Response to Natural Capital and Biodiversity

Our principal operating regions—Yamaguchi, Hiroshima, and Fukuoka prefectures—are home to diverse natural capital, including rich marine resources along the Sea of Japan and the Seto Inland Sea, extensive mountain forests, and rivers and wetlands. These natural assets are deeply connected to local industries and communities.

These natural assets provide a wide range of ecosystem services that support our lives and economic activities, including climate regulation, water supply, soil conservation, and the provision of habitats for biodiversity. However, in recent years, the degradation of natural capital and the loss of biodiversity have become increasingly serious due to the impacts of human activities, such as climate change, changes in land use, and excessive resource use. As a result, there is growing demand for corporate action to address these issues.
As a regional financial group, we believe we have a responsibility to actively contribute to the conservation and restoration of natural capital. Based on this recognition, we pursue management in harmony with nature.

In the YMFG Medium-Term Management Plan (FY2025–FY2029), we have identified “addressing emerging environmental and social challenges” as one of our key sustainability priorities. Since FY2025, we have been strengthening our initiatives to address natural capital and biodiversity.

Going forward, through our participation in the TNFD Forum, we will access international discussions and the latest insights on natural capital. Based on this, we will develop a foundation for promoting effective initiatives as a regional financial group, while enhancing our nature-related disclosures.

In preparing this disclosure, we assessed dependencies and impacts and identified risks and opportunities in priority sectors (the “priority sectors”) with advice and support from MS&AD InterRisk Research & Consulting, Inc.

By overlaying the locations of each operational site with the distribution of sensitive locations identified based on the indicators described above, we identified the interfaces between our operations and nature.
In addition, as the TNFD framework includes “importance of ecosystem service provision” as one of the criteria for identifying sensitive locations, we also reviewed the interfaces between our operations and areas inhabited by Indigenous Peoples. However, as no data on Indigenous Peoples’ territories was found for the Group’s principal operating regions, these areas were excluded from the scope of the analysis.

The results of the analysis for the Group’s operational sites—defined as the principal operating locations of the three Group banks in the Group’s primary operating regions (53 locations in total)—are presented below.
For each indicator, the results are based on an evaluation derived from external data sources, including IBAT, in which scores were assigned on a 5-point scale (with 5 indicating high and 1 indicating low), reflecting the level of impact on nature and associated risks. The number of locations assessed as high-scoring (a score of 4 or above) is presented.

• “Biodiversity Importance”: 5 locations were assessed as high-scoring, confirming that some sites are located in proximity to important natural environments such as protected areas and KBAs.
• “Ecosystem Integrity”: 3 locations were assessed as high-scoring, confirming that some sites are located in proximity to areas with high ecological integrity.
• “Physical Water Risks”: All locations were assessed as high-scoring, indicating that water quality risks are relatively high across all sites.

Through this analysis, we confirmed that some operational sites have relatively significant interfaces with nature. However, as these sites are primarily used as offices, their direct impacts on nature are assessed to be limited.

To understand the interfaces between nature and the Group’s lending portfolio, we use ENCORE—a global tool that maps nature-related dependencies and impacts associated with business activities—to analyze nature-related relationships at the sector level.
Through this analysis, we identified cross-sector trends within the Group’s lending portfolio. In terms of dependencies, there is a significant reliance on water-related ecosystem services. In terms of impacts, we confirmed that emissions of hazardous pollutants to water and soil, as well as disturbances (e.g., noise and light), are among the most significant.

Impacts on Nature

We selected priority sectors for analysis to identify nature-related risks and opportunities. In selecting these sectors, we considered not only the level of sector-level dependencies and impacts on nature—reflected in the distribution of “Very High” and “High” in the heat map—but also the natural and industrial characteristics of the Group’s principal operating regions.
Based on this comprehensive assessment, we selected the following priority sectors for analysis: Materials (Chemicals), Materials (Steel), Automobiles & Components, Energy, Semiconductors & Semiconductor Equipment, Real Estate (Property Management), and Food & Beverage.

Regional Characteristics of Key Areas

To understand the relationship between nature and the selected priority sectors in Yamaguchi, Hiroshima, and Kitakyushu City, Fukuoka Prefecture, we conducted research on major companies in each sector and reviewed relevant literature on industry and regional characteristics. Based on this analysis, we organized dependencies and impacts on nature in the target regions into pathway diagrams.

Example: Dependency and Impact Pathways in the Materials (Chemicals) Sector

Based on our analysis of dependencies and impacts across the seven selected sectors, we identified the Group’s potential nature-related risks and opportunities with reference to TNFD sector guidance and other relevant frameworks. In doing so, we considered regional and industry characteristics, as well as the time horizon and frequency of occurrence, to identify key risks and opportunities.
Going forward, based on the risks and opportunities identified, we will take appropriate action—including providing financial products and services and engaging with clients—while pursuing value creation that supports the sustainability of both regional businesses and nature.

Overview of Key Risks

Details of Key Risks