Nature-Related Risk Assessment and Scenario Analysis：Sustainability：The Norinchukin Bank

Nature-Related Risk Assessment and Scenario Analysis

To understand our nature-related risks and opportunities, the Bank analyzed our dependencies and impacts throughout our investment and loan portfolios for business enterprises and conducted a trial scenario analysis. Analysis results confirmed the Bank dependencies and impacts are focused in the food-related and energy sectors. The food-related sector is closely intertwined with our foundation in agriculture, fishery and forestry industries, while the electricity sector compromises a large portion of our investments and loans.

Dependencies on Nature by Sector

The Bank ascertained four dependencies categories to understand overall dependencies on nature in our portfolios. These categories include land (e.g., soil quality and land stability), climate (e.g., climate regulation and pollution mitigation through the atmosphere), water (including groundwater, surface water, and oceans), and biodiversity (e.g., plant and animal habitats and pollination). (This analysis does not take into account the value chains of our investees and borrowers.)

(Note) Bar sizes on the left axis represent investment and loans amounts to the sector, while bar sizes the right axis represent exposure to each dependency level
Source: Prepared by the Bank

Impacts on Support by Sector

Business activities of our investment and finance clients may change (impact) natural capital and ecosystem services. Excessive negative impacts may lead to reputation risk for these clients and degradation of the natural source which found the business. Such risks may in turn lead to medium- to long-term financial risk. On the other hand, positive impacts may increase the value of nature and lead to sustainable business and positive result for stakeholders.
The Bank analyzed our portfolios for five root causes of changes to the natural environment (impact drivers) based on the TNFD recommendations. We utilized available portfolio data to analyze impacts from investee and borrower businesses. (This analysis does not take into account the value chains of our investees and borrowers.)

Source: Illustration created by the Bank based on TNFDv1.0

(Note) Box size is proportional to investment and loan amounts
Source: Prepared by the Bank

Analysis Including Value Chains of Investees and Borrowers

The Bank conducts joint research with aiESG, a start-up company from Kyushu University, to understand impacts on nature in our value chains. We targeted food-related sectors confirmed to have a high dependencies and impacts on nature in the analysis covering direct operations. Analysis of these sectors looked at the cumulative environmental impact upstream in the value chain (e.g., GHG emissions and amounts of water consumed and polluted starting in the meat sector, including upstream livestock production, feed production and manufacturing ).

Location-Oriented Risk Analysis

The Bank analyzed nature-related risks based on the location of the critical sites (e.g., factories) of our borrowers, as used in our analysis of physical risks associated with climate change (acute risk, flood risk). We mapped relationships between key sites of the borrowers and protected areas to visualize borrower locations that overlap with protected areas.
Analysis confirmed that the Bank manages our impact on water resources, forest resources, and local ecosystems within such locations (in other words, nature-related risks on the Bank from such exposure is limited).

Source: The Norinchukin Bank using ArcGIS

Nature-Related Scenario Analysis

The Bank conducted a trial analysis on qualitative scenarios related to nature using FPS+Nature, an integrated nature and climate scenario for investors. We summarized transition risks predicted through the analysis and evaluated the degree of physical risks assumed under the transition scenarios provided by FPS+Nature Physical risks were evaluated by region and over the medium- to long-term for parameters related to water scarcity and pollination, issues closely linked to the food and agriculture sectors. The results of this assessment confirmed the Bank faces potential additional costs associated with freshwater use and the risk of shutdowns due to water withdrawal restrictions, particularly in North America.

Source: The Norinchukin Bank based on IPR FPS + Nature

Integrated Approach to Climate and Nature

Analysis of Relationships Between Climate Change and Nature-Related Physical Risks

The Bank conducted an analysis from the perspective of natural capital and biodiversity. This analysis was also based on scenario analysis results of physical risk (acute risk) resulting from climate change. Sectors more dependent on water resources tend to face more physical risk due to tendencies to own important locations for factory buildings near rivers and coastal areas.
In addition to flooding and other disasters, climate change results in nature-related physical risks (acute and chronic risks), including groundwater depletion, changes in surface water, and water quality degradation. We will strive to leverage our understanding of investee and borrower climate- and nature-related risks in future discussions and solutions.

Conceptual Image of the Analysis (Heat Map of Drought Risk)

Source: The Norinchukin Bank using ArcGIS
Note 1 Green: Important locations in the food sector Gray: Important locations in other sectors
Note 2 n=283,287 (For factories and other important locations)

Analysis of Climate Change Impacts on Biodiversity

We analyzed nature-related risks based on GHG emission (financed emissions) information in our investment and loan portfolio. This analysis estimated the climate change impacts on biodiversity using the Life Cycle Assessment (LCA) method to calculate the Footprint Indicator (EINES indicator, an indicator of biological extinction risk).