Sustainable Business

Green/Social Deposits are products that offer customers the opportunity to invest their funds in the sustainability sector by allocating the funds entrusted by customers to financing initiatives that resolve environmental and social issues. Funds deposited in Green Deposits are allocated to environmentally friendly projects such as renewable energy and energy efficiency businesses, based on the "SMBC Green Deposit Framework." Similarly, funds deposited in Social Deposits are allocated to financing that contributes to solving social issues such as poverty and inequality, based on the "SMBC Social Deposit Framework."

SMBC provides Green/Social/Sustainability Loans which the proceeds will be exclusively applied to businesses that will contribute to resolving environmental and social issues.

Recently, Green Loans in which the proceeds are solely used for business with environmental benefits, Social Loans in which the proceeds are solely used for business contributing to positive social outcome, and Sustainability Loans in which the proceeds are solely used for businesses that have both environmental and social aspects, have been attracting attention globally.

Based on the standards such as Green Loan Principle, Social Loan Principle provided by international financial industry group, LMA^*1, LSTA^*2, APLMA^*3, and Sustainability Bond Guideline provided by ICMA^*4, we confirm that the finance requirements^*5 are met and simultaneously obtain evaluation from external evaluation and rating agencies^*6 while collaborating with customers.

To accelerate global decarbonization, it is essential to finance the transition of hard-to-abate sectors facing challenges to leapfrog to a low-carbon economy.

Transition finance is a financing method aimed at supporting companies that are considering measures against climate change and are undertaking greenhouse gas reduction efforts in line with long-term strategies to achieve a decarbonized society. Generally, it is designed to ensure compliance with principles such as the "Climate Transition Finance Handbook" by the International Capital Market Association (ICMA) and the "Basic Guidelines on Climate Transition Finance" jointly published by the Ministry of Economy, Trade and Industry, the Ministry of the Environment, and the Financial Services Agency.

Notably, in May 2023, the SMBC Group became the first domestic financial institution to publish the "Transition Finance Playbook," which outlines the definition of transition finance and our criteria for providing support.

The Playbook refers to international guidelines for transition finance, recommendations of Net Zero Banking Alliance, as well as to local applicable regulations, taxonomies and roadmaps. SMBC Group obtained Second Party Opinion from DNV Business Assurance Japan Co., Ltd for the Playbook. SMBC Group will continue engaging with our customers leveraging the Playbook to contribute to achieving decarbonization globally.

Sustainability Linked Loans (SLLs) are loans which incentivize the borrowers’ achievement of sustainability performance goals. These goals are set as sustainability performance targets (SPTs) and will be set in alignment with their ESG strategy.

SLL framework has been established in the international guideline, "Sustainability Linked Loan Principles". Sumitomo Mitsui Banking Corporation’s SLL is in line with this framework.

Positive Impact Finance (PIF) is a financing method aimed at supporting the increase of positive impacts and the reduction of negative impacts of fundraisers by comprehensively analyzing and evaluating the impacts of corporate activities on the environment, society, and the economy, and providing funding accordingly. Sumitomo Mitsui Banking Corporation's PIF is designed as a loan product that complies with the "Principles for Positive Impact Finance" formulated by the United Nations Environment Programme Finance Initiative (UNEP FI). Its compliance has been verified through a second opinion obtained from Rating and Investment Information, Inc. (R&I).

Promotion financing is a loan designed to diagnose and analyze the current status and pathways of customers' efforts to enhance sustainability, based on criteria developed in collaboration with the Japan Research Institute, a think tank of the SMBC Group, among others. It also provides advice for promoting future initiatives. To meet the diverse needs of our customers, we offer a wide range of themes, from general sustainability to specific areas such as human capital management, environment, natural capital management, food and agriculture, and business continuity.

SDGs bonds refer to bonds issued in the context of a company's sustainability strategy, where the funds raised are allocated to projects that contribute to the Sustainable Development Goals (SDGs), or bonds that are tied to the achievement of KPIs^*1 and SPTs^*2 that contribute to the overall realization of the SDGs by the company. This includes bonds that will have positive impact on the environment and society and are in alignment with the principles which are accepted as a standard, such as principles and guidelines published by ICMA, as well as bonds issued by institutions whose entire business will contribute to SDGs with information on its positive impact properly disclosed.

• *1

  KPI (Key Performance Indicators) are quantifiable metrics used to measure the performance of selected indicators.

• *2

  SPTs (Sustainability Performance Targets) are target levels set by the issuer for KPIs at a specific point in time.

In February 2021, in collaboration with SMBC, SMBC Trust Bank launched the “Sustainable Value-Added Fund No. 1 Investment LLP” and have already invested in five properties. Investing mainly in older properties, we undertake a range of renovation projects, such as updating air conditioning facilities to the latest equipment to save energy. Through such investments, we contribute to the enhancement of the quality of the fund’s domestic real estate portfolio and reduce the environmental burden that the real estate carries.

Sumitomo Mitsui DS Asset Management Company (SMDAM), as the primary asset management company arm of the Group, announced Principles of Fiduciary Duties and Sustainability as a universal and fundamental policy to guide and drive our business operations in line with our corporate philosophy, and provides high-quality asset management services to its clients while aiming to contribute to a sustainable society. SMDAM inscribes "Consideration of sustainability" in the investment policy and is striving to make a further enhancement of investment management capability, which includes incorporating sustainability factors into the investment process.

For issues related to climate change, SMDAM joined the Net Zero Asset Managers Initiative, a global initiative led by asset managers to achieve the long-term common goals set out in the Paris Agreement as we fully endorse the efforts by international community towards net-zero greenhouse gas (GHG) emissions by 2050. As a responsible institutional investor, SMDAM will continue to support the investee companies in their efforts to realize a decarbonized society.

Sustana is a cloud service that helps companies manage tasks from calculating CO₂ emissions to planning and implementing reduction measures. It supports companies that are new to emissions calculations or want to improve their efficiency and accuracy in achieving decarbonization goals.

In October 2023, SMBC partnered with Asuene to offer "Asuene ESG," a cloud service that evaluates sustainability in the supply chain. This is the first time a domestic financial institution has provided such a service. "Asuene ESG" helps visualize and assess sustainability efforts in the supply chain, identifying high-priority issues and risks.

Achieving a decarbonized society is difficult for any single company. SMBC connects customers with decarbonization technologies to those with decarbonization needs. This helps reduce GHG emissions and creates new business opportunities for the bank. We will continue to use our global customer base, expertise in decarbonization technologies, and in-house experts to co-create new value with our customers and contribute to achieving net-zero emissions.

Asset-backed borrowings are provided for green buildings and renewable energy generation facilities in trust, with SMBC Trust Bank, as trustee, acting as borrower to provide financing for the beneficiaries.

SMFL Mirai Partners, a strategic subsidiary of Sumitomo Mitsui Finance and Leasing, provides on-site solar energy services (PPA model).

SMFL Mirai Partners will implement solar power generation equipment on the roofs of customers' buildings, etc., in order to materialize CO₂-free electricity procurement of customers (energy service).

SMFL Group also provides other decarbonization solutions such as off-site solar energy services, energy-efficient equipment leasing, subsidy consulting, and LED rentals to help customers reduce Greenhouse Gas emissions.

SMBC has been taking a close look at hydrogen as one of the key energies toward decarbonization and has taken various activities to support it.

In 2020, together with Japanese hydrogen related companies, SMBC Group established Japan Hydrogen Association, aiming to realize hydrogen society, as a joint representative.

Additionally, in 2021, we were the only Japanese bank to participate in the world's first project financing for green hydrogen, which involved a power supply system combining solar power generation, hydrogen production facilities, and battery storage.

Furthermore, in 2023, we were also the only Japanese bank to participate in project financing for the world's first hydrogen-reduced iron project.

Since 2005, Sumitomo Mitsui Banking Corporation (SMBC) has been actively promoting businesses related to emissions trading. Specifically, in relation to the Joint Crediting Mechanism (JCM), a new framework promoted by the Japanese government as a post-Kyoto mechanism, we have been supporting the development of energy-saving and renewable energy projects overseas by introducing Japanese environmental technologies from a financial perspective.

Since 2022, we have been a founding member of Carbonplace, a platform for carbon credit trading, providing domestic and international customers with easy access to high-quality carbon credits.

Additionally, in 2023, we partnered with Bywill, a J-Credit provider, to support the trading and creation of "J-Credits" certified by the Japanese government.

* The JCM is a system that quantitatively evaluates Japan's contribution to the reduction and absorption of greenhouse gas emissions achieved by disseminating Japan's advanced low-carbon technologies to developing countries. This system contributes to global warming countermeasures on a global scale and helps Japan achieve its reduction targets.

In April 2024, SMBC began offering the Natural Capital Management Promotion Analysis Loan, aimed at supporting customers' efforts in natural capital management. This loan involves diagnosing and analyzing customers' initiatives and disclosures related to natural capital management, and providing proposals for future challenges and countermeasures, thereby supporting the first steps towards promoting natural capital management.

In February 2023, SMBC Group, MS&AD Insurance Group Holdings, Development Bank of Japan, and the Norinchukin Bank established the Finance Alliance for Nature Positive Solutions (FANPS) to promote and support the nature positive transformation of corporate activities. FANPS provides solutions catalogs as well as TNFD support services to support customers’ nature positive management.

At SMBC Group, we prioritize the circular economy as a critical area of focus, considering environmental and resource constraints.

SMBC leverages its customer base to connect manufacturing clients with resource recycling businesses.

Sumitomo Mitsui Finance and Leasing provides solutions that contribute to the 3Rs (Reduce, Reuse, Recycle) (^*1).

Additionally, the Japan Research Institute is involved in forming service platforms centered around EV batteries and establishing collaborative organizations to promote smart usage (^*2).

Japan Research Institute (JRI) engages in numerous environmental projects mainly in the energy and smart community fields. JRI makes recommendations and proposals for energy systems of next-generation and energy strategies for Japan.