will continue to provide consistent and transparent disclosures to our stakeholders in line with the TCFD Recommendations.