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, 2023, we conducted a quantitative analysis of heat-stroke deaths based on certain assumptions as follows, and 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 have also confirmed that the results of the analysis conducted in the fiscal year ended March 31, 2022 for (ii) and (iii) below will not have a material impact on our results, as there are no significant changes in our assumptions.
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 RCP8.5*1 scenario based on the Fifth 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 RCP8.5 scenario based on the Fifth 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 \15.0 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.

(iii) Occurrence of unknown infectious diseases

Development in tropical forests, thawing of permafrost, and other factors may cause unknown infectious diseases to emerge and new infectious diseases (pandemic) to emerge. While the occurrence of an unknown infectious disease could cause a downturn in operating performance due to difficulties in conducting face-to-face sales activities, we have confirmed that the impact on our financial soundness would be limited, assuming a probability of occurrence of once in a few decades.

(*1) The RCP8.5 scenario is a Representative Concentration Pathway (RCP) scenario, which includes time series of emissions and concentrations of the full suite of greenhouse gases (GHGs) and aerosols associated with human activities.
(*2) 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).

(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 ESG Investments / Investment Examples
• Stewardship Activities

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

The analysis results in (2) indicate high potential risk in certain sectors in our portfolio. As the world transitions to a decarbonized society, our investee companies may be affected by increased carbon costs through carbon pricing, such as the introduction of carbon taxes by national governments. Therefore, we conducted a quantitative analysis of our domestic and international equity and corporate bond portfolios to determine the impact of increased carbon costs on the investee companies, based on the following two scenarios*. This analysis is a simplified simulation calculated assuming estimated carbon costs using current EBITDA and GHG emissions. It does not take into account variable factors such asfuture changes in the economy, business environment or government policies, which may have a significant financial impact on the investee company.

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.

(*) The analysis assumes cost of carbon using the Unpriced Cost of Carbon (UCC) by S&P Trucost, which is defined as the difference between what a company pays for carbon today and what it may pay at a given future date based on its location, sector, and under different climate change scenarios, including IEA's carbon price scenario, assuming that corporate GHG emissions remain the same.

We calculated carbon cost burdens arising from carbon pricing using UCC from S&P.

Carbon cost burdens on investee companies will increase for all domestic and international equity and corporate bond asset classes. In addition, the carbon cost burden is higher for domestic corporate bonds than for other assets. This is due to the fact that domestic corporate bonds have the highest investment balance among the four assets, as well as a relatively large share of holdings in sectors with high carbon costs.

Carbon Cost Burdens by Sector and Asset

We show the carbon cost burdens to be borne by our investee companies in 2030 by sector and asset class as follows.

Carbon cost burdens are high for the materials sector when it comes to domestic and foreign equities, and for the utilities sector for domestic and foreign corporate bonds. For domestic corporate bonds, in particular, the carbon cost burden is hefty for the utilities sector. This is attributable to the considerable GHG emissions by the sector and the relatively high weighting of the utilities sector in our portfolio of domestic corporate bonds, reflecting the relatively large amounts of bonds issued by the sector in the domestic market.

Financial impact on investee companies

We compared EBITDA as a profit indicator with the amount of carbon cost burden, and considered investments in which the amount of carbon cost burden exceeds EBITDA to be those with large potential financial impact. We calculated how much investments in these investees account for in the portfolio. As a result, the percentage was 1.7% in the low price scenario and 9.4% in the high price scenario in 2050.

Future measures

We will seek to mitigate the impact on our portfolio by strengthening our engagement with investee companies that have a potential of significant financial impact and encourage them to transition to decarbonization.

To assess climate-related risks and opportunities, we began measuring GHG emissions metrics (carbon emissions, carbon footprint, carbon intensity, and weighted average carbon intensity) for our investment portfolio from FY2020 (as of March 31, 2021). In FY2022 (as of March 31, 2023), we implemented measurement for the following assets (*1): domestic equities, foreign equities, domestic corporate bonds (*2), foreign corporate bonds (*2), listed REITs, domestic real estate assets (*3) and project finance(*4). 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.

(*1)

Unlisted stocks, asset-backed securities, etc. are not included. Includes not only internally managed assets but also externally managed assets.

(*2)

Domestic and foreign corporate bonds include business loans to companies, etc.

(*3)

Domestic private real estate funds.

(*4)

Covers in-house management.

GHG emissions metrics by asset class

For GHG emissions from our investment portfolio, the sum of Scope1 and Scope2 emissions was approximately 8.99 million tCO2e, which marks a reduction of approximately 1.36 million tCO2e compared with the previous fiscal year. Total GHG emissions for the four asset classesーdomestic and foreign equities, domestic and foreign corporate bondsーcame to approximately 8.95 million tCO2e (target 50% reduction from FY2020 levels in FY2029 and net zero emissions in 2050). GHG emissions decreased for each asset class excluding real estate and project finance, but a notable boost was provided by the decline of approximately 0.91 million tCO2e in emissions for the domestic corporate bond class, which accounts for roughly 60% of total GHG emissions in our portfolio. This reflects lowered investments in high-emitter industries and GHG emissions reductions by investee companies themselves, and with equities prices also rising, there was a decrease based on calculations using our percentage holdings. The sum of Scope1, Scope2, and Scope3 emissions was approximately 15.32 million tCO2e, down approximately 1.69 million tCO2e compared with the previous fiscal year. A boost was provided by the decline of approximately 1.18 million tCO2e in emissions for the domestic corporate bond class.
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.

For sovereign bonds (including semi-government bonds such as government agency bonds and municipal bonds, including externally managed assets), which we hold a large amount of, we began measuring the GHG emissions and weighted average carbon intensity from FY2020. For FY2022 (as of March 31, 2023), GHG emissions from our sovereign bonds portfolio amounted to approximately 65.82 million tCO2e, of which approximately 55.80 million tCO2e was accounted for by Japanese government bonds (including Japanese semi-government bonds).
The weighted average carbon intensity of our sovereign bonds portfolio was 3.33 tCO2e/real GDP (million yen).

As an asset owner, 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. 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.

(*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.