Response to Recommendations of the Task Force on Climate-related Financial Disclosures

 

The Group supports the Task Force on Climate-related Financial Disclosures and is involved in a various initiatives to address climate change as well as highly transparent information disclosure.

Governance and Risk Management

The Group has risk management systems based on the Group Basic Policy on ERM, established by the Board of Directors. Under these systems, risks that may have significant impact on the Group are defined as “Material Risks.” The Group Chief Risk Officer exhaustively identifies and assesses Material Risks involved in the Group’s business and reports regularly on the status of those risks at meetings of the Managerial Administrative Committee (MAC), the Board of Directors, and other bodies.
Climate change risks, such as the occurrence of greater-than-expected damage from windstorms and floods as well as reputational damage and the impact on asset prices caused by the transition to a decarbonized society, are also recognized as Material Risks, and the Group’s executives are responsible for implementing countermeasures.

Addressing Climate Change Risks and Opportunities

(1) Response to Risks Associated with Intensification of Natural Catastrophe

The Group’s P&C insurance business has inherent risks of being affected by the intensification of natural catastrophes resulting from climate change. For this reason, the Company is engaged in measures including analysis using climate scenarios.
We conduct stress tests for such risks as windstorms and floods. The Group quantitatively assesses the impact of the stress scenarios to verify the adequacy of capital and the effectiveness of risk mitigation measures. Further, since 2018 we have been conducting large-scale analyses of typhoons and heavy rains using weather and climate big data from the Database for Policy Decision-Making for Future Climate Change (d4PDF).* This entails quantifying changes in the average trends of natural catastrophes as well as quantifying trends in the occurrence of extreme weather events over the medium-to-long-term under climates conditions where the temperature rises by 2°C and 4°C.

  • The Database for Policy Decision-Making for Future Climate Change was developed by the Program for Risk Information on Climate Change of the Ministry of Education, Culture, Sports, Science and Technology. By utilizing a number of experimental examples (Ensemble), future changes in extreme events such as typhoons and heavy rains can be evaluated stochastically and with higher accuracy. It is also characterized by its ability to draw more reliable conclusions about the impact of natural catastrophes caused by climate change on future society.

(2) Responding to Risks and Opportunities Associated with the Transition toward a Decarbonized Society

The Group’s future performance and financial position could be affected by changes in insurance needs and decline of the value of its assets under management, including stock equities, resulting from the strengthening of laws or regulations for the transition to a carbon-free society and changes in the industrial structure and local communities resulting from the development of technologies. At the same time, we believe that transformation of the industrial structure will lead to the expansion of business opportunities, such as the creation of new insurance needs and markets. Therefore, we are developing a variety of businesses in anticipation of a transition toward a decarbonized society.
To respond to the aforementioned risks and opportunities appropriately, the Group has established a system for ascertaining the situation and holding discussions at the Sustainability/CSR Committee, chaired by the Group Chief Operating Officer and comprising executives from respective Group companies, and reporting to the Management Administrative Committee (MAC) as necessary. The Company also continues to engage in dialogues with internal and external stakeholders as important opportunities to grasp social and economic changes, understand expectations for the Group, and develop the Group’s business.

Measures Based on Climate Change Scenarios

The Group is undertaking various initiatives to prepare for a society with severe climate change and a low-carbon society, based on the Shared Socioeconomic Pathway (SSP) scenarios of the Intergovernmental Panel on Climate Change.

(1) Measures Based on an Intensified Climate Change Scenario

In the Regional Rivalry (SSP3) scenario in which there is a reliance on conventional fossil fuels, a failure to take adequate measures against climate change, and a slowdown in economic development, climate change progresses, natural catastrophes become more severe, investment in infrastructure is insufficient, and vulnerability to natural catastrophes increases.
Based on the aforementioned scenario, the Group is working to strengthen its resilience in medium-to-long term through assessment of the impact on the P&C insurance business using big data on weather and climate, optimizing insurance premium rates and reinsurance coverage, and taking the following steps.

-Strengthen the profitability of the domestic P&C insurance business by enhancing sales of new risk products and creating new customer services by digital technology

-Expansion of business scope (diversification of revenue sources)

-Geographic diversification (overseas M&As)

<Main Initiatives in Japan>

Sompo Japan Insurance Inc. is working to predict natural catastrophes such as floods and earthquakes using various data related to regional disaster prevention, including data of weather and buildings as well as AI technology. For local governments, Sompo Japan aims to contribute to the safe and secure lives of residents and improve local resilience by providing Disaster Prevention / Mitigation Insurance to compensate for various expenses related to evacuation, thereby supporting swift initial responses by local governments.

As the need for adaptation to climate change increases, opportunities for risk consulting services as well as P&C insurance are expected to expand. Since 2018, Sompo Risk Management Inc. has been participating in the Social Implementation Program on Climate Change Adaptation Technology (SI-CAT) of the Ministry of Education, Culture, Sports, Science and Technology; utilizing a database that projects the climates that would result from global warming with temperature increases of 2°C and 4°C; as well as collaborating with research institutions. Through the aforementioned initiatives, Sompo Risk Management aims to upgrade its natural catastrophe risk models, accumulate know-how on the disclosure of climate-related information, and expand businesses.

<Main Initiatives Overseas>

In the overseas insurance business, Sompo International, our core intermediate holding company, launched AgriSompo as an integrated brand in the agricultural insurance field, which has long been their strength. AgriSompo is expanding its business to South America and Asia in addition to Europe and North America. In addition, following research and development conducted through a collaboration among Sompo Japan, Sompo Risk Management, and the Japan Bank for International Cooperation (JBIC), Weather-Indexing Insurance was launched in Southeast Asia in 2010. This product was recognized as meeting the requirement for membership of the Business Call to Action initiative in 2015. This initiative is led by the United Nations Development Programme (UNDP), with the aim of promoting the establishment of business models that combine commercial activities and sustainable development. By providing coverage for risks associated with windstorms, floods, droughts, and other natural disasters, Weather-Indexing Insurance and other products under the AgriSompo brand help reduce the business risks of farmers. We expect that demand for climate change adaptation, including demand for our products, will increase significantly centered on developing countries, which are vulnerable to climate change.

(2) Measures Based on a Low-Carbon Scenario

In the Sustainability (SSP1) scenario, a certain level of economic development underpins the effective implementation of climate change countermeasures and the achievement of harmony between the environment and the economy. Furthermore, a recycling-based society utilizing local resources, an energy-saving society, and post-materialistic sharing services develop. In such a scenario, solar power, wind power, and other types of renewable energy would become mainstream. At the same time, a “mobility revolution” entailing the establishment of seamless public transportation systems in local communities would reduce the numbers of cars, which would mainly affect our domestic P&C insurance business.

<Contribution to the Dissemination of Renewable Energy>

The Group believes that switching to new sources of energy will play a significant role in the transition toward a decarbonized society. Therefore, we are advancing initiatives to contribute to the dissemination of renewable energy.

●Consulting Services for Wind Power Generation Companies

In addition to providing wind power generation companies with P&C insurance products, the Group capitalizes on expertise acquired through joint research with universities, research institutions, and other stakeholders to offer a risk management service that comprehensively covers the value chains of wind power generation businesses. More specifically, the service encompasses all phases of wind power generation projects, from project formation and operational start-up through to subsequent removal or replacement.

<Initiatives for CASE>

The further penetration of CASE* will dramatically change the automobile insurance market. Aiming to build a new market in anticipation of this change, the Group is leveraging its data to pursue collaborative initiatives with companies in other industries and R&D institutions.

  • Connected, autonomous, shared & service, and electric
●Initiatives for Autonomous Cars

Efforts to improve energy efficiency by easing traffic congestion, by improving the fuel efficiency of cars, and by reducing distribution costs as well as efforts to realize seamless public transportation systems are likely to gather momentum. With this in mind, the Group aims to build a platform that combines digital technology with real data*1 on driving, environmental burden, and traffic accidents acquired through its P&C insurance business to provide the accident prevention, monitoring, and coverage needed for safe verification tests of autonomous car-related services. As part of these efforts, the Group has established the Connected Support Center as a base for research on response services for accidents and other issues involving autonomous cars. Also, we are conducting joint research*2 on the Level Ⅳ Discovery insurtech*3 solution, which supports verification tests of autonomous car-related services. Through the low-cost provision of a highly safe platform for autonomous car verification tests, the Group aims to expedite the realization of a society with safe autonomous cars.

  1. “Real data” refers to data that is acquired from various real-life activities.
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  3. Joint research based on business tie-ups with Tier IV, Inc., a developer of systems for autonomous cars, and AISAN TECHNOLOGY Co., Ltd., a company with technology for high-precision 3D maps
  4.  
  5. New, technology-enabled insurance products and services
●Initiatives for Shared & Service Cars

As it develops, Mobility as a Service (MaaS) is expected to fill in “last mile” gaps, thereby playing a critical role in seamless local transportation systems. Mindful of this, the Group offers risk management services for MaaS verification tests and provides insurance for municipal authorities and nonprofit organizations that operate mobility support services. Also, by establishing businesses that facilitate customer-to-customer car sharing, private car leasing, and parking space sharing, the Company is popularizing such activities. We will contribute to the mobility revolution and create new business opportunities through the expansion of businesses that take advantage of our automobile insurance data and agent-based sales network. Further, as one solution to last mile issues, electric scooters have been attracting attention. With a view to popularizing electric scooters, the Group is developing dedicated insurance and conducting risk assessments to ensure safety.

(3) Other Initiatives

<Initiatives as an Institutional Investor>

As a responsible investor, the Group promotes various initiatives. For example, through dialogue we encourage investee companies to take measures in relation to climate change.
In addition to engaging with investee companies with respect to environmental, social, and governance (ESG) considerations, Sompo Japan is working on quantitative verification of the influence on its investment portfolio of climate change and other trends.

Sompo Asset Management Co., Ltd. participates in Climate Action 100+, an initiative that coordinates the engagement activities of institutional investors. Also, the company actively encourages investee companies to reduce greenhouse gas (GHG) emissions and prepare long-term plans. Further, in September 2017 the company became a signatory to the Montréal Carbon Pledge, which is overseen by the Principles for Responsible Investment. Accordingly, it regularly calculates and discloses the overall emissions of the Japan Value Equity Sustainable Strategy, which is focused on long-term investment, as well as the GHG emissions per 10,000 beneficial interest units of the fund.

<Initiatives for the Development of Environmental Personnel in Partnership with Civil Society>

Since former Group company The Yasuda Fire & Marine Insurance Co., Ltd., established the Department of Global Environment in 1992, the Group has understood the importance of establishing a basis for spontaneous action by heightening each individual’s awareness of and concern over climate change and other environmental issues. For this reason, we continuously develop environmental personnel through collaboration with civil society. Further, the Group widely disseminates the results of research on environment-related issues that it conducts in cooperation with research institutions and government agencies.

Metrics and Targets

To encourage corporate social responsibility and ESG initiatives and check their effectiveness, the Group uses the following CSR key performance indicators (CSR-KPIs) to assess ongoing efforts.

(1)Development and provision of products and services that contribute to climate change adaptation and mitigation

(2)Number of participants in environmental conservation awareness and educational opportunities in collaboration with civil organizations

(3)CO2 emissions

(4)Electricity consumption

(5)Paper use

In fiscal 2018, we set reductions in GHG emissions versus fiscal 2017 levels of 21% by fiscal 2030 and 51% by fiscal 2050 as medium-to-long-term targets. To these ends, we are taking measures to mitigate climate change.
We are also implementing the aforementioned measures with a view to acquiring certification under the Science Based Targets (SBT) initiative, which promotes reductions in GHG emissions that will enable the realization of the Paris Agreement’s long-term goals. Moreover, we are engaged in the creation of SBT frameworks. The Sompo Group is the only Japanese insurance group that is a member of the expert advisory group tasked with developing SBT guidelines for financial institutions.

Leadership to Address Climate Change

Leadership through Various Initiatives

It is important that many stakeholders work collaboratively to address the challenges of climate change. As climate action is being discussed in numerous initiatives both in Japan and the world, we are making an effort to show leadership in such initiatives. Here we introduce some of our major activities.

Participation in CDP (Climate Change) and Support for TCFD

The CDP is a set of collaborative initiatives by the world’s institutional investors. It encourages businesses worldwide to adopt climate change strategies and disclose their GHG emissions. Sompo Japan has been a member since 2005 as an institutional investor. As a responding company, Sompo Holdings was selected for the 2016 and 2017 Climate A List in a CDP climate change, and has been recognized as being among the highest ranked financial institutions in the world.
Following the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations Report published in June 2017, the Group declared support for TCFD and started participating in the TCFD insurance working group of the United Nations Environment Programme-Finance Initiative (UNEP-FI) to formulate TCFD standards for the insurance sector.

Signed the Montreal Carbon Pledge

In September 2017, Sompo Asset Management signed the Montreal Carbon Pledge.
The Montreal Carbon Pledge was adopted at the annual general meeting of the Principles for Responsible Investment (PRI) held in Montreal, Canada, in September 2014, aiming to reduce GHG emissions. Signatories are required to measure and disclose GHG emissions associated with some or all of their stock portfolios, and Sompo Asset Management is committed to regularly disclosing the funds’ emissions.

Paris Agreement: Participation in Initiatives to Achieve 2℃ Target

In 2017, we took part in an initiative led by the Ministry of the Environment, Japan aiming to set Science Based Targets (SBT). In 2018, we submitted a letter of commitment to the SBTi (international initiative that certifies companies that set ambitious targets consistent with the Paris Agreement) and declared our participation in the drafting of financial sector guidance*. In fiscal year 2018, we set new mid- to long-term GHG emission reduction targets for 2030 and 2050 in line with the levels recommended by the SBTi.

  • Guidance on SBT for the financial sector is currently being developed thus it is not yet possible for financial institutions to be certified by SBTi. (As of July 2018)

In July 2018, the Japan Climate Initiative network was established to enhance information dissemination and the exchange of opinions among corporations, local governments, and civil society organizations actively taking measures to combat climate change. We endorse the purpose of this initiative and are participating as a founding member.

Caring for Climate

Caring for Climate is an initiative established by the United Nations Global Compact (UN GC), the United Nations Environment Programme (UNEP), and the United Nations Framework Convention on Climate Change (UNFCCC) to advance the role of business in addressing climate change. Masao Seki, Senior Advisor on CSR at Sompo Japan, is a member of the steering committee.

The Conference of the Parties (COP)

In November 2016, the 22nd Session of the Conference of the Parties (COP22) to the United Nations Framework Convention on Climate Change was held in Marrakesh, Sompo Japan, spoke at a session of a side event organized by Japan’s Ministry of the Environment, focusing on Japanese corporations’ efforts for climate resilience. The company also participated in a High-Level Meeting on Climate Change organized by Caring for Climate during COP22, as a steering committee member. In November 2017, at a side event organized by the Japan International cooperation Agency (JICA) at the COP23 held in Bonn, Germany, Sompo Risk Management gave a presentation on Private Sector Perspective on Agricultural Insurance.

In November 2018, Masaya Futamiya, Director Chairman of Sompo Japan participated in Global Business and Biodiversity Forum held in advance of COP 14 and gave a presentation on the revision of Declaration of Biodiversity by Keidanren and a progress status of the “mainstreaming of biodiversity” in the Japanese business sector as a Chairman of Keidanren Committee on Nature Conservation. He also held dialogs with representatives from organizations that have a great effect on promoting global nature conservation.