Shiga Bank : MEASURES FOR CLIMATE CHANGE / GLOBAL WARMING

MEASURES FOR

CLIMATE CHANGE/ GLOBAL WARMING

Our Approach to Climate Change

Climate change and other global environmental changes, such as the increasing damage caused by abnormal weather, are having a major impact on economic activities and our daily lives. These changes have already become a significant risk to all humanity. Under these circumstances, governments and companies worldwide are accelerating their efforts to shift to a decarbonized society by reviewing their social and economic structures, which are dependent on fossil fuels.

The Bank has regarded responding to global warming, a factor of climate change, as one of the important management issues. We have begun setting targets for greenhouse gas emissions reduction in our Medium-Term Business Plan

in April 2004 and established the CSR Charter (Management Principles) featuring harmonious coexistence with the environment in April 2007. In October 2020, we established the Sustainability Policy that serves as a basic policy for management and also revised our Environmental Policy. Having thus renewed our recognition of the importance to respond to climate risks, we are working to create a sustainable society by establishing a "virtuous circle propelling the economy and environment forward" by fulfilling its role as a financial institution.

Shiga Bank's Sustainability Policy

We aim to enhance our corporate value by following our CSR Charter (Management Principles) based on our motto "Be tough on ourselves, kind to others and serve society," and to contribute to realizing a sustainable society through co-creation with regional communities.

1. Identifying materiality (priority issues) and solving local issues through business activities
   Identify materiality that will lead to sustainable development and prosperity for both Shiga Bank and regional communities and develop and provide products and services that help solve social issues. Also, promote the digitalization of regional communities and support the creation of problem-solving businesses to realize a sustainable society.
2. Management focusing on the social impact of business activities Strive to reduce the negative impact of our business activities on people and the environment while continuously expanding the positive impact. Place particular emphasis on the social impact of financial intermediation and create a virtuous cycle of money toward a sustainable society through dialogue with our customers.
3. Establishing a business model that contributes to the conservation and revitalization of the global environment
   Understand that the prosperity of regional communities, which is the foundation of our existence, is based on the benefits of nature, including Lake Biwa, and the sustainability of the global environment. Establish a business model that contributes to realizing a decarbonized society, the construction of a circular economy, and the conservation of biodiversity.
4. Respecting human rights and building relationships of trust with society
   Respect human rights and conduct honest and fair corporate activities based on high ethical standards. Also, build a strong relationship of trust by complying with laws and regulations, disclosing information fairly and accurately to stakeholders, engaging in two-way dialogue, and responding sincerely to the expectations and requests of society.
5. Developing human resources who can think and act on their own and improving the workplace environment
   Strive to develop human resources who can think and act independently, making the SDGs and regional social issues their own business. Aim to create a work environment for respecting diverse personalities and work styles, enhancing work-life balance, and having each employee fully demonstrate their abilities.

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TOP MESSAGE	ABOUT SHIGA BANK	MEASURES FOR CLIMATE	IMPLEMENTING THE PRINCIPLES	CHALLENGES FOR	POWERS SUPPORTING	FINANCIAL SECTION
CHANGE/GLOBAL WARMING	FOR RESPONSIBLE BANKING	VALUE CREATION	VALUE CREATION

Shiga Bank Environmental Policy: For a Sustainable Future of the Regional Society

As a local bank in Shiga Prefecture--home to Lake Biwa, an asset we hold in trust for the future--Shiga Bank is committed to contributing to the creation of sustainable regional communities by driving ESG finance, as well as working on initiatives for climate risk response and biodiversity preservation with a determination to protect the environment using the circulation of money.

1. Environmental conservation through business activities
   We will work together with the regional society on environmental conservation initiatives, including for Lake Biwa, through our business activities such as developing and offering financial products and services that promote efforts towards SDGs and ESG.
2. Initiatives to mitigate environmental impact
   As an Eco-First Enterprise, we will drive efforts to reduce environmental impacts of our business activities, such as the use of sustainable energy, recycling, waste reduction, pollution control, and green procurement.
3. Compliance with relevant environmental laws
   We will comply with environmental laws and regulations and work to translate SDGs, Paris Agreement and other social needs into corporate activities.
4. Governance and management systems
   We will build a system that allows steady implementation of efforts to realize sustainable society, keep the leadership team regularly informed of the state of our environmental initiatives, formulate strategies and set goals that take into account environmental risks and opportunities, and thereby ensure appropriate management.
5. Full participation and information disclosure
   We will publish our Environmental Policy and readily disclose the state of its implementation, in addition to making it thoroughly known across the Bank and by all who work for the Bank and raising awareness for the policy so that it is put into action by each person.

Timeline

1999 Established the Environmental Policy

2000 Acquired ISO 14001 certification

2001 Signed the United Nations Environment Programme Finance Initiative (UNEP FI)

2004 Established the CSR Committee

Set targets for greenhouse gas emissions reduction in the Medium-Term Business Plan

2007 Established the CSR Charter (Management Principles)

2010 Revised the Environmental Policy (first revision) Established the Policies for Biodiversity Preservation

2017 Announced the Shigagin SDGs Declaration

2018 Announced support for TCFD Recommendations

2020 Signed the Principles for Responsible Banking Established the Sustainability Policy

Revised the Environmental Policy (second revision) Reorganized CSR Committee into Sustainability Committee

2021 Adopted the achievement of Shiga Prefecture's "Shiga CO2 Net Zero" emissions target as one of the Bank's long-term vision challenges

2022 Announced endorsement of GX League Basic Concept of the Ministry of Economy, Trade and Industry

Published the results of scenario analyses of transition and physical risks

SHIGA BANK REPORT 2022

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MEASURES FOR CLIMATE CHANGE/GLOBAL WARMING

Responding to TCFD Recommendations

Having announced its support of the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in July 2018, the Bank has been disclosing information in line with the TCFD Recommendations since fiscal year 2019, with a view to building engagement with shareholders, investors and a wide range of other stakeholders through such disclosure. We will continue working to improve disclosure and lead the decarbonization efforts of regional communities. The current state of response to the Recommendations are outlined below.

Governance (Governance of climate-related risks and opportunities)

Recognizing that climate change and other environmental and social challenges are important matters concerning its management, the Bank discusses these matters at the meetings of the Board of Directors and reflects the outcome in its management strategy and risk management. Specific measures and initiatives are discussed at the Sustainability Committee chaired by the President, the content of which are reported to the Board of Directors at least once a year. The Board of Directors is fully prepared to execute appropriate supervision on matters reported such as the state of greenhouse gas emissions reduction.

The Sustainability Committee meets three times a year with Management Meeting members, General Managers of each department and office, and presidents of associated companies as Committee members. The Committee deliberates on policies and plans for addressing medium- to long-term ESG challenges, including such matters as identifying priority issues (materiality), developing Sustainability Vision, examining measures to be taken by departments based on the Sustainability Policy, setting environmental goals based on ISO 14001, conducting scenario analysis in accordance with TCFD Recommendations. Matters of significance are reported to the Management Meeting (Executive Committee) and the Board of Directors.

Board of Directors

Report		Supervise
Executive Committee
Sustainability Committee
	Expand
Departments/offices, Group companies	Cooperate	Sustainable Strategy Office
Business environment

Strategy

To further our response to risks and opportunities, including those of climate change, we have identified three areas for priority action, namely, "establishing the regional economy,""ensuring sustainability of the global environment," and "training a diversified workforce," and developed a Sustainability Vision (long-term vision) aimed at achieving sustainable society.

In October 2020, we established a Sustainability Policy focusing on sustainability of the regional communities and set up Sustainable Strategy Office in the General Planning Department, and also a team dedicated to ESG finance in the Business Promotion Department in order to be better prepared to boost sustainable financing towards making decarbonized society a reality.

(1) Recognition of risks, opportunities and impacts

The Bank assesses climate change risks (transition risks and physical risks) for the time frames of short-term (five years), medium- term (10 years), and long-term (30 years) under 1.5°C scenario and 4°C scenarios. With regard to the risks and opportunities that have been recognized, we are making efforts related to CO2 emissions reduction and also considering reflecting the findings in our investment and financing strategy.

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TOP MESSAGE	ABOUT SHIGA BANK	MEASURES FOR CLIMATE	IMPLEMENTING THE PRINCIPLES	CHALLENGES FOR	POWERS SUPPORTING	FINANCIAL SECTION
CHANGE/GLOBAL WARMING	FOR RESPONSIBLE BANKING	VALUE CREATION	VALUE CREATION

Type of risk/opportunity	Impact on business	Timing of manifestation
	Policy and legal	Impact on the Bank's credit costs arising from actions that the Bank takes in response
	to decarbonization policies and regulations in order to achieve the 1.5°C scenario,	Medium term or
	Market
	or from changes in market orientation towards low-carbon via the impact of such	long term
	Technology
	changes on the business and performance of investment and financing targets
Transition risks	Policies	Establishment of, or amendments to, regulations following the global trend	Short term
	toward increased actions against climate change
	Reputation	Negative rumors resulting from lack of efforts against climate change or	Short term
	insufficient disclosure of information
		Impacts on the Bank's credit costs arising from the impacts of increased natural	Short term, medium
		disasters such as floods on the business and performance of investment and
		term, or long term
	Acute risks	financing targets
Physical risks		Risk of damage to the Bank's assets from natural disasters such as floods	Short term, medium
	term, or long term
		Impacts on the Bank's credit costs arising from the impacts of increased infectious	Short term, medium
	Chronic risks	diseases or heatstroke cases on the business and performance of investment and
	term, or long term
		financing targets
	Products/	Increased capital needs of companies related to the development of low-carbon	Short term, medium
	services	products and services	term, or long term
	Resource	Reduced costs of companies as a result of efforts for the transition to a	Short term, medium
Opportunities	efficiency,
decarbonized society; increased capital needs related to such transition	term, or long term
	energy source
	Reputation	Increased business opportunities resulting from our higher social reputation as a	Medium term or
	financial institution that contributes to decarbonization of regional communities	long term

The proportion of energy and utility (electricity, excluding renewables) sectors, which are considered to be exposed to particularly high transition risk among the carbon-related assets for which disclosure is recommended by TCFD, in the Bank's total lending as of March 31, 2022, is approximately 2.36%.

We are considering working to grasp the whole picture including other carbon-related assets.

(2) Scenario analysis

We conducted two scenario analyses after consulting multiple scenarios published by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA), among others, and taking into consideration the Paris Agreement, the agreement at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) held in November 2021, etc. The impact of increase in credit costs is expected to be limited, as cost reduction can be achieved by way of medium- to long-term efforts.

• Analyze risks (transition risks, physical risks) and opportunities for each sector
• Determine subject sectors for scenario analysis
• Choose scenario for transition risks and physical risks depending on the subject of analysis, and analyze the impact on credit costs

Results of analysis on transition risks

Item	Details
	IEA's "Net Zero Emissions Scenario 2050 (NZE Scenario)"
Scenario	* A report that shows a road map for transition to an energy system for achieving net zero emissions of greenhouse gases in 2050 while
	limiting the rise in global temperature to 1.5°C above pre-industrial level.
Subject sector	1) Power utility 2) Oil, coal and gas
Subject period	Up to 2050, with March 31, 2021, as a base
Metrics	Credit-relatedexpenses (credit costs) *Credit costs based on borrower classification
Results of analysis	A total of 5 billion to 10 billion yen increase in credit costs in the period to 2050

• As we go ahead with decarbonization with eyes to the future, the current power source composition is not permissible and need to be gradually changed.
• Consequently, under the NZE Scenario, CO2 emissions are expected to fall drastically in the future. (a global trend)

SHIGA BANK REPORT 2022

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MEASURES FOR CLIMATE CHANGE/GLOBAL WARMING

(For reference) Trend in global power generation and composition by source in the NZE scenario

Thousand

TWhOil

Unabated natural gas

Unabated coal

Fossil fuels with CCUS

Hydrogen based

Nuclear

Other renewables

Hydropower

Wind

Solar PV

	Source: Net Zero by 2050 A Roadmap for the Global Energy Sector, IEA
Results of physical risk analysis
Item	Details
Scenario	IPCC's "RCP8.5 Scenario" (4°C Scenario)
A "100-year flood occurs" in the period to 2050
Subject region	The whole areas of Shiga and Kyoto Prefectures
Subject entities	Borrowers of business loan (excluding large corporations)
	Credit-related expenses (credit costs)
Metrics	1) Downgrading of borrower classification of borrower company in light of decline in sales due to suspension of business
	2) Damage to collateral
Results of analysis	Increase of 4 billion yen in credit costs

Hazard map of Shiga Prefecture and southern part of Kyoto Prefecture showing the locations of the Bank's customers

• Mapped the Bank's customers (yellow dots) on the hazard maps of Shiga and Kyoto Prefectures (for a 100-year flood)
• In Shiga Prefecture, floods are expected mainly along the rivers flowing into Lake Biwa. In Kyoto Prefecture, widespread flood damage is expected mainly along the rivers Kamo, Katsura, Uji, and others.

Kamo River

Katsura River

Ane River

Uji River

Ado River		Echi River

Kizu River

Flood depth

Flood depthbelow 0.5 m 0.5-1M 1-2M 2-5M

5 m or above Customer

Yasu River

below 0.5 m 0.5-1M1-2M2-5M

5 m or above Customer

Shiga Prefecture

Southern part of Kyoto Prefecture

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