P&C insurance business could be financially affected by higher-than-expected insurance payouts due to the increased severity and frequency of natural disasters, including typhoons, floods, and storm surges. In 2018, we started working with universities and other research institutions to quantitatively grasp risks based on scientific findings. Based on large-scale analysis using weather and climate big data, such as the Database for Policy Decision-making for Future Climate Change (d4PDF), we are working to understand the long-term impacts of a climate with higher average temperatures with respect to changes in the average trends for storm surges affected by typhoons, floods and sea level changes and trends in the occurrence of extreme weather events. We are also analyzing and evaluating the medium-term impact over the next five to ten years and incorporating this information into our business strategies.

We have also estimated the impact related to typhoons using a simple quantitative analysis tool based on guidance issued in January 2021 by the TCFD insurance working group of UNEP FI (United Nations Environment Programme Finance Initiative). We will continue our analysis using the scenario analysis framework being developed by the Network for Greening the Financial System (NGFS), which works on financial regulatory responses to climate change risks.

To understand the medium- to long-term impact of the transition to a decarbonized society on our company, we analyzed the impact on our Group’s assets using the Climate Value-at-Risk (CVaR) provided by MSCI for policy risks arising from tighter laws and regulations and global economic changes that will affect companies in the transition to a decarbonized society and technology opportunity arising from climate change mitigation and adaptation initiatives, based on the NGFS scenarios.

In addition, since it is important to encourage companies that have not yet made progress in decarbonization efforts to reduce transition risk, we use the Implied Temperature Rise (ITR) provided by MSCI to quantitatively analyze whether our portfolio companies have set GHG emission reduction targets consistent with the goal of limiting global warming to 2°C by FY2100.

Climate change can impact various aspects of the Group’s business, including our non-insurance business, and the impacts are long-term and highly uncertain. To manage climate change risks, including the risks associated with natural disasters, we have developed a climate change risk framework to complement our existing risk control system and to identify, assess, and manage risks by taking an in-depth look at scenarios in which the Group is affected through various pathways in the long-term.

The climate change risk framework “identifies environmental changes,” “discusses their impact on the Group,” and “assesses risks and controls” to capture the complex impacts of climate change.

Based on the assessment results, risks that require continuous monitoring are visualized as “Climate Change Risk Map” to provide a bird’s eye view of the impact, likelihood, timing of occurrence, and trends of risks that primarily affect insurance underwriting and asset management, and thereby stimulating discussions on climate change at the Board of Directors and other executive bodies.