Nature-Related Risk Assessment and Scenario Analysis

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.

Overall Nature Dependencies and Impacts in Portfolios

The figure below shows the relationships between nature dependences and impacts across our entire portfolio, projected sector-by-sector. The size of the circles represents investment and loan sizes. The graph confirms that the Bank has relatively high dependencies and impacts in sectors such as consumer staples, which is closely connected to agriculture, fishery and forestry (industries that are fundamental to the Bank’s business), as well as capital goods and services, which account for a large portion of our investments and loans.

Source: Created by The Norinchukin Bank

Impacts on Nature by Sector

Using up-to-date data from ENCORE that takes into account value chains, we attempted to perform a value chain analysis for the consumer staples sector. The results showed that for consumer staples, there is high dependency on agricultural products and food upstream, and high dependency on daily necessities and consumer services downstream in the value chain. Impact was relatively high for distribution services upstream, whereas downstream in the value chain, impact was relatively high (as was dependency) for daily necessities and consumer services.

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

Source: Created by The Norinchukin Bank

Analysis Including Value Chains of Investees and Borrowers

To understand the impact on nature across the value chain, we collaborated with aiESG Inc., a startup from Kyushu University. Focusing on the consumer staples sector—one of our material investment and lending sectors identified through ENCORE—we conducted a detailed analysis centered on sub-sectors within Japan’s consumer staples industry.
This fiscal year, we aimed to deepen our understanding of food-related supply chains by analyzing sub-sectors not covered in last year’s study, which included packaged foods & meat, soft drinks, distilled spirits & wine, agricultural products, and brewing. In addition to some upstream sub-sectors, we also focused on midstream distribution and downstream retail, analyzing various supply chains related to the procurement of goods in these sectors.

Nature-Related Scenario Analysis

Last fiscal year, we conducted an analysis focusing on the food and agriculture-related sectors—key industries within the food-agriculture value chain—using the IPR Forecast Policy Scenario + Nature (FPS+Nature), a scenario that enables integrated analysis of climate and nature-related risks. The results suggested that in Japan, the decline of pollinators poses a risk factor for the agricultural products and services sector, while in North America, increasing water risks are expected to heighten risks for water-intensive sectors. These findings confirmed that the degree of physical risk varies depending on regional differences in the state of nature.
This fiscal year, we interpreted the climate change scenarios from the NGFS (4th edition), which were used in climate-related scenario analysis, along with the nature-related narratives presented by TNFD in its “Guidance on Scenario Analysis,” and the future scenarios assumed by FPS+Nature. Based on the degree of transition and physical risks, we plotted each scenario and organized a depiction of the future worldviews related to climate and nature.

Source: Created by The Norinchukin Bank based on various sources

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).