Increase in the number of individuals who suffer from heat stroke due to higher temperature in summer, increase in the number of patients who suffer from tropical infectious diseases due to the expansion of areas where vector mosquitos of infectious disease can be active, etc., and damages to health due to increased and prolonged damage from flooding, etc., can be considered to have an impact on the Company's life insurance business (claims payment) as events that could lead to a significant increase in the amount of claims payment.
In the fiscal year ended March 31, 2024, we conducted a quantitative analysis of the increase in heat stroke deaths and expanding damage of tropical infectious diseases conducted in the last fiscal year. As a result, we confirmed that the increase in claim payments will have a limited impact on our financial soundness, given the extremely small amount compared to the Company's actual death benefit payments and the fact that we are able to make payments from the policy reserves we have built up in preparation for future payments.
We believe that there are many challenges regarding the accuracy and reliability of our analysis of the impact of climate change on the Company's life insurance business, as there are no generally established measurement models and climate change itself has a high degree of uncertainty, such as its occurrence over a long period of time. In the future, we will continue our efforts to understand risks through analysis such as further research, stress testing, etc.

(i) Increase in heat-stroke deaths

We have made an estimate projecting an increase in heat stroke deaths in Japan assuming an increase in average temperatures throughout Japan, when the SSP5-8.5*1 scenario based on the Sixth Assessment Report of IPCC*2 is applied as the temperature. As a result of analysis by age group, we estimate that insurance claims and other payments will increase by approximately \7.0 billion on a cumulative basis from the fiscal year ending March 31, 2032 to the fiscal year ending March 31, 2051, particularly in the elderly age group.

(ii) Expanding damage of tropical infectious diseases

Based on an estimate that rising temperatures will cause infectious diseases spread by mosquitoes to be active over larger areas and periods, we analyzed the increase in insurance claims and other payments due to mosquito-borne tropical infectious diseases (dengue fever and malaria). We applied the SSP5-8.5*1 scenario based on the Sixth Assessment Report of IPCC as the temperature increase and, referring to recent outbreaks of tropical infectious diseases in tropical regions and the sanitary conditions in Japan, assumed that dengue fever would spread in Japan, resulting in hospitalization or death of customers. As a result, assuming that the disaster will occur every year, we calculated that the increase in insurance claims and other payments would be up to around ¥20.0 billion on a cumulative basis over the 20-year period from the fiscal year ending March 31, 2032 to the fiscal year ending March 31, 2051.

(*1) Intergovernmental Panel on Climate Change, or IPCC, is an intergovernmental organization established in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP).
(*2) The SSP5-8.5 is one of the SSP scenarios. The SSP scenarios are scenarios that combine five shared socioeconomic pathways (1. Sustainability, 2. Middle of the Road, 3. Regional Rivarlry, 4. Inequality, and 5. Fossil-fueled Development) with emission scenarios that assume the future concentration of greenhouse and other gases in the atmosphere due to human activities.

(1) NGFS's Climate Scenarios Analysis

We expect that the assets owned by the Company will be affected by changes in the economic environment as we transition to a decarbonized society. We have analyzed how our assets would be affected by these changes by 2050 under several financial market scenarios*1 and carbon price scenarios published by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS*2).
We believe that there are many challenges regarding the accuracy and reliability of our analysis of the impact of climate change on the Company's asset management, as there are no generally established measurement models and climate change itself has a high degree of uncertainty, such as its occurrence over a long period of time. In the future, we will continue our efforts to understand risks through analysis such as further research, stress testing, etc.
(i) Scenario analysis related to our investment income
We analyzed the impact of climate change on our interest margin under the NGFS scenario (financial market scenario). We used a scenario in which long-term interest rates in Japan and abroad increase moderately, and therefore, we expected an increase in interest gains from our holdings of yen-denominated interest bearing assets such as Japanese government bonds*3.
(ii) Scenario analysis for assets owned by the Company
Under the NGFS scenario (carbon price scenario), we analyzed the decline in the value of securities (the increase in the future carbon cost burden of investee companies). In our portfolio, especially for bonds with long maturities of over 10 years, a certain decline in value was expected*4. In practice, we believe that the impact on our financial condition will be limited, given the fact that the deterioration in the earnings of investee companies and the decline in their market value will surface gradually and that the assets we own can be sold during the course of our investment.

(*1) Scenario published in 2022 (scenario model: REMIND-MAgPIE 3.0-4.4). The scenario does not take into account the impact of the recent war in Russia and Ukraine and the resulting energy crisis.
(*2) Network for Greening the Financial System, or NGFS, is an international network of central banks and financial supervisors to examine financial supervisory responses to climate change risks. The Financial Services Agency and the Bank of Japan joined the network in June 2018 and November 2019, respectively. The scenarios used are: (i) Current Policies scenario in which global warming will progress as a result of no further action on climate change being be taken by countries than they are currently implementing (global temperature will rise by more than 3°C), (ii) Net Zero 2050 scenario in which countries will achieve the 2050 carbon neutrality and 1.5°C temperature rise targets in a coordinated and systematic manner; and (iii) Delayed Transition scenario, in which climate change measures are taken rapidly after 2030.
(*3) This analysis does not take into account increases in business expenses due to factors such as rise in inflation rates.
(*4) If the dataset necessary for calculation (GHG emissions, etc.) is not available, it is not included in the analysis. The impact of future measures to improve earnings to be taken by investee companies are not taken into account.

(2) Impact analysis on investment income focusing on key sectors

We analyzed the impact of 2℃ and 4℃ scenarios (*) on the following three sectors: electric utilities, steel, and energy, which were selected as the most important sectors that have a large impact on climate change and in which we have a large amount of investments and loans. As a result, we found that the introduction of a carbon tax, the spread of renewable energy, and other social changes may have a significant impact on the performance and finance of each sector under the 2℃ scenario.
We will conduct engagement with investees in these sectors, taking the results of the analysis into full consideration. We will hold dialogues with investees regarding the specific impacts indicated by the analysis and encourage them to take action to improve our investment performance.

(*) References are made to scenarios from the IEA "World Energy Outlook," IEA reports, and "Synthesis Report on Observations, Projections, and Impact Assessments of Climate Change (2018): Climate Change and Its Impacts in Japan" from the Ministry of the Environment, et al.

≪STEP1≫Evaluation of the importance of risks and opportunities by key sector

We evaluated the importance of risks and opportunities in three sectors that are important to the Company, based primarily on a survey of literature published by international organizations and other institutions, with assistance of outside experts.

≪STEP2, STEP3≫Impact on key sectors

In STEP2, we assume specific situations under the 2℃ scenario and 4℃ scenario (*) for items of risks and opportunities with high importance by key sector identified in STEP1. In STEP3, we qualitatively evaluate their impact on the performance and finance of the portfolio companies.

≪STEP4≫Measures

For investee companies in key sectors, we aim to enhance our medium- to long-term asset management results by engaging in constructive dialogue (engagement) that fully takes into account the specific impacts identified in our scenario analysis. Through this engagement, we will confirm the status of investees' response to these specific impacts and encourage decarbonization initiatives.

• Framework for Sustainable Investments / Investment Examples
• Stewardship Activities

(3) Analysis on the impact of carbon cost on investee companies

Presently, in Japan, the discourse on carbon pricing is progressing through platforms like the GX Implementation Council. As we transition to a decarbonized society, investee companies could be impacted by higher carbon costs as a result of carbon pricing, e.g., the introduction of carbon taxes by national governments. Therefore, with respect to our domestic/overseas equity and corporate bond portfolio, we analyzed the impact of higher carbon costs on the finances of investee companies based on two scenarios.

(i) Scenarios and Assumptions for Cost of Carbon
For the scenarios, which represent assumptions about carbon costs, we used the Unpriced Cost of Carbon (UCC) by S&P Trucost. UCC is based on sources such as carbon pricing scenarios from the IEA. Taking account the attributes of the region and sector in which the company operates, and assuming that its greenhouse gas emissions remain constant at the current level, it estimates the additional carbon costs that will be borne by the company at future point in time. For our analysis, we used two scenarios: low carbon price and high carbon price.

Scenarios
Low carbon price scenario	A scenario in which the countries fully implement their Nationally Determined Contributions (NDCs) under the Paris Agreement.
High carbon price scenario	A scenario in which temperature change in 2100 is below 2°C, consistent with the Paris Agreement, through appropriate policy implementation by national governments.

(ii) Analysis Results
Using EBITDA (earnings before interest, tax, depreciation, and amortization) as a corporate financial indicator, we calculated the ratio between UCC and EBITDA for each asset class and each sector in 2030, 2040, and 2050. When this ratio is higher, it suggests that the company's financial situation is more fragile. The colored areas of the chart indicate that UCC is 25% or more of EBITDA, and the darker the color, the higher the ratio is.
For all asset classes, carbon costs have a big impact on the finances of companies in three sectors: energy, materials, and utilities. In particular, it can be inferred that under the high carbon price scenario (H), which assumes that aggressive policies will be implemented to promote decarbonization, the financial risks in these sectors could be high.

To assess climate-related risks and opportunities, our company has been measuring GHG emissions metrics (GHG emissions, carbon footprint, carbon intensity, and weighted average carbon intensity) for our investment portfolio (domestic and foreign equities, and domestic and foreign corporate bonds (including corporate financing))(*) since FY2020 (as of March 31, 2021). The measurement results for FY2023 (as of March 31, 2024) are as follows. Additionally, we have implemented measurements for other assets. For more details, please refer to our Responsible Investment Report.
The scopes covered in the carbon emissions calculation are direct emissions of greenhouse gases by investee companies (Scope1), indirect emissions from purchased electricity (Scope2), and emissions from supply chains other than purchased electricity (Scope3). The calculation of the carbon footprint, carbon intensity and weighted average carbon intensity covers Scope1, Scope2, and emissions from direct suppliers of Scope3.

(*)

Includes not only internally managed assets but also externally managed assets.

GHG emissions metrics by asset class

Of the GHG emissions in our investment portfolio, our Scope 1 and 2 emissions totaled roughly 7.83 million tCO2e, an increase of approximately 1.12 million tCO2e from the previous fiscal year. Furthermore, the combined total of Scope 1, 2, and 3 emissions was roughly 12.91 million tCO2e, an increase of approximately 2.38 million tCO2e from the previous fiscal year. The reduction of Japanese corporate bonds contributed to an increase of roughly 1.86 million tCO2e to this total. When calculating GHG emissions metrics, recording Scope 3 emissions as GHG emissions requires us to take note of the issue of double counting (for example, Scope 1 emissions for some companies correspond to Scope 3 emissions for others). However, when recording this year's measurements, we placed importance on identifying as wide a range of emission conditions as possible throughout the supply chain, including Scope 3 emissions.
It is important to note that we recognize including Scope3 in the calculation of GHG emissions may occur double counting (e.g., Scope1 emissions of one company may correspond to Scope3 emissions of another company). Despite this problem, we chose to widen the scope to supply chains to understand our portfolio emissions as much as possible.

As an institutional investor, we have set targets for the GHG emissions from our investment portfolio, aiming for carbon neutrality by 2050, and working toward a 50% reduction in greenhouse gas emissions from FY2020 levels by FY2029 (March 31, 2030), as an interim target. Our 2050 target and interim target are based on the IPCC's Special Report* and align with the Paris Agreement and the long-term targets of the Government of Japan.
By reflecting the various factors of our climate change response aimed at achieving these targets in our investment strategy, we aim to realize a carbon-neutral society and enhance our medium- and long-term asset management results.

*

IPCC　(2018) Global Warming of 1.5°C an IPCC special report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty

(*1)

Total emissions of Scope 1 and Scope 2 from investee companies (domestic and foreign listed equities and corporate bonds including corporate loans) after calculating by the ratio of our holdings.

(*2)

We aim for a 50% reduction, measured as of March 31, 2030, compared to GHG emissions from our investment portfolio as measured on March 31, 2021.