Contribution to Climate Change Mitigation and Adaptation Based on TCFD Recommendations

The Norinchukin Bank

Publication date	September 29, 2022 (Posted on May 8, 2023)
Sector	Industrial and economic activities

Company Overview

Climate Change Impacts

There are increasing concerns about the impact of climate change on the domestic agricultural, fisheries, and forest industries which form the foundation of the Bank's business, which include the potential for the production of life-nurturing food, regional revitalization, and land conservation. We also recognize that the agricultural, fisheries and forest industries themselves burden the environment through greenhouse gas (GHG) emissions.

Adaptation Initiatives

The Bank expressed support in 2019 for the TCFD recommendations established by the Financial Stability Board (FSB). In FY2020, we assessed the risks that climate change poses to the Bank's operation (Fig. 1) by evaluating where and when transition and physical risks would occur, targeting sectors and other areas defined by the TCFD recommendations (Fig. 2). In FY2021, the Bank analyzed the effects of flood damage, which is an acute physical risk, and the impact of chronic risks on the volume of rice/livestock production and their product prices in the agricultural sector (Note 1). The summary of the results is provided below.

●Physical Risk (Acute Risk) Scenario Analysis: Flooding

We implemented scenario analysis for flood damage, which has caused heavy losses in recent years in Japan (Fig. 3). The analysis covers not only critical domestic sites of domestic lending clients but also the impact of flooding on domestic mortgage collateral that has been pledged for the Bank.

The accumulated total is expected to increase by about ¥5 billion in credit costs by 2050 if the impact of acute risks is summed up, resulting in limited impacts to the Bank’s credit portfolio.

●Physical risk (chronic risk) scenario analysis overview: rice cultivation, animal husbandry

We implemented scenario analysis for chronic risks in the agricultural sector, which is vital to the Bank. (Note 2, Fig. 4). We selected rice cultivation and animal husbandry (milk, beef cattle), for which there are numerous engaged farmers and high production volume, as analysis target items. In the analysis, while estimating the impact of higher air temperature due to climate change on production volume and product prices of the target items, we provisionally estimate the impact on revenue for producers conclusively. The results of the analysis are as follows.

	Rice cultivation	Milk	Beef cattle
Impact on production volume (temperature rise of 4°C)	The production volume nationwide would decrease 6.4% as air temperature will exceed the suitable temperature for rice cultivation almost all over the country.	Although seasonal differences would be considerable through the year and great impact would not be caused in winter, the hot environment in the summer would have adverse effects on milk production volume, reducing it by 4.0%. This would result in a slight reduction of 1.1% in annual milk production volume nationwide.	Fattening cattle will be affected by a temperature rise. Carcass production of Wagyu cattle would decrease 0.8% and that of domestic beef cattle by 1.6%, leading to a reduction in national production volume of 1.2%.
Impact on prices (temperature rise of 2°C)	The production volume nationwide would increase 3.3% as air temperature will remain at a suitable temperature for rice cultivation for wider regions centering on East Japan.	The precipitation factor would have almost no impact. The annual production volume would decline by only 0.2% due to the temperature rise. Milk production volume would decrease by approximately 1.0% in the summer in most regions nationwide, whereas milk production volume would remain unchanged during the winter and spring.	Carcass production of Wagyu cattle would decrease 0.2% and that of domestic beef cattle by 0.4%, leading to a modest decrease in national production volume of 0.3%.
Impact on prices (temperature rise of 4°C and 2°C)	Temperature rise of 4°C: The price of rice would increase 1.4% due to decreased production volume although rice quality (percentage of first-class rice) could deteriorate. Temperature rise of 2°C: The price of rice would decrease 1.6% due to increased production volume and a slight deterioration of quality.	The reduction in milk production volume due to temperature rise is expected to raise milk prices. Prices are expected to increase 0.9% with a temperature rise of 4°C and 0.2% with a temperature rise of 2°C.	The take-home price is expected to increase 0.6% with a temperature rise of 4°C and 0.2% with a temperature rise of 2°C , depending on the supply-demand factor and the effects of the Beef Cattle Fattening Management Stabilization Grant (so-called Ushi-Marukin system) (Note 3).
Impact on producers’ revenue (without adaptative measures)	Temperature rise of 4°C: the revenue associated with rice cultivation might decrease 5.0% at the end of the 21st century compared with that at the end of the 20th century due to a decline in production volume and quality deterioration. Temperature rise of 2°C: Revenue is expected to increase 1.7%, reflecting the expected expansion of appropriate land areas for rice cultivation.	The analysis shows that the revenue for milk producers would remain almost unchanged at the end of the 21st century compared with that at the end of the 20th century, with a reduction of 0.1% for a temperature rise of 4°C and of ±0.0% for a temperature rise of 2°C, at maximum. The impact of reduced milk production would be offset by the expected price rise.	The analysis shows that the revenue for overall beef cattle fattening would decrease at the end of the 21st century compared with that at the end of the 20th century with a reduction of 0.6% for a temperature rise of 4°C and of 0.2% for a temperature rise of 2°C , at maximum. A slight increase in revenue might be guaranteed for either scenario on Wagyu cattle, but there is a possibility that revenue could decrease 1.4% regarding other domestic cattle, at maximum.
Impact on producers’ revenue (adaptative measures implemented) (Note 4))	For a temperature rise of 4°C, revenue increased 3.5% nationwide (8.5% higher compared to the case where adaptive measures were not taken) by implementing two adaptive measures: 1) introducing high- temperature resistant varieties, and 2) moving forward the transplanting date of rice seedlings by 1–2 months.	We conducted analyses after assuming that fine-mist spraying equipment would be widely used and become more sophisticated as an adaptive measure to be implemented in milk production. The analysis shows that the application of this measure would restrict the impact of a temperature rise, thereby ensuring that revenue would remain unchanged.	We conducted analyses after assuming that fine-mist spraying equipment would be widely used and become increasingly sophisticated as an adaptive measure to be implemented in cattle fattening, just as with milk production. The analysis shows that the application of this measure would mitigate the impact of the temperature rise, thereby ensuring revenue would remain unchanged or increase slightly as with milk production.

Effects / Expected Benefits

Our response to climate change contributes to the development of the AFF industries, which is the mission of the Bank. We pursue efforts to mitigate and adapt to climate change through our business activities, focusing on climate-related opportunities and risk management.