Climate Change Initiatives

Our Approach to Climate Change

As a result of increasing natural disasters and extreme weather events caused by climate change, our business operations may be affected due to physical damage to sales offices and communication systems at our Group companies.

The Paris Agreement came into effect in 2016 and the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) adopted the Glasgow Climate Agreement in 2021, which pursues efforts to limit global warming to within 1.5℃, compared to pre-industrial levels. As a result of the long-term targets being set, countries have submitted national targets for reducing greenhouse gas emissions to the United Nations and are taking action to achieve them. The government of Japan has also declared carbon neutrality by 2050, aiming to realize a decarbonized society, and is promoting various measures centered on strengthening renewable energy.

The AEON Group has tackled climate change issues that may have a major impact on the global environment and human society from an early stage and declared the AEON Decarbonization Vision which aims to reduce CO2 emissions at stores to zero by 2040.

In November 2021, Aeon Financial Service Co., Ltd. (hereinafter "the Company") announced its support for the Task Force on Climate-related Financial Disclosures (TCFD) and clarified its policy on addressing climate change to promote management that contributes to building a sustainable society.

Governance

(1)Sustainability-related Oversight Framework

With the aim of increasing the company's corporate value, the Board of Directors is committed to prompt and appropriate decision-making. Important matters related to sustainability, such as the formulation and revision of the Sustainability Policy and the formulation of medium- to long-term and annual action plans, are matters to be resolved by the Board of Directors after deliberations by the Sustainability Committee. The Board of Directors provides necessary guidance and advice to relevant parties on important matters related to sustainability. In addition, the Sustainability Committee executes matters entrusted by the Board of Directors in cooperation with the Sustainability Subcommittee and reports them to the Board of Directors.
The Company has established the Management Policy Committee as a decision-making organ for the business execution of the Company and its Group. Also, the Company has established the Internal Control Committee, which comprehensively and professionally discusses and decides on matters related to the development of internal control systems, as well as ensures proper and efficient operations.
The Company has also established the Corporate Management Division for the purpose of overseeing risk management of each Group company. The Division assesses the risks in the Group's business and evaluates the likelihood of risk events and their impact on management, and then comprehensively determines significant risks. Regarding the management of each risk, a risk management plan is made for each fiscal year, deliberated by the Internal Control Committee and decided by the Board of Directors. The Internal Control Committee and the Board of Directors monitor the implementation status of these risk management plans on a monthly basis whereby actions to recommendations are analyzed, examined and discussed.

(2)Sustainability-related Execution Framework

① Sustainability Committee

The Company has established the Sustainability Committee with the aim of pursuing sustainable management and maximizing corporate value.
The Sustainability Committee is chaired by the Director and General Manager of Corporate Planning Division and is composed of full-time directors and related exective officers. In principle, the meeting is held biannually, with the full-time Corporate Auditor, General Manager of Audit Division and Presidents of group companies in Japan and overseas as members.
The Sustainability Committee enforces governance on sustainability issues of the Group from a social perspective and determines the Group's corporate sustainability strategy and policies. The Sustainability Committee evaluates and deliberates on specific sustainability-related targets and measures as laid out in action plans, and then tracks progress of the Group's initiatives by continuously monitoring and following up on, by giving guidance and advice on said initiatives. Furthermore, in order to respond to company-wide sustainability issues, the Committee supervises and supports the implementation plans of the Company's divisions as well as Group companies' and comprehensively and professionally reviews and consults on sustainability matters.

② Sustainability Subcommittee

In order to pursue specific action plans surrounding sustainability-related targets and measures as a Group, we have established a Sustainability Subcommittee under the Sustainability Committee. In addition to promoting the effective use of resources via business activities through business model transformation, we work together with customers and local communities to decarbonize through products and services provided by the Group. In addition, we will raise the awareness of environmental conservation among each of our Group companies' directors and employees and encourage taking self-proclaimed initiative.
In principle the Sustainability Subcommittee is held quarterly, with the Director in charge of Sustainability Department as the Chairperson. Members include the division heads of the Company's related divisions and Sustainability managers appointed by each Group company.

③ The Strategy and Sustainability Department

The Strategy and Sustainability Department has been established with the aim of strengthening the Group's sustainability initiatives in an integrated manner with our management strategy. As the secretariat of the Sustainability Committee and the Sustainability Subcommittee, the Department gathers internal and external knowledge on climate change and other related issues, oversees and supports company-wide examinations and the implementation of countermeasures by group companies.

Sustainability Execution Framework

Sustainability Execution Framework

Strategy

The Group pursues sustainability management with the aim of realizing a sustainable society in which everyone can live a content and happy life and contribute to peace. In November 2021, we identified material issues that affect our business over the medium to long term. By systematically classifying these into four areas: "pursuing happiness through innovative financial services," "exerting diversity and the potential of our people," "establishing organizational resilience," and "addressing climate change," we set indicators and create a roadmap to specifically take action on them. In particular, recognizing that "addressing climate change" has a significant impact on the lives and health of our customers, local economies, and social development, we expressed our support for the Task Force on Climate-related Financial Disclosures (TCFD) in November 2021, and will strive to ensure resilience through governance, strategy, and setting targets to build a decarbonized society.
First, as part of managing climate change-related risks, we conducted scenario analysis of climate change-related risks and opportunities based on two scenarios, the 1.5℃ scenario and the 4℃ scenario, with the aim of assessing the impact of climate change on the Group's businesses. Specifically, medium to long-term risk items stemming from climate change were organized into transition risks, physical risks and opportunities. Then, the impact of each item on the Group was assessed and those identified to have a significant impact were designated as "serious risk/opportunity items." Each item was then organized in a short-, medium-, and long-term framework according to the time horizon in which it is expected to have an impact.

(1)Recognition of risks and opportunities associated with climate change

① Awareness of risks

The outline and major impact of risk events which the Group assumes based on various transmission channels are as follows.

■Transition risks

Transition risks are those posed by changes in climate change policies and regulations, technological development, market trends, market assessments, and other factors. In the transition to a decarbonized society, changes in laws and regulations, such as the introduction of carbon taxes and preferential treatment for renewable energy and electric vehicles, could have financial implications due to soaring tax burdens and energy prices, increases in credit-related costs, and increased funding costs. In addition, if we are reluctant to address sustainability issues, including climate change, it could lead to a loss of market trust and a decline in corporate value.

■Physical risks

Physical risks refer to acute or chronic damages due to disasters caused by climate change. Flooding due to extreme weather conditions may cause direct damage to assets of customers, employees, store branches etc. In addition, there is a risk of difficulties to maintain financial infrastructure services, such as credit cards and banking systems being disrupted, and increased costs for recovery and countermeasures.

② Recognition of opportunities

In realizing a decarbonized society, it is expected that large-scale business equipment needs will emerge as well as heightening of environmental awareness. The Group believes that business opportunities will increase through the provision of new financial services that take into account the environmental impact on customers, including loans for decarbonization-related equipment, housing loans, and leasing. In addition, the use of renewable energy and switching to low-carbon materials can benefit the company in terms of cost savings and increased revenues.

(2)Scenario analysis

Significant climate change-related risks/opportunities and their impact levels for the Group identified by scenario

Classification
Level 1
Classification
Level 2
Classification
Level 3
Impact Time Horizon 1.5℃
scenario
4℃
scenario
Transition
Risks
Policy and Regulation Introduction of Carbon Tax Tax increases due to Carbon Tax Short to long-term large medium
Market Rising renewable energy prices Increased energy costs due to renewable energy procurement Short to long-term large medium
Physical
Risks
Acute Severe natural disasters such as typhoons and floods Damage to infrastructure, facilities and equipment
Increased costs, increased debt collection risk in business operation regions, increased insurance premiums, and reduced availability of insurance products
Medium to long-term medium large
Chronic Average temperature rise, sea level rise medium large
Opportunities Energy Introduction of carbon tax Reduction of impact of carbon tax introduction by GHG emission reduction (e.g., issuing Aeon Cards using recycled PVC materials, office relocation to energy-efficient buildings) Short to long-term large medium
Products and Services Increased demand for products related to climate change Increased revenues from new product development and sales (e.g., home loans for decarbonized housing (ZEH) and car loans for electric vehicles (EVs) Medium to long-term large medium

Risk Management

The Group is conducting risk management sophistication with the aim of maintaining the soundness of management by evaluating various risks, including climate change, by risk category and appropriately managing them while comparing and contrasting with management strength. In the course of this effort, a series of risk management processes consisting of "risk identification and evaluation," "evaluation of controls," and "risk assessment" were established.
In climate change risk management, we conduct forecasting analysis using multiple scenarios such as the "1.5℃ scenario" and "4℃ scenario" to identify and evaluate climate change-related risks and opportunities affecting the Group. In order to reflect the identified risks and opportunities in the Group's business plan, the scale and scope of the potential impact on business units are evaluated through discussions at the Sustainability Subcommittee, under the direction and supervision of the Sustainability Committee.

Climate Change-related Risk and Opportunity Assessment Process

Under the framework of "physical risks," "transition risks," and "opportunities" identified in the TCFD recommendations, the Group comprehensively extracted risk and opportunity items that are considered to be related to the Group's business. On top of that, we assessed the identified risk and opportunity items and divided them into three categories: "Large: particularly significant (impact expected on the Group's main business)," "Small: those that do not have a significant impact on the Group's business," and "Medium: medium: neither large nor small," and evaluated the importance of each risk and opportunity to the Group.
In addition, we are assessing the various risks that the Group may face by each risk category, taking a holistic view based on the most consistent approach possible, and promoting risk management with the aim of contributing to the achievement of more reliable and continuous business results. In order to facilitate this, the Group Risk Management Division has been established as the unit responsible for the Group's risk management. The Internal Control Committee comprehensively examines and deliberates on matters related to the Group's overall risk management, and regularly reports on the status of risk management to the Board of Directors, which monitors the status and deliberates and decides on important fundamental matters related to risk management.
The Group categorizes risks arising from its operations into "credit risk," "market risk," "liquidity risk" and "operational risk" by risk factor and manages these risks according to their characteristics. Recognizing that climate change affects multiple of these risk categories, we have established a framework to comprehensively assess the risks, opportunities, and potential impacts identified in scenario analysis along with other risks by incorporating the results of analysis into the company-wide risk management framework.

Metrics and Targets

The Group measures and ascertains greenhouse gas (GHG) emissions in order to assess and manage climate change-related risks and opportunities. Going forward, we will set targets and indicators to reduce the environmental impact associated with our business activities in order to contribute to the reduction of GHG emissions worldwide.

① Major climate-related indicators in the Group

             
Indicators FY2020 ResultsFY2021 Results FY2022 Results FY2023 ResultsChange
GHG emissions across the Group(Scope1, 2) 15,828 tons16,373 tons 14,455 tons 12,059 tons △2,395 tons
Ratio of hybrid vehicles to sales vehicles 49.29% 43.90% 53.11% 34.04% △19.06%
Credit card statement Web statement ratio Domestic 79.00% 83.97% 85.12% 85.92% 0.81%
Global 64.69% 89.29% 24.60%
Total 79.00% 83.97% 78.48% 87.03% 8.54%

② Greenhouse gas (GHG) emissions by the Group
(Scope1, 2)

Item FY2020 Results FY2021 Results FY2022 Results FY2023 Results Change
Scope1 (Direct emissions from fuel consumption) 2,598 tons 3,332 tons 2,783 tons 2,458 tons △235 tons
Scope2 (Indirect emissions from electricity use) 13,230 tons 10,786 tons 9,377 tons 8,072 tons △1,305tons
Scope1 and Scope2 Total 15,828 tons 14,118 tons 12,160 tons 10,620 tons △1,540 tons

(Scope3)

    
Item FY2020 Results FY2021 Results FY2022 Results FY2023 ResultsChange
Emissions resulting from credit card paper statements Domestic 15,695 tons 12,037 tons 11,421 tons 11,182 tons △239 tons
Global 13,043 tons 4,129 tons △8,914 tons
Total 15,695tons 12,037tons 24,464tons 15,311tons △9,153tons
Emissions pertaining to printer use (upstream and downstream) 400tons 287tons 370tons 239tons △132tons
Emissions related to the operation and maintenance of data centers ※ 4,703 tons 4,794 tons 4,534 tons 4,729tons 195tons

・The Group calculates GHG emissions in accordance with the GHG protocol methodology.
※ The following group companies are included in the aggregation.

※ Other than the scope of aggregation includes the following group companies