JAPAN POST BANK : Sustainability Progress Report

Sustainability Progress Report

2024

June 2024

2/18

Contents

Message from the President	3
Japan Post Bank's Progress To Date	4
Enhancement of the Sustainability Management Framework
Strengthening the Organizational Structure	5
Incorporation of ESG Evaluation Items into Executive Compensation	6
Human Capital Management	7
Initiatives Towards Achieving Net Zero Emissions
Impact of Climate Change on the Bank	8
Roadmap	9
Japan Post Bank Emissions (Scope 1+2)	10
Finance Portfolio Emissions (Scope 3)	11
Activities as an Institutional Investor
Promotion of ESG-themed Investments and Financing, Etc.	12
Positive Impacts of Investments and Financing	13
Engagement with Investees	14
Investment and Financing Policy	15
Balancing Corporate Value Enhancement and Solutions to Social Issues
Respect for Human Rights	16
Natural Capital & Biodiversity	17

Links to References

18

3/18

Message from the President

Sustainability Management: Our approach to finding solutions to social issues as well as enhancing corporate value

Takayuki Kasama

Director, President and

Representative Executive Officer

This report summarizes the progress of Japan Post Bank's sustainability initiatives, primarily the progress made in FY2024/3. While we have been providing detailed and comprehensive information on our Sustainability Website and through various disclosures, this report is our first undertaking to present a focused overview of the background and recent progress of our initiatives to our institutional investors and other stakeholders.

As climate change remains a crisis issue that demands urgent action, with global temperatures continuously reaching all-time highs, we recognize we have an important role to play as a bank that provides services throughout Japan and as one of the country's largest institutional investors. Based on this recognition, we have set a new interim emissions target (FY2031/3) for the entire finance portfolio, and we have raised our target for the balance of ESG-themed investments and financing, to aim for 7 trillion yen by March 31, 2026. Moreover, we are committed to responding promptly in a manner required of us with respect to not only climate change but other social issues as well, as demonstrated by the publication of our first Human Rights Report in April 2024.

Since joining Japan Post Bank, I have been involved in market investment operations, mainly credit investments, and have conducted analyses of many companies. As such, I can say that we are pursuing these sustainability initiatives with the conviction that they will contribute to the enhancement of the Bank's corporate value over the long term. In the revision of the Medium-term Management Plan announced in May 2024, sustainability management is described as a management strategy itself, and is positioned as an approach for controlling the cost of shareholders' equity through stable and transparent business operations.

The Bank will continue to promote sustainability management with the concurrent objectives of finding solutions to social issues and enhancing corporate value, thereby contributing to the realization of a sustainable environment and society together with our stakeholders.

4/18

Japan Post Bank's Progress To Date

Since endorsing the TCFD recommendations and developing a basic policy on ESG in 2019, the Bank has continuously promoted initiatives related to sustainability, including climate change mitigation measures. In particular, we have accelerated our efforts since we declared in 2022 that we will achieve net zero GHG emissions by 2050.

2019

2020

2021

2022

2023

2024

	Endorsement of		Establishment of
	TCFD		the ESG Promotion
	recommendations		Office (currently the
	Revision of the		Sustainability
		Promotion Office)
	Japan Post Bank		within the
	Environmental		Corporate Planning
	Policy		Department

• Establishment of the ESG Investment Policy (currently the ESG Investment and Financing Policy)
• Establishment of the Human Rights Policy

• Clarification of the identification of priority issues (materiality) and ESG management in the Medium-term Management Plan
• Establishment of the Basic Sustainability Policy
• Participation in climate change response operations
• Target set for the balance of ESG- themed investments and financing (¥2 trillion)
• Publication of the Sustainability Report (formerly CSR Report)

• PCAF membership
• CDP signatory
• Announcement of
  Japan Post Bank's net zero GHG emissions declaration
• Interim target set for the Bank's emissions volume
• Disclosure of finance portfolio GHG emissions
• Revision of the target for the balance of ESG- themed investments and financing (¥4 trillion)
• Publication of TCFD Report

	UN Global		Publication of Human
	Compact signatory		Rights Report
	Revision of the		Revision of the
	interim target for		target for the
	the Bank's		balance of ESG-
	emissions volume		themed investments
			and financing (¥7
			trillion)
			Interim targets set
			for the finance
			portfolio (entire
			portfolio)
		 Publication of	This
			the Sustainability report
			Progress Report

Enhancement of Management Framework	Initiatives Towards	Activities as an Institutional Investor
	Achieving Net Zero Emissions

Strengthening the Organizational Structure

Balancing Corporate Value Enhancement

and Solutions to Social Issues

5/18

Based on the recognition that management strategy and sustainability promotion go hand in hand, the Sustainability Promotion Office was established within the Corporate Planning Department in FY2021/3 to oversee the entire process, and the results of discussions held by the Sustainability Committee, which includes executives from all divisions, are reported to the Executive Committee and the Board of Directors.

In FY2024/3, the Working Group (WG) on Climate Change and Other Issues was established to further strengthen cooperation with each division and strengthen the Bank's response to various sustainability-related issues.

Governance structure

Main agenda items	Main agenda
items for
	FY2024/3

Sustainability promotion framework

Board of Directors

Discussions	Supervision
& reporting

Executive Committee

Chairperson: Takayuki Kasama

(Director, President and

Representative Executive Officer)

Discussions	Issues directives
& reporting

Sustainability Committee

Chairperson: Harumi Yano

(Representative Executive Vice

President*)

Discussions	Issues
& reporting	directives

Corporate Planning

Department

Sustainability Promotion Office

Reporting

Confirmation

Each department in charge

	• Management conscious of cost
	of capital, etc. (continuous
	improvement of ROE and PBR)
Board of	• The revision of the Medium-term
Directors	Management Plan (accelerate
	transformation to a sustainable
	business model and promote
	human capital management)
	• The revision of the Medium-term
	Management Plan, sustainability
Executive	management
Committee	• Annual sustainability plan
	• System for promoting measures
	to address climate change
	• Details of investments and
	financing to be actively pursued,
	and emissions levels and
Sustainability	method of setting interim targets
for investees and borrowers
Committee
• Method of confirming human
	rights risks at the time of
	contracting and in investment
	and financing decisions

President and Representative

Executive Officer

Corporate Administration

Division

Corporate Planning

Department Established

April 2020

Sustainability Promotion Office

Public Relations

Department

Financial Accounting

Department

Research Department

：

Risk Management Division

Risk Management

Department

Credit Department

Investment Division

CIO Office

Global Credit Investment

Department

：

Regional Relations Division

Regional Relations

Management Department

Investment Business

Promotion Department

Established

October

2023

WG on Climate

Change and Other

Issues

(Secretariat)

Sustainability Promotion

Office

Disclosures, Etc.

Compliance with

statutory disclosure requirements, etc.

Risk

management

Scenario analyses,

etc.

Investment &

financing

ESG investment and

financing policy

Emissions of investees and borrowers

Engagement

* Executives' job positions are current as of the time of publication

：

Enhancement of Management Framework	Initiatives Towards	Activities as an Institutional Investor	Balancing Corporate Value Enhancement
	Achieving Net Zero Emissions		and Solutions to Social Issues

Incorporation of ESG Evaluation Items into Executive Compensation

6/18

In promoting overall management and the operations of each department, the Bank has reflected the promotion of sustainability management in the compensation of executive officers since FY2022/3, from the perspective of providing sound incentives not only from the short-term perspective of single fiscal year performance, etc., but also for efforts towards the Bank's sustainable growth over the medium to long term.

The evaluation items will be reviewed each fiscal year as necessary in response to changes in the external environment and the Bank's internal environment.

Compensation system for executive officers (FY2024/3)

					Payment	Payment
Type	Payment standard				time	method	Composition*
Base salary	Fixed amount of compensation based on job responsibilities	Monthly	Cash	66％
	Performance-linked compensation (0-150％)		At	Shares	34％
	Reference points	Performance-linked indicators	retirement	70％
				Net income		Cash
	Basic points			OHR/G&A expense reduction		30％
	Awarded on basis of			Retail Business
	prescribed duties		Quantitative	Market Business

• Business (a corporate business for creating futures for societies and local
  communities through investment)

Stock	Evaluation				ESG
points
compensation	Awarded on basis of		Qualitative		Corporate value enhancement initiatives
	individual evaluation				IT system problems, etc.
	Reflects the status of promotion of sustainability management
	Market Business	Balance of ESG-themed investments and financing
	Σ Business	Number of investments in local revitalization funds
		External evaluation by major ESG rating agencies, percentage
	ESG	of female managers, etc.		Added in FY2024/3
		Percentage of male employees taking childcare leave
	Corporate value	Initiatives on non-financial indicators, including	Added in FY2024/3
	enhancement initiatives	human capital management

• Composition of compensation for all executive officers (performance-linked stock compensation is calculated by multiplying the points granted based on FY2024/3 results by the stock price on the date the points are granted for those in office and by the stock price on the date of retirement for those who retire).

Enhancement of Management Framework	Initiatives Towards
	Achieving Net Zero Emissions

Human Capital Management

Activities as an Institutional Investor

Balancing Corporate Value Enhancement

and Solutions to Social Issues

7/18

We have established KPIs based on a quantitative understanding of the gap between "the situation as it is" and "what we want it to be," as well as a human resource strategy linked with our management strategy and Medium-term Management Plan. In response to changes in the external environment, we have set new KPIs, such as for the "number of expert market operations professionals" and "overall employee satisfaction rate."

In addition, we are implementing a cross-organizational initiative to reform our organizational culture with the aim of creating a more comfortable and rewarding workplace. At the same time, we recognize the importance of further analyzing each employee's contribution to corporate value and how employees contribute.

Human resource strategy

Missions

Management strategy

Human resource strategy［ Three pillars｜KPI ］Revised in May 2024

Our vision of	Individuals who share Japan Post's purpose, management philosophy, and
missions, and who are willing to take on the challenge of financial innovation while
human capital
learning to understand change and aspire to achieve it.

Reform of the organizational culture

The "Voice of the Employee" subcommittees (Culture Reform PT and Productivity Improvement PT) have been established under the umbrella of the Service Improvement Committee, which is overseen by the President and Representative

Encourage

growth

Encourage professional development and growth through challenges driven by each employee's passion and energy

Nurture self-motivated

employees

Actively recruit professionals

	KPIs
Number of market	105
operation
professionals
DX training	100%
attendance Ratio
Number of Career	100 or
Challenge	more
applicants

Discover

abilities

Provide opportunities and an environment that brings out the best in each employee to enhance job satisfaction

Strategic allocation of

human resources

Improve engagement

	KPIs
Overall employee	70% or
satisfaction rate	higher

Effectively

utilize diversity

Create a corporate culture that respects the diverse values of each employee and treats them as a source of power within the organization

Diversity management

	KPIs
Ratio of women	20%
in managerial
positions
Rate of employees
taking childcare	100%
leave (regardless
of gender)
Rate of employees	3.0% or
with Disabilities	higher

Executive Officer.

The aim is to maximize organizational results by creating a better and more rewarding workplace.

To this end, in cooperation with related departments, we are working to strengthen communication between organizations and among employees, improve productivity, etc.

Enhancement of Management Framework	Initiatives Towards	Activities as an Institutional Investor
	Achieving Net Zero Emissions

Impact of Climate Change on the Bank

Balancing Corporate Value Enhancement

and Solutions to Social Issues

8/18

As a bank that provides services throughout Japan and as one of the largest institutional investors in Japan, Japan Post Bank has taken on the responsibilities of ensuring a sustainable environment and society, and has been promoting initiatives to achieve net zero GHG emissions. At the same time, we have positioned climate change as one of the top risks in our risk appetite framework, based on our belief that climate change will directly impact the sustainability of the Bank's earnings and profits due to a decline in the prices of securities held and an increase in funding costs.

Risk appetite framework*

	Calculation of risk appetite		Preparation
	Recognition of the
	internal and external		Organize top risks
	environments
	Risk appetite policy			of
							risk
	Selection of risk
	appetite indicators,		Formulation of
	achievement of		various plans, etc.			appetite
	targets
							statement
				Business
	Risk taking
			execution

Monitoring	Status of control
of top risks

Review and discuss

Review risk appetite in response to changes in the environment, etc.

• A business management framework that uses risk appetite (the type and total amount of risk that a bank is willing to accept to achieve its business plan, taking into account the specifics of its business model) as a common language within the bank regarding overall risk-taking policies, including

capital allocation and profit maximization.

Main impacts of climate change on the Bank

Risk category	Transition risk	Physical risk	Time
frame
	As an institutional investor	As an institutional investor
Credit &	Decline in the prices of securities	Decline in the prices of securities
market	held due to deteriorating business	held due to deteriorating	Short to
performance of investees and	business performance of	long term
risk	borrowers resulting from their	investees and borrowers amid
	inability to adapt to the	extreme weather conditions.
	decarbonization of industry.
	As an institutional investor	As a business enterprise
Liquidity risk	Deterioration in the Bank's	Increase in the outflow of funds	Short to
reputation and increase in funding	due to stronger demand for	long term
	costs owing to delayed climate	funds from customers affected
	change response.	by extreme weather events.
	As a business enterprise	As a business enterprise
Operational	Losses result from the failure to	Extreme weather conditions
properly implement CO2 reduction	cause damage to the head office,	Short to
risk	measures in response to regulatory	sales branches, data centers,	long term
changes related to climate change,	and other facilities, resulting in
	fluctuations in renewable energy	damage to assets held and
	supply and demand, etc.	restoration costs.
	As an institutional investor	As a business enterprise	Short to
Reputational
External stakeholders come to view the Bank's efforts and disclosures	long term
risk	on climate change response and mitigation as inadequate, and the
	Bank's reputation deteriorates.

Enhancement of Management Framework

Roadmap

Initiatives Towards

Achieving Net Zero Emissions

Activities as an Institutional Investor

Balancing Corporate Value Enhancement

and Solutions to Social Issues

9/18

In March 2022, the Bank announced the "Japan Post Bank Net Zero GHG Emissions Declaration" and has been working to reduce GHG emissions.

Previously, the Bank had set an interim target for the electric power sector to be achieved by FY2031/3, but it has now set a new interim FY2031/3 target for portfolio emissions covering all sectors. In addition, the end-FY2026/3 target for the balance of ESG-themed investments and financing has been raised from ¥4 trillion to ¥7 trillion.

Roadmap for achieving net zero emissions

	Final year of
▼Net Zero	Medium-term	Interim
Management	Final target
Declaration	Plan	target

Fiscal Year

2019

2020

2021

2022

2023 …

2025

…

2030

…

Net zero GHG emissions

Accelerate efforts to achieve net zero

Target raised

Japan Post Bank emissions (Scope 1＋2)

4.8

4.4

4.3

2.4

March 2023

Vs. FY2020/3

[10,000 t-CO2]

Switch to renewable

energy

Increasingly adopt EV/HV vehicles,

See P.10

-60％

for the Bank's facilities

renewable energy

Finance portfolio emissions*1

Boost reductions through engagement

(Scope 3, category 15)

Absolute volume*2 [Mt-CO2]

48

47

New target

set

All sectors

Per unit of investment*2

May 2024

120

99

85

81

Vs. FY2020/3

[t-CO2/¥100 million]

See P.11

-50％

Contribute to solving social issues through ESG-themed

Financing to boost decarbonization

investments and financing

Target

raised

Balance of ESG-themed investments

1.2

2.1

3.2

4.6

May 2024

¥7 trillion

and financing (¥ trillion)

See P.12

Investment and financing using green bonds, etc.

Balance of financing for coal-fired

Maintain balance of zero

Investment &

power plant construction projects

See P.15

financing policy

revised April 2024

2050

Net zero emissions

*1 Finance portfolio emissions may be revised retroactively in the future if there is a change in the vendor acquiring the emissions data or the calculation method is improved.

*2 The absolute figures for FY2022/3 have been changed from those disclosed in the past due to the refinement of calculation methods, such as the expansion of the scope of investee and borrower companies (e.g., from non-consolidated to consolidated). In addition, the attribution factor used to obtain the values in the table above is calculated using corporate value based on book value(see p. 11 for details). The emissions of the finance portfolio, for which corporate value is calculated on a market value basis, are shown on the Sustainability website (see p. 18).

Enhancement of Management Framework	Initiatives Towards	Activities as an Institutional Investor
	Achieving Net Zero Emissions

Japan Post Bank Emissions (Scope 1+2)

Balancing Corporate Value Enhancement

and Solutions to Social Issues

10/18

Regarding emissions from the Bank's own business activities, we are striving to reduce emissions through the use of renewable energy at our independently owned facilities, etc., and succeeded in reducing emissions to approximately 24,000 t-CO2 in FY2023/3.

In March 2023, we raised our emissions reduction target from -46% to -60%, compared to the level in FY2020/3. We aim to achieve net zero emissions from our business activities by switching to EV/HV vehicles for our sales fleet and proactively pursuing other such initiatives.

Roadmap for Scope 1+2 emissions reductions

(10,000 tCO2) Scope 1 Scope 2

4.8

		4.4	4.3		Target raised
						March 2023
						Interim target
4.2				2.4	-60％ compared to FY2020/3
3.9	3.9	1.9
					1.9
									Net zero
0.6	0.5	0.4	0.4
			＋
									－
2019	2020	2021	2022	2030		2050
	Third-party certification acquired
			Switching to renewable
			energy for facilities		Planning to gradually switch from gasoline-powered vehicles
			independently owned by		(four-wheeled vehicles) for sales activities to EVs and HVs
			the Bank