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 environment, 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 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in October 2021, and is intensifying efforts to reduce its 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 oversees measures that relate to Company-wide management, including response policies, action plans, and progress on the Groupʼs Materiality and environmental issues in response to reports on the matters deliberated over and resolved by the Executive Committee and reflects those details when determining important matters such as Company strategy.
Executive Committee	The Executive Committee engages in specific deliberations and resolutions concerning measures that relate to Company-wide management, including response policies, action plans, and progress on the Group's Materiality and environmental issues. Important matters are reported to the Board of Directors.
Risk Management Committee	The Risk Management Committee is chaired by the Head of the Risk Management Division, and its members comprise 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 directors in charge of auditing. The committee manages risks related to overall management in comprehensive and systematic ways. The overall impact of climate change risks, human rights risks, etc. on other major risks is reported to the Executive Committee. In principle, the committee meets quarterly.
Sustainability Committee	The Sustainability 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 Division, Head of the Risk Management Division, Head of the Credit Division, and Head of the IT & Operations Division. The committee formulates long-term plans related to the Group's sustainability promotion, including Materiality and environmental issues, as well as goals and plans of non-financial KPIs. The committee also monitors the progress of each business division and reports important matters to the Executive Committee. In principle, the committee meets twice a year.
Sustainability Committee Office (Corporate & Strategic Planning Department, Corporate & Strategic Planning Division)	The Administrative Office is responsible for drafting and driving the implementation of plans for Company-wide strategy based on the Group's Basic Sustainability Policy. It gathers knowledge from Japan and overseas in the Group's areas of sustainability and reports to the Sustainability Committee and other bodies along with policies and strategies.

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 with climate-related regulation tightening and technological innovation, etc. 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.
The Company recognizes that impacts of climate change risks occur over various time frames such as short, medium and long term through broad transmission routes including existing risks like credit risks, asset risks and investment risks. Furthermore, in addition to direct impacts on the Company's business activities, the onset of indirect impacts through the Company's customers is also possible.
Based on such risk characteristics and details of the TCFD recommendations, the Company categorizes examples of impacts of climate change risks for each of its major risks, also taking into account its risk management framework. Under the integrated risk management system, the Company is also advancing the establishment of a system to identify/assess and manage climate change risks in light of relations with other major risks.
Going forward, the Company will review the risk classification and examples of impacts according to changes in the external environment, and deepen analysis and assessment of climate change risks.

Classification and examples of impacts of climate change risks

Major Risks	Timeframe^*1	Transition Risks	Physical Risks
Credit Risk	Short to long term	Deterioration of customers' business environments and increases in MHC'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 MHC's credit costs due to extreme weather Deterioration of customers' business environments and increases in MHC's credit costs due to climate change (temperature rises, 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, etc.
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 values of securities, etc. held by MHC	Disruption in financial markets, deterioration of the corporate management environment, fluctuations in the value of securities, etc. held by MHC 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

Comprehensive impacts of climate change risks on other major risks are reported to and discussed by the Risk Management Committee. We will advance the reflection of such risks, including risks identified through scenario analysis, in overall risk management by establishing a monitoring system and other means. In addition, the development of targets and plans related to climate change and details of monitoring are reported to and discussed by the Sustainability Committee. Details of discussions of both committees are reflected in the Company's management strategies under the system of monitoring by the Board of Directors so that we can appropriately address the risks from both the perspectives of overall risk management and individual risks.

③ Strategy

The Company identifies risks and opportunities brought by future climate change to the Group, and conducts scenario analysis on transition risks and physical risks for the purpose of appropriately disclosing information and considering future measures.
Scenario analysis is carried out based on limited information and data available at present. We will strive to reflect the analysis in appropriate disclosure by carefully interpreting the results of this analysis, obtaining more information and relevant data through dialogues with stakeholders, and promoting the refinement of analysis methods and expansion of businesses to be analyzed.

a.Overview of the scenario analysis

Overview of transition risk analysis

Target Sector and Main Segment	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 MHC's segments, the Customer Solutions segment was included in the subject of 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. with business bases located in Japan. Meanwhile, the Global Business segment was excluded from the subject because the business bases of overseas Group companies are located in multiple regions, such as Europe and the Americas, and therefore analysis would 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 target sectors and segments of 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.
Scenario	Net Zero Emissions by 2050 Scenario (NZE scenario) and Stated Policies Scenario (STEPS scenario) published by the International Energy Agency (IEA)
Analysis Method	Identify opportunities and risks for a decarbonized society in target sectors and assess business impacts (qualitative analysis)

Overview of physical risk analysis

Analysis Subject	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)
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

The Business Divisions responsible for the segments targeted for scenario analysis—Environment & Energy, Aviation, Real Estate, and Customer Solutions—have discussed the impacts on our business and confirmed consistency between the results of the scenario analysis and the existing strategic policy.
The Group endeavors to minimize risks and maximize opportunities by taking short- and long-term measures as for risks and opportunities related to climate change. As a result of the transition risk analysis, we recognize the need to appropriately handle risks and opportunities associated with the expansion of renewable energy (Environment & Energy), the shift to low mileage aircraft/engines and low-carbon fuels such as SAF and hydrogen (Aviation), the growing demand for low-carbon buildings (Real Estate), etc. Furthermore, as a result of the physical risk analysis, we anticipate risks including damage caused by disasters to power stations and deterioration of power generating facilities such as solar panels (Environment &Energy), loss in value of real estate due to intensification of natural disasters and increases in construction/operation expenses and renovation costs (Real Estate), damage caused by disasters to the Group's offices, and increases in operating expenses and insurance costs.
While appropriate countermeasures for climate change risks have been developed, the acquisition of business opportunities has been incorporated into strategies for opportunities brought by climate change. Going forward, we will reflect KPIs related to climate change in the process of implementing the Medium-term Management Plan, and establish a system to regularly monitor relevant trends in Japan and abroad, and the status of initiatives of the Group.

Results of the scenario analysis

Type 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 energy-based 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 ratio of new aircraft and aircraft engine models in the portfolio
		Market	Short to long term	Increased costs of renovating/repairing existing buildings and development Possibilities of price decline of non-low carbon properties owned by MHC 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 rents 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 storage battery business, etc. while paying attention to 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 MHC 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 costs Damage to real estate value, increase in operation costs, and prolonged construction period Damage to power generation plants and reduced efficiency of power generation using solar panels and other equipment due to storms, etc., and the 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 management framework for MHC'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 models associated with aviation companies' demand for switching aircraft and aircraft engines Increase in leasing opportunities associated with demand for switching airport equipment Expansion of earning 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 transaction volume of new aircraft and aircraft engine models Offer leasing services in line with customers' demand for switching heat-source equipment, etc. Expand renewable energy 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 initiatives for SAF-related businesses

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

④ Metrics and Targets

Based on the recognition that efforts to realize a decarbonized society are an urgent issue, we will set the Group's GHG reduction targets pursuant to the Paris Agreement, and we see the transition to a decarbonized society as an opportunity and actively promote the transition.
In cases where GHG emissions increase significantly in the future due to efforts for new businesses, or where numerical values change while the calculation of GHG emissions of the entire Group including supply chains become sophisticated, and in other cases, the established targets may be reviewed appropriately, however we plan to set the targets so that any targets are in line with the level of the Paris Agreement, in the same way as the targets established this time.

a.The Group's targets for the reduction of GHG emissions

Scope 1 and Scope 2	Short Term (Every Year)	Medium Term (to Fiscal 2030)	Long Term (to Fiscal 2050)
	Energy usage in Japan: -1% compared to the prior fiscal year	-55% compared to fiscal 2019	Net zero

b.Future efforts

For Category 11 (Use of sold products), Category 13 (Downstream leased assets) and Category 15 (Investments) of Scope 3, which are expected to comprise a majority of the Group's GHG emissions, we also consider measurement methods and conduct discussions toward disclosure.
Going forward, we will consider the reduction of GHG emissions of the entire Group, including supply chains, through visualization of the status of GHG emissions related to business transactions, formulation of policy for sectors with high GHG emissions and the transaction plan, and other means.