Environment

Information Disclosure Based on TCFD

The Group engages to resolve social issues to realize a prosperous and sustainable future society with customers and partners globally. Climate change is considered a significant social issue and exerts a grave impact on the global environmen t, peoples lives, and business activities. The Group has identified promote a decarbonized society and realize the circular economy as priority key challenges (materiality) related to the environment.
The Group expressed its support for the recommend ations of the Task Force on Climate related Financial Disclosures (TCFD) in November 2021, and is intensifying efforts to reduce its greenhouse gas ( GHG emissions. In addition, the Group will work to realize a decarbonized society by contributing to the decarbonization of customers through its business activities.

① Governance

The Group established the Sustainability Committee in April 2021 to better contribute to the realization of a sustainable and prosperous future. This Committee is considered one of the advisory bodies to the Executive Committee and meets to discuss the climate change issue and other key challenges related to sustainability. The results of the deliberations are reported to the Executive Committee and the Board of Directors. The Materiality announced in December 2021 that includes promotion of a decarbonized society was identified through deliberations by the Sustainability Committee, Executive Committee, and Board of Directors. The Group will promote efforts to identify and manage the impact of climate change on business and reinforce its governance.

Supervision of the Board of Directors and the roles of top management

The Mitsubishi HC Capital Group’s Sustainability Promotion Framework

Organizational entities and roles in the sustainability promotion framework

Organizational Entities	Roles
Board of Directors	The Board of Directors identifies the Group’s basic policies including materiality and periodically confirms the status of business managed and executed based on these basic policies.
Executive Committee	The Executive Committee resolves Group-wide measures that relate to management, including response policies, action plans, and the progress of metrics for the Group’s materiality and environmental issues. Important matters are reported to the Board of Directors.
Risk Management Committee	The Risk Management Committee manages risks related to overall management in comprehensive and systematic ways. The overall impact on climate change risks, human rights risks, and other major risks is reported to the Executive Committee. The committee is chaired by the Head of the Risk Management Division, and its members consist of the President & CEO, Deputy Presidents, Head of the Corporate & Strategic Planning Division, Head of the Treasury & Accounting Division, Head of the Credit Division, Head of the IT & Operations Division, and officers in charge of auditing. In principle, the committee meets twice a year.
Sustainability Committee	The Sustainability Committee formulates long-term plans related to the Group’s sustainability promotion, including materiality and environmental issues, as well as goals and plans for non-financial metrics. The committee also monitors the progress of metrics set by each business division and reports important matters to the Executive Committee. The committee is chaired by the Head of the Corporate & Strategic Planning Division, and its members comprise the President & CEO, Deputy Presidents, Head of the Treasury & Accounting Division, Head of the Human Resources & General Affairs Division, Head of the Risk Management Division, Head of the Credit Division, and Head of the IT & Operations Division. In principle, the committee meets twice a year.
Corporate & Strategic Planning Division	The Corporate & Strategic Planning Division is in charge of drafting and driving the execution of plans for Group-wide strategies based on the Group’s basic sustainability policy. It gathers knowledge related to the Group’s sustainability from Japan and overseas, drafts policies and strategies, and reports those matters to the Sustainability Committee and other committees.

② Risk Management

Regulatory changes, technological innovation, and shifts in business models in line with the transition to a decarbonized society or extreme weather, etc. stemming from global warming may affect our operating results and financial condition in the form of the business failure of business partners due to earnings deterioration and other factors, the decline in value of assets owned by the Group, and in other ways. The Group recognizes climate change risk as one of the critical risks in Company-wide risk management and will promote efforts to properly identify and manage it.

a.Risk management system overview

The Group uses its integrated risk management framework to comprehensively manage risks that could have a substantial impact on investors' decisions.
The important risks managed within the integrated risk management framework include, but are not limited to, credit risks, asset risks, investment risks, market risks, liquidity risks, and operational risks.
To manage envisaged risk factors, the departments overseeing specific risks monitor issues arising from developments in the external environment or other changes, regularly consider measures to address such risks, and then report and deliberate them at meetings of each committee including the Risk Management Committee. In addition, we operate a risk management system in which important matters are reported to and discussed by the Executive Committee and Board of Directors.

b.Classification and examples of impacts of climate change risks

Climate change risks consist of transition risks associated such as with tightening of climate-related regulations and technological innovation, and physical risks associated with extreme weather and changes in climates. The TCFD recommendations classify these risks into the subcategories of policy and legal/technology/market/reputation, and acute/chronic, and present examples of impacts.
We believe that impacts will occur over a variety of time frames (short, medium, and long term) through broad transmission routes including existing risks such as credit risks, asset risks, and investment risks. Furthermore, in addition to direct impacts on the Group’s business activities, the onset of indirect impacts through the Group’s customers is also possible.
Based on such risk characteristics and the details of the TCFD recommendations, we categorize examples of impacts of climate change risks for each of the Group’s major risks, also taking into account its risk management framework. Under the integrated risk management framework, we are building a system to identify, assess, and manage climate change risks in light of their relation to other major risks.
Going forward, we will review the risk classification and examples of impacts in accordance with the extent of our analysis and assessment of changes in the external environment and climate change risks.

Classification and examples of impacts of climate change risks

Major Risks	Timeframe^*	Transition risk	Physical risk
Credit Risk	Short to long term	Deterioration of customers’ business environments and increases in the Group’s credit costs due to policy and regulatory changes, technological innovations, changes to stakeholders, etc.	Damage to lease assets, collateral assets, etc. and increases in the Group’s credit costs due to extreme weather Deterioration of customers’ business environments and increases in the Group’s credit costs due to climate change (rising temperatures, etc.)
Asset Risk	Short to long term	Assets becoming obsolete and less profitable or valuable due to policy and regulatory changes, technological innovations, changes to stakeholders, etc.	Direct damage to assets due to extreme weather Deterioration of asset usage environments and utility value (decreased profitability, shorter useful life, etc.) and decline of usage opportunities due to climate change
Investment Risk	Short to long term	Business becoming less profitable or valuable due to policy and regulatory changes, technological innovations, changes to stakeholders, etc.	Direct damage to business value due to extreme weather Deterioration of business environments, profitability, and value due to climate change
Market Risk	Short to long term	Impacts of the transition to a decarbonized society on companies and fluctuations in the value of securities, etc. held by the Group	Disruption in financial markets, deterioration of the corporate management environment, fluctuations in the value of securities, etc. held by the Group due to extreme weather and climate change
Liquidity Risk	Short to long term	Deterioration of reputation among stakeholders and deterioration of fund procurement conditions due to delayed responses to the transition to a decarbonized society	Disruption in financial markets and the fund procurement environment due to extreme weather and climate change
Operational Risk	Short to long term	Increase in regulatory compliance costs due to the tightening of GHG emissions reporting obligations, etc.	Suspension of operations, etc. due to damage caused by natural disasters to business sites, data centers, etc.
Reputational Risk	Short to long term	Deterioration of reputation among stakeholders due to insufficient response and disclosure related to climate change
Strategic Risk	Medium to long term	Failure to achieve strategic targets due to inadequate business strategies related to the transition to a decarbonized society and the impacts of natural disasters and extreme weather

* Short term: until 2025, Medium term: until 2030, Long term: until 2050

(Reference) Classification and Examples of Impacts in the TCFD Recommendations

Transition risks: Risks related to the transition to a lower-carbon economy

Type	Environmental Changes Brought by Climate Change	Impacts on Customers/MHC, etc.
Policy and Legal Risk	Introduction of carbon tax, etc. Tightening of regulations requiring reporting of GHG emissions Policy changes and regulatory tightening related to competitive power of assets and investment businesses Increase in climate-related litigations	Increase in costs and deterioration of management conditions of customers, increase in MHC's credit costs Increase in regulatory compliance costs Declined value and profitability of assets and investment business Increase in litigation costs
Technology Risk	Shift to facilities, machinery, etc. that emit less GHGs Shift to low emission technologies (renewable energy, storage batteries, carbon capture and storage technologies, etc.)	Decline of value and profitability of obsolete assets and investment business Failure of investment in new technology-related assets and businesses Increases in customers' transition costs and MHC's credit costs
Market Risk	Customers' behavioral changes Changes in demand-supply conditions in markets	Decline of value and profitability of assets and investment business
Reputational Risk	Reputational damage due to delayed response to climate change, insufficient information disclosure	Adverse impacts on fund procurement Adverse impacts on corporate activities and business activities

Physical risks: Risks related to physical changes caused by climate change

Type	Environmental Changes Brought by Climate Change	Impacts on Customers/MHC, etc.
Acute Risk	Increase in natural disasters such as typhoons and floods	Damage to assets and investment business due to natural disasters
Chronic Risk	Sea level rise along with increased average temperature, etc.	Decline of value and profitability of assets and investment business due to climate change (temperature rise, etc.) Increase in credit costs due to changes in customers' business environments

c.Status of integration into overall risk management

We have a system in place where various impacts of climate change risks on other major risks are reported and deliberated at the Risk Management Committee. We will integrate the management of such risks, including risks identified through scenario analysis, in overall risk management by establishing a monitoring system and other means.
Additionally, the development of targets and plans related to climate change and details of monitoring are reported and deliberated at the Sustainability Committee. The details of deliberations of both committees are reflected in our Group’s overall management strategies under the Board of Directors’ supervisory system, allowing us to appropriately respond from the perspectives of both overall risk management and individual risks.

③ Strategy

We identify risks and opportunities for the Group brought by future climate change, and conduct scenario analysis on transition risks and physical risks for the purpose of appropriately disclosing information and considering future measures.
While we assessed transitions risks generally in qualitative terms, we also assessed them quantitively for particularly important segments.
The scenario analysis was carried out based on information and data available at present. We will obtain more information and related data through careful interpretation of the analysis results and dialogues with stakeholders and strive to disclose information appropriately by improving our analysis methods and expanding the scope of businesses to be analyzed.

a.Overview of the scenario analysis

Overview of transition risk analysis

Target sectors and main segments	Target Sector	Main Segment
	Energy (oil, gas, coal, and electric utilities)	Environment & Energy
	Transportation (air freight and passenger air transportation)	Aviation
	Materials and Buildings (real estate management and development)	Real Estate
	Among the Group’s segments, the Customer Solutions Unit was included in the target segments of the analysis because it conducts business activities across target sectors, such as finance solutions business for companies and government agencies, sales financing business provided through collaboration with vendors, real estate leasing business, and financial service business, etc. through its business bases in Japan. Meanwhile, the Global Customer Business Unit was excluded from the target segments because the business bases of overseas Group companies are located in multiple regions, such as Europe and the Americas, and the analysis would therefore require significant work.
Sector and segment selection method	Summarize the relationships between the sectors that have the potential to be significantly affected by climate change and the segments of the Group by referring to the Final Report of the Task Force on Climate-related Financial Disclosures (TCFD) and other information. Select the target sectors and segments of the analysis by comprehensively considering the asset balance, business characteristics, and amounts of GHG emissions of the Group’s segments by sector as well as external professionals’ opinions. From these perspectives, a quantitative scenario analysis was conducted for the Aviation segment (JSA’s aircraft operating lease business) and the Real Estate segment (domestic equity investment business, etc.)
Scenario	Net Zero Emissions by 2050 Scenario (NZE scenario) and Stated Policies Scenario (STEPS scenario) published by the International Energy Agency (IEA) the quantitative scenario analysis, the Net Zero 2050 Scenario and the Current Policies Scenario published by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) were used as some preconditions.
Reason for selecting the above scenario	The materials published by the IEA contain a medium‑ to long‑term outlook for the energy market and relevant policy trends, as well as industry trends of the Group's key segments.
Analysis method	In the qualitative scenario analysis, identify the risks and opportunities that may arise in working toward realizing a decarbonized society in the target sectors and assess their business impacts. In the quantitative scenario analysis, assess the impacts of the risks and opportunities identified in the qualitative scenario analysis and our strategies to address them on our financial standing in 2050. Assess the impact on profitability in the profit and loss statement in the Aviation segment and the impact on cash flow in the Real Estate segment.

Overview of physical risk analysis

Subjects of analysis	Assets for business possessed by the Environment & Energy Business Division, the Real Estate Business Division, and the Group's offices and branches
Scenario	Shared Socioeconomic Pathways (SSP5-8.5) published by the Intergovernmental Panel on Climate Change (IPCC)
Reason for selecting the above scenario	Because of the wealth of information on various changes in the natural environment, such as temperatures, rainfall and snowfall, dryness, and rising sea levels
Analysis method	Assess business impacts of extreme weather and changes in climates that can occur at the locations of assets for business (qualitative analysis)

b.Results of the scenario analysis

Discussions about the impacts of climate change on our business were held with each division in charge of Environment & Energy, Aviation, Real Estate, and Customer Solutions, which are the target segments of the scenario analysis, and with the Risk Management Department, which is the department in charge of risk management for the entire Group, to ensure consistency between scenario analysis results and existing strategic policies.
The Group endeavors to minimize risks and maximize opportunities by taking short- and long-term measures regarding risks and opportunities related to climate change. As a result of the qualitative scenario analysis of transition risks, we recognize the need to appropriately handle risks and opportunities associated with the expansion of renewable energy (Environment & Energy), the shift to fuel-efficient aircraft and aircraft engines and low-carbon fuels such as SAF and hydrogen (Aviation), growing demand for low-carbon buildings (Real Estate), and other trends. The results of the quantitative scenario analysis suggest that the Aviation segment is expected to see lower lease fee income due to declining aircraft demand, a decline in the value of current aircraft models due to regulatory tightening, and increased credit costs for airline companies. Meanwhile, resilience is expected to be strengthened thanks to an increase in the percentage of new generation aircraft ^*1 with growing demand and the implementation of strategies and measures to seize new business opportunities such as SAF.^*2 The Real Estate segment is expected to see increased outflow of cash as a result of the introduction of carbon tax, a decline in the value of low-carbon buildings due to regulatory tightening, and increased outflow of cash due to higher utility and other expenses. Meanwhile, resilience is expected to be strengthened thanks to an increase in the percentage of low carbon buildings with growing demand and the implementation of strategies and measures to seize opportunities such as revitalization investment business.
Furthermore, based on the results of the physical risk analysis, we anticipate risks including damage caused by disasters to power stations and deterioration of power generation facilities such as solar panels (Environment & Energy), loss in the value of real estate due to intensification of natural disasters and increases in construction and operation expenses and renovation costs (Real Estate), and damage caused by disasters to the Group’s offices and increases in their operation expenses and insurance costs.
While appropriate measures for climate change risks have been developed, in terms of the opportunities brought by climate change, the acquisition of business opportunities has been incorporated into our strategies. We have also set metrics related to climate change and established a system to regularly monitor relevant trends in Japan and overseas and the status of initiatives of the Group.
^*1. Fuel-efficient aircraft that emit less CO2 compared with the current generation
^*2. SAF: Sustainable aviation fuel.

Results of the scenario analysis

Types of risks/ opportunities			Timeframe^*1	Details of climate change-related risks and opportunities	Measures to address risks / Measures to realize opportunities
Risks	Transition risk	Policy and legal	Short to long term	Increased business management costs associated with the introduction of carbon tax and tightening of regulations requiring reporting of GHG emissions, etc.	Reduce GHG emissions by promoting energy conservation, switching to renewable electricity, etc. at the Group’s offices and branches
		Technology	Short to long term	Increased depreciation expense and residual value risk of existing assets such as aircraft and aircraft engines	Mitigate impacts by increasing the percentage of new generation aircraft and aircraft engines in the portfolio
		Market	Short to long term	Increased costs of renovating/repairing existing buildings and development Possibilities of price declines of non-low carbon properties owned by the Group Risk of losing earnings due to delayed response to the demand for low carbon buildings Decline in the electricity sales price due to intensified competition in the renewable energy market	Consider mitigating impacts by passing the cost onto rent Reduce carbon emissions from maintenance and renovation processes (renewing equipment of aged properties (including logistics warehouses), installing power generation equipment such as solar panels, etc.) Introduce and enhance development functions to respond to a low carbon society Consider securing earnings by participating in the battery storage business, etc. while paying attention to the regulatory environment, etc.
		Reputation	Short to long term	Deterioration of reputation among overseas ESG investors and domestic financial institutions due to delayed response to climate change	Promote reducing the emissions from the Group and relevant supply chains and proactively disclose activities based on the TCFD recommendations, etc.
	Physical Risk		Short to long term	Increase in temporary suspension of operations and operation expenses Damage to real estate value, increase in operation expenses, and prolonged construction periods Damage to power generation plants and reduced efficiency of power generation using solar panels and other equipment due to storms, etc., and impacts on wind power generation business due to changes in wind conditions	Enhance the capabilities to respond to natural disasters by formulating a BCP for minimizing damage Strengthen resilience by taking measures to deal with natural disasters (detailing risks related to leasing, investment, and financing, installing or renovating disaster management equipment, etc.) Consider measures for enabling early recovery by strengthening the management framework for the Group’s power generation plants
Opportunities	Products and Services		Short to long term	Expansion of opportunities for low-carbon building leasing, investment, and financing businesses and increase in prices and unit rent prices of owned or managed low-carbon buildings	Introduce and strengthen development functions to respond to a low-carbon society
	Markets		Short to long term	Expansion of leasing opportunities for energy conservation equipment Increase in leasing opportunities for new generation aircraft associated with aviation companies’ demand for switching aircraft and aircraft engines Increase in leasing opportunities associated with demand for switching airport equipment Expansion of revenue opportunities associated with increased demand for renewable energy Expansion of opportunities for renewable energy businesses	Consider increasing the procurement of energy conservation equipment Capture demand by increasing the transaction volume of new generation aircraft and aircraft engines Offer leasing services in line with customers’ demand for switching heat source equipment, etc. Expand renewable power generation business in Japan and overseas Expand battery storage and aggregation businesses
	Markets		Long term	Increased leasing opportunities associated with the spread of hydrogen-compatible aircraft Possibilities of gaining earnings from new SAF/hydrogen-related businesses	Capture demand associated with increased transaction volume of hydrogen-compatible aircraft Participate in and support the hydrogen value chain including storage, transportation, production, and filling facilities and clean energy supply and consider engaging in SAF-related businesses

Short term: until 2025, Medium term: until 2030, Long term: until 2050

Results of the quantitative scenario analysis

Business size refers to the sales volume assumed in the STEPS scenario for 2050 (total cash inflow for the Real Estate segment)

The figures above are the results of calculating the rates of future impacts based on the scenarios and other data published by major institutions, and their accuracy is not guaranteed. The initiatives above have been set as preconditions for calculating the rates of future impacts and do not indicate action plans for such initiatives.

④ Metrics and Targets

Our Group recognizes the realization of a decarbonized society as an urgent issue and has defined our Group’s ideal state based on national policy targets and Our 10-year Vision. We then set environmental targets by working backward from that vision. Now we view the promotion of a decarbonized society as an even more important opportunity and are actively working on relevant efforts.
In such cases as where GHG emissions increase significantly in the future due to efforts for new businesses or other activities, or where numerical values change as the calculation of GHG emissions of the entire Group including its supply chain is further refined, the established targets may be revised if necessary, but we plan to set the targets so that they will be in line with national policy target levels, just as the current targets are.

a. The Groupʼs environmental targets

Metrics	FY2030 target	FY2024 result
The Group’s GHG Emissions (Scope 1 and Scope 2)	5,081t-CO₂e (−55% compared to FY2019)	4,458t-CO₂e (−61% compared to FY2019)^*1
Percentage of new generation aircraft in our portfolio^*2	83%	76%
Percentage of green buildings in our portfolio^*3	64%	65%
Total new transactions volume of leasing of decarbonization‑related assets^*4	¥102.0 billion	¥11.6 billion
Power generation capacity in operation corresponding to the Group’s stake^*5	Approx. 2.3GW	1.18GW

The target for FY2030 was achieved ahead of schedule. A new target is planned to be established.
Fuel-efficient aircraft that emit less CO₂ compared with the current generation. Models: A220, A320NEO, A321NEO, A330NEO, A350, B737MAX, B787.
Targets and results are both calculated based on net book value (Jackson Square Aviation’s business)
In the real estate business, the share (number of buildings) of environmentally certified properties (CASBEE, DBJ Green Building, BELS, etc.) or buildings using 100% renewable energy among assets over which the Group has some degree of control (Mitsubishi HC Capital Realty’s investment properties) and assets under management by the Group’s asset management companies with the Company acting as a sponsor (Mitsubishi HC Capital Realty Advisers’ private REITs + CenterPoint Development’s private placement funds)
Total transactions volume of leasing mainly of the following equipment (GX Assessment Lease) for FY2024 and beyond:
- Equipment for which CO₂ reduction effects generally required in green finance can be expected
- Energy-environment friendly products
- Machinery for the ESG lease promotion business
Power generation capacity corresponding to the Group’s stake in the domestic renewable power generation business

b.Future efforts

To further enhance the effectiveness of promoting a decarbonized society, our Group has compiled our initiatives and progress since setting Scope 1 and 2 targets, along with processes toward achieving our interim Scope 3 targets, and formulated the Transition Plan toward the Realization of a Carbon-neutral Society. By promoting and sophisticating these initiatives, we aim to realize carbon neutrality across our entire supply chain by 2050.