Information Disclosure Based on TCFD Recommendations

SBI Holdings endorses the TCFD recommendations. Along with this, the SBI Group identifies risks and opportunities related to climate change using the two scenarios of the global mean temperature rising 4℃ and 1.5℃, in line with the disclosure framework recommended by the TCFD. We are also analyzing the impact of climate change-related risks and opportunities on the Group's business activities, etc., and is addressing them.

SBI Holdings has established a Sustainability Committee under the Board of Directors, composed of senior managing directors and chaired by the Representative Director, President & CEO. In principle, the Committee meets at least twice a year. As part of the SBI Group's corporate strategy, the committee not only discusses and decides upon strategic initiatives related to sustainability, including those regarding climate change, but also verifies and examines the progress of these initiatives as well as reports on their findings to the Board of Directors. In addition, the sustainability measures decided upon through discussions by the committee are implemented across the entire SBI Group, with the cooperation of each group company, through the Sustainability Promotion Office that serves as the secretariat of the committee.
In this way,　the Company will construct a framework for proper management of initiatives toward the resolution of environmental and social issues including climate change, and further ensures the effectiveness of these measures.

For more information on the initiatives in the Sustainability Committee, please see "Sustainability Promotion Structure" page.

SBI Group identifies risks arising from climate change and considers its contribution to solving environmental and social issues through the provision of diverse solutions in each of the Group's operating companies as a new business opportunity, with the objective of realizing a decarbonized society.

SBI Group considers climate change as a critical issue confronting the society and is identifying climate-related risks and opportunities related to climate change using the two scenarios of the global mean temperature rising 4℃ and 1.5℃ compared to before the Industrial Revolution to consider the conditions in 2030. We have estimated the financial impact in FY 2030 for the securities business and the investment (private equity) business, which are two major businesses of the SBI Group. For the banking business, SBI Shinsei Bank has estimated its cumulative financial impact on itself up to FY2050.

・ For risk identification, the analysis was conducted qualitatively and quantitatively in terms of "transition risks," such as effects from stricter regulations developed as climate change measures and changes in customer behavior, and "physical risks," such as damage of assets due to increasing severity of abnormal weather and effects brought about by long-term changes in climate patterns.

・ In the scenario analysis, an examination and assessment of risks and opportunities in the securities business and the investment business (private equity) arising from climate change as of 2030 was performed using scenarios published by international organizations.
SBI Shinsei Bank has organized the world view, opportunities and risks of the scenarios in two dimensions: climate change and the economic fluctuations monitored on a daily basis.

【Scenario of the securities business and the investment business (private equity)】

4℃ scenario：
This scenario assumes a 4℃ increase as of 2100 compared with the global mean temperature from before the Industrial Revolution, and that no progress in climate change prevention measures have been made from present conditions. This scenario also assumes there are no changes from the current state of laws and regulations to fight climate change, while also assuming abnormal weather will become more severe and physical damage will become increasingly large.

Reference scenarios:
IEA World Energy Outlook (WEO) 2021, Stated Policies Scenario (STEPS). (In part, Intergovernmental Panel on Climate Change (IPCC) and Representative Concentration Pathways (RCP) 6.0)

1.5℃ scenario：
This scenario assumes a 1.5℃ increase as of 2100 compared with the global mean temperature from before the Industrial Revolution and that an aggressive set of initiatives have been made toward achieving carbon neutrality. The severity of abnormal weather is reduced compared to the 4℃ scenario. However, laws and regulations formulated as measures to combat climate change are greatly strengthened in comparison to today.

Reference scenarios:
IEA World Energy Outlook (WEO) 2021, Net Zero Emissions by 2050 Scenario (NZE). （In part, Sustainable Development Scenario, Intergovernmental Panel on Climate Change (IPCC), and Representative Concentration Pathways (RCP) 6.0）

【Scenario of the Banking business (SBI Shinsei Bank)】

Physical risk: IPCC Fifth Assessment Report RCP2.6 (2℃ scenario)/8.5 (4℃ scenario)
Transition risk: NGFS Net Zero 2050 (1.5℃ scenario)/ Delayed Transition、Current Policies

［Climate change-related risks］
Transition risks (the impact of tighter regulations and changes in customer behavior to combat climate change) and physical risks (the damage to assets caused by extreme weather events and the impact of long-term changes in climate patterns) include those identified below.

As a measure to reduce transition risks, we will visualize our GHG emissions, promote energy-saving measures, utilize renewable energy and manage the SBI Group's progress towards achieving its GHG emissions reduction targets, thereby reducing costs by avoiding carbon taxes and other burdens.
Moreover, electricity procurement relying on conventional thermal power generation, etc. not only has high GHG emissions, but also involves the risk of cost fluctuations due to the influence of national policies and natural resource prices. Therefore, from the perspective of stabilizing electricity procurement costs, we believe that it is desirable to switch to electricity from renewable energy sources, and are promoting the use of renewable energy sources in addition to the energy-saving measures we have been taking up until now.
SBI Group will continue to work towards addressing reputational risk and reducing the risk of fluctuations in procurement costs.

In terms of physical risk reduction, SBI Holdings and its group companies have formulated Business Continuity Plans (BCPs) and other measures to establish a system for early recovery in case of a disaster.

SBI Group's main businesses - the securities business, the Investment business (Private Equity) and the banking business (SBI Shinsei Bank) - recognize the following risks due to the nature of their respective businesses.

Risks relating to the Securities business

・ Transition risk (Reputation): The brand devaluation caused by inadequate response may lead to customer outflow

・ Physical risk (Acute): System faults may occur such as interruption with the online trading system. Consequently, there may be a financial impact from temporary interruption of business operations and actions to restore the system, and issues with security, which may incur liability for damages, may also arise.

＜ Addressing risk reduction ＞
SBI SECURITIES has been working on BCP/BCM (Business Continuity Management) in ordinary times in accordance with the contingency plan set out by the company, in order to quickly set up a crisis management office, minimize the impact on operations and ensure business continuity operations, with a focus on important operations.

Risks relating to the Investment business (Private Equity)

・Transition risk (Technology and market): If actions taken by investee companies on policies and regulations related to climate change prove to be insufficient, then the technology held by such companies will become obsolete and competitiveness will fall, leading to reduced valuations. As a result, the operating investment securities held by the SBI Group may undergo damage to their value.

・Transition risk (Reputation): It is anticipated that more disclosure of ESG-related information and the establishment / enhancement of management systems from an ESG perspective at the investment consideration and implementation stage will be required, and these may incur corresponding costs.

＜ Addressing risk reduction＞
In the Investment business (Private Equity), as for the investee companies, since initiatives towards decarbonization could enhance the growth of these companies, we will examine "full hands-on engagement" which will also include encouragement of ESG measures for investee companies.

Risks relating to the Banking business (SBI Shinsei Bank)

・ Transition risk (Technology and market): Along with the tightening of regulations and technological innovation to achieve 2°C or less, the default risk of high greenhouse gas emitting sector companies and individuals rises, and credit costs may be further incurred

・ Transition risk (Reputation): The brand devaluation caused by investments in companies in high greenhouse gas emitting sectors and companies with inadequate response to climate change may lead to customer outflow

・ Physical risk (Acute): Increased the risk of default and credit costs due to impairment of collateral value may arise.

＜ Addressing risk reduction ＞
SBI Shinsei Bank qualitatively has assessed the climate change-related risks of industries that are likely to be affected by climate change. In addition, SBI Shinsei Bank Group prioritizes each industry and asset type based on the results of the qualitative assessment and the size of the exposure, to dig deeper into the risks through quantitative analysis, etc.
SBI Shinsei Bank Initiatives for Climate Change Issues

【Climate change-related opportunities】

SBI Group considers its contribution to solving environmental and social issues through the provision of diverse solutions in each of the Group's operating companies as a new business opportunity, with the objective of realizing a decarbonized society.
In the main businesses, the value of companies whose businesses contribute to decarbonization through the shift to renewable energy and the transition to a circular economy as well as companies whose businesses contribute to disaster prevention and mitigation due to the severity of extreme weather events is expected to increase in society as a whole. We recognize that this will open up new business opportunities for the Group.

Opportunities relating to the securities business

Opportunities relating to the Investment business (Private Equity)

Opportunities relating to the Banking business (SBI Shinsei Bank)

* Assumes a timeline of 0-3 years for short term, 4-10 years for medium term, and 11-20 years for long term

［Financial Impact Forecast for FY2030 (Compared to FY2020 / Securities business and Investment Business) ］
As shown below, the financial impact upon consolidated earnings related to Group operations affected by climate change through the SBI Group's securities business and investment business is insignificant.

4℃ scenario: \66 million
1.5℃(2℃) scenario: \169 million
(For reference) SBI Holdings' profit before income tax expense was \412,724 million in FY2021.

【Financial Impact Forecast for FY2050 (Cumulative up to FY2050 / Banking Business) 】
SBI Shinsei Bank estimates the financial impact as below.

Physical risk: Cumulative credit cost impact of around \5.5 billion to \9 billion
Transition risk: Cumulative credit cost impact of around \6.5 billion to \28 billion

Based on the estimated financial impact, SBI Group will strive to minimize the risks and maximize the opportunities arising from climate change, and to resolve environmental and social challenges, such as the realization of a decarbonized society, through diverse solutions offered by each Group company. Examples of specific initiatives are as below.

+ Support for the issuance of social impact bonds including green bonds (SBI SECURITIES)
+ Sustainable Finance/Impact Finance (SBI Shinsei Bank)
+ Sustainablility Deposits (SBI Shinsei Bank) (Japanese only)
+ Selecting investee companies based on SDGs (SBI Investment)
+ Spread renewable energy and stimulate regional development (SBI ENERGY)

We will continue to analyze the risks and opportunities that climate change might bring to the SBI Group's business, and endeavor towards realization of a sustainable society and further increasing social value through our business activities.

The SBI Group identifies risks and opportunities related to climate change, while recognizing inadequate response to issues of climate change, among others, as a key strategic business risk that could significantly impact its operations. As a constant framework for risk management, in order to provide proper assessment and management of risks including climate change, which has the possibility of obstructing business activities, the Company has designated an officer in charge of risk management at the Group level and has established a Group Risk Management Department, so that it can carry out integrated risk management.

Risks recognized by the Group Risk Management Department as originating from climate change.

1. Credit risk (risk of incurring losses due to the worsening of financial conditions for investees and loan recipients, resulting in a fall in value or loss of lending and investment assets)

2. Market risk (risk of incurring losses due to changes in interest rates, stock prices, foreign exchange rates, real estate value, etc.)

3. Operational risk (risk of incurring losses related to inadequate or non-functioning internal processes, people, and systems, or from the occurrence of external events as well as reputational risk)

4. Liquidity risk (risk of incurring losses when necessary funds cannot be secured due to worsening financial conditions of the SBI Group or when funds can only be procured at interest rates significantly higher than normal)

The effects induced by these and other risks are integrated into a comprehensive risk management framework where, in collaboration with the Sustainability Promotion Office, identify risks and handle them in depth. Moreover, when new climate-related risks are anticipated or materialize, methods are established for handling and managing such risks at the department or company where they occur, and appropriate monitoring is conducted by the Group Risk Management Department, and information is shared with the Sustainability Promotion Office.

In the future, the Company will continue to conduct scenario analysis in greater depth across the Group and construct an integrated assessment and management system covering the quantification of climate change risks and the impact of climate change upon the entire SBI Group.

For climate-related opportunities, the SBI Group has identified business expansion in operations that contribute to decarbonization and business areas related to disaster prevention and mitigation as well as business opportunities related to the growing preference for ESG investments. In addition to examination by frontline departments, the Group Risk Management Department carries out checks to ensure that no "greenwashing" takes place when examining these investments and loans.

Moreover, the investment (private equity) business does not invest in companies with operations in tobacco, pornography, fossil fuels such as oil and coal, arms manufacturing, or in other companies whose environmental and social impacts, including climate change, are of concern. These exclusions are determined based on the United Nations Global Compact, International Labor Organization, and other regional and global agreements. Investment decisions are made after undergoing checks by people in charge on the front lines and the investment committee that screens investments, so products and work of investee companies do not fall under any of the items in the agreements.

In July 2021, the SBI Shinsei Bank Group established the Responsible Investment and Lending Policy with the aim of upgrading its system for promoting responsible investment and financing. We regard business transactions with companies that do not give appropriate consideration to environmental and social issues as a management risk, and we prohibit or restrict transactions based on the recognition that there are serious risks to the environment and society with respect to investments and loans for some specific businesses.
From the perspective of responding to climate change, based on a precautionary approach, we will not make new investments and loans for the construction of new coal-fired thermal power plants, and we will reduce the amount of investments and loans for coal-fired thermal power plants.

Toward the realization of a decarbonized society, while making extra efforts to resolve environmental and social issues through each SBI Group company, the Company expects that there will be a further increase in climate-related risks and opportunities. While discussing response plans for each sector, including businesses related to renewable energy, we will enhance the risk management system as it pertains to climate-related opportunities in greater depth.

SBI Group recognizes the importance of contributing to confining the rise in global temperatures to within 1.5°C compared to the Industrial Revolution, in line with the targets set out in the "Paris Agreement", the international framework for global warming, and is working to visualize GHG emissions within the Group.
Towards realizing the national target of carbon neutrality by 2050, the SBI Group targets net zero GHG emissions (Scope 1 and Scope 2) by FY2050. Its interim target is a 33% reduction by FY2030 (compared to its FY2018 levels). In addition, we have begun calculating Scope 3 emissions for each category in order to understand the scale of the Group's Scope 3 emissions.

＜ Towards achieving GHG emission reduction targets＞
The Group's GHG emissions increased sharply in FY2021 due to the acquisition of SBI Shinsei Bank Group as a subsidiary in December 2021. Although SBI Shinsei Bank Group accounts for approx. 90% of the SBI Group's GHG emissions in FY2022 (total of Scope 1 and Scope 2), SBI Shinsei Bank Group has a goal of achieving net zero emissions by FY2030.

Izumi Garden Tower, where SBI Holdings has its offices, is promoting energy conservation and pursuing a change in contracts to have electricity generated from renewable energy with Non-Fossil Fuel Certificate.*1 Since April 2022, the majority of the offices used by SBI Group have switched to green power.*2 The Company will continue to consider initiatives that will further contribute to reducing GHG emissions.
SBI Shinsei Bank Group is also reducing its power consumption by promoting energy conservation and pursuing a change in contracts to have electricity generated from renewable energy with Non-Fossil Fuel Certificate.*1 in its office buildings as well as integrating data centers and shifting to cloud computing.
SBI Shinsei Bank Group has set the target of achieving net zero GHG emissions*3 from its investment and loan portfolio companies by the end of FY2050. At the same time, the actual GHG emissions are calculated in accordance with the international standards published by PCAF *4. In FY2022, SBI Shinsei Bank also measured its investment and loan portfolio GHG emissions for a portion of the business corporation and residential mortgage loans, in addition to project financing and real estate non-recourse financing. In the future, SBI Shinsei Bank plans to gradually expand the number of target assets and improve calculation accuracy.
In addition, SBI Shinsei Bank sets a target of achieving zero loan balance for project finance for coal-fired thermal power generation by the end of FY2040.

SBI Group will continue to consider initiatives that will further contribute to reducing GHG emissions.

SBI Shinsei Bank Initiatives for Climate Change Issues