Environmental Information (TCFD Disclosure/Transition Plan)
In recognition that climate change may have an impact on the sustainable growth of the Group in terms of both risks and opportunities, JPX Group seeks to achieve greater resiliency and sustainable growth by disclosing information in line with the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations and using those recommendations as guidelines when addressing climate change-related risks and opportunities.
In transitioning to a decarbonized economy, the TCFD Recommendations and other frameworks such as the IFRS (ISSB) standards consider it important for companies to formulate a transition plan (an aspect of an organization's overall business strategy that lays out a set of targets and actions supporting its transition toward a low-carbon economy, including actions such as reducing its GHG emissions) and to share this and have dialogue with stakeholders.
As set out below, JPX has formulated targets and a transition plan to aim for transition to a decarbonized economy, in reference to the TCFD Consortium's "Transition Plan Guidebook" and other guidelines*.
- Formulation of guidelines and discussion on the component elements of transition plans is progressing among the Glasgow Financial Alliance for Net Zero (GFANZ) and other organizations. JPX has created its transition plan with reference to GFANZ, CDP, and TPT.
JPX also publishes its response to the CDP questionnaire on its website. Please see the below page for details.
Governance
Recognizing that addressing climate change is an important management issue, JPX Group has established a Sustainability Committee, with the Group CEO serving as Chair and the Group COO as Vice-Chair. The committee has analyzed how related issues affect business operations and is proceeding to address these. The Group has also established a system for adequately reporting basic policies, targets, initiatives, and other matters associated with climate change to the Board of Directors, which in turn provides oversight of those basic policies and important matters as appropriate. In addition, climate and other sustainability-related risks are identified as a "significant risk" with respect to group-wide risk management, and are reported to the Board of Directors from a risk management perspective on a quarterly basis.
Moreover, the Group has appointed an executive officer in charge of sustainability, under whom the Sustainability Department spearheads efforts in analyzing and monitoring the effects of climate change so that risks to and opportunities for the Group's businesses relating to climate change can be identified and appropriately addressed.
The medium- to long-term incentive (monetary compensation) awarded to executive officers is linked to the performance of consolidated ROE and sustainability initiatives set out in the Medium-Term Management Plan 2024.
In order to ensure that actions and plans related to climate change are linked with business plans, we plan to review them at the same time as updates to the Medium-Term Management Plan. For this review, we will examine the progress of each initiative and the appropriateness of the targets along with other relevant departments, as well as taking into account aspects such as changes in the external environment and the expectations of shareholders and other stakeholders.
Strategy
In order to “contribute to the realization of an affluent society by promoting sustainable development of the market” as set out in its Corporate Philosophy, JPX works on initiatives to improve its corporate value with attention to the surrounding environment and societal issues and the Group’s relationship to them. JPX considers this an important management issue and formulates its management policies and plans accordingly.
For climate change in particular, to support the shift to carbon neutrality in Japan, JPX is carrying out a range of initiatives both as a market operator ("market-focused") and as a business corporation ("exchange-focused") and has set these out in the Medium-Term Management Plan 2024 as its "Green Strategy."
Market-focused initiatives
Given its business model, which is to provide attractive services along with a highly convenient, efficient, and transparent market that ensures fairness and reliability, JPX considers it essential to work on initiatives that utilize market mechanisms.
In the current Medium-Term Management Plan (covering FY2022-FY2024), JPX has been focusing on the below.
- Promotion of action on sustainability issues and information disclosure at listed companies, through the Corporate Governance Code
- Strengthening of sustainability-related information functions (further development of information platform for publicly offered ESG bonds, including functionality enhancement)
- Calculation of ESG indices and listing of related ETFs/futures
- Vitalization of the energy market
- Advancement of an emissions trading market (launch of carbon credit market)
- Promotion of use of Digitally Tracked Green Bonds that utilize digital securities
- Enhancement of the "JPX ESG Knowledge Hub" to support listed companies' ESG information disclosure
Given the importance of cooperation with related parties, both domestic and global, in working to achieve decarbonization, JPX also focuses on engagement.
- JPX joined NZFSPA in December 2023 to deepen its links with exchanges and other service providers around the world who are aiming for net zero. We also joined the GFANZ Japan Chapter at the same time and are participating in discussions with Japanese and overseas financial institutions on issues regarding transition finance and the role of the finance industry.
- We take part in government working groups such as the FSA's Expert Panel on Sustainable Finance which are considering subjects such as transition finance as well as issues and policy for the financial and industrial sectors around climate change.
- We participate in the TCFD Consortium, a platform for public/private cooperation, and contribute to its activities such as the development of its Transition Plan Guidebook.
Exchange-focused initiatives
JPX has reviewed its approach to procuring electricity, which is the primary factor in its emissions, and is aiming to switch 100% of electricity consumed throughout the Group to renewable energy by FY2024, thereby achieving carbon neutrality (Scopes 1 and 2) on the same timeline.
JPX also calculates and publishes its other CO2 emissions (Scope 3) to aim for appropriate management of emissions throughout the value chain. In terms of reducing Scope 3, given that the capital goods that account for the majority of Scope 3 emissions are connected to the development of the software that supports the Group's IT infrastructure, JPX aims to gradually reduce these emissions through emissions management while maintaining the investment required for stable market operations.
We are also looking to contribute to Japan's policy of carbon neutrality by 2050 by taking part in the GX League, part of the government's GX Strategy.
Scenario Analysis
Given that climate change and responses to it are long-term issues with high levels of uncertainty, in order to review the resilience of the Group's strategies, JPX carries out scenario analysis with reference to guidance such as technical supplements provided by the TCFD.
In performing this analysis, JPX identified physical risks and transition risks/opportunities related to climate change that are foreseeable within its decided timeframes: short term (to 2025), medium term (to 2030), and long term (to 2050). It then used multiple external scenarios to evaluate their possible impact on strategy and financial planning, as well as the company's responses.
Analysis of Physical Risks
Physical risks are those involving direct damage to assets caused by natural disasters and other such events attributable to climate change.
Process
JPX identified which of the main assets held or used by the Group could be most impacted by physical risks from climate change, and used the below process to analyze those risks. However, given that property and equipment assets are only a small proportion of the Group's non-current assets, and that it has a Business Continuity Plan for risks including natural disasters, the analysis was carried out mainly from the perspective of business continuity and not the value of assets.
A) Risks identified
| Classification | Possible risks brought on by climate change | Timeframe |
|---|---|---|
| Acute | Instances of suspended operations or damage to facilities caused by intensifying natural disasters could prompt short-term downturns in earnings along with alienation of investors over the medium to long term. | Short to long term |
| Chronic | Business operations of JPX Group's exchanges could become subject to disruption if long-term changes in weather patterns prompt an increase in instances of suspended operations and related response measures. | Long term |
- ･Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods. Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.
B) Scope of analysis decided
- Subjects: Office buildings and data centers within Japan
- Hazards considered: Floods, storm surges, sea level rises, landslides
- Main scenarios referenced: SSP1-2.6 and SSP5-8.5 from the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)
- Timeframes: Long-term (to 2050)
C) Analysis performed using scenarios
The first step was to understand the risks connected to each office building and data center in the scope of analysis, based on hazard maps and other national land-related information from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). After this, impacts were analyzed with reference to two scenarios suggested by the IPCC's Sixth Assessment Report: SSP5-8.5, which imagines very high GHG emissions, and SSP1-2.6, which imagines low emissions.
D) Risk response approach and measures confirmed
(1) Responses to acute risks
- As part of Group-wide risk management, JPX positions business continuity risks, such as the occurrence of a natural disaster that causes tremendous damage, as one type of significant risk that could affect the Group. In response to these kinds of risks, as well as ensuring awareness of the risks and preparing/operating preventative measures, JPX Group has also put in place frameworks that allow it to respond swiftly and appropriately when a risk materializes or is likely to materialize.
- The Group has established a Business Continuity Plan (BCP) and implemented measures to ensure business continuity in the event that a natural disaster or other such risks materialize.
- To ensure that natural disasters or other such events do not hinder the continuity of operations, the Group is working to enhance its mutual backup capabilities in the east and west, such as by establishing sites in the Tokyo Metropolitan area and the Kansai region for both operations (offices) and systems (data centers). In addition, to prepare for the risk of employees being unable to commute to the office due to suspended public transportation services or other reasons, the Group is proceeding with the development of remote working environments to enable stable market operations, while also promoting the use of and further developing the operation of remote work during normal times.
- If a situation arises where trading participants are unable to participate in trading of stocks or other securities because of a natural disaster or other such event, the Group considers the necessity of a trading halt based on its Contingency Plan, which is published on the below page.Contingency Plan
(2) Responses to chronic risks
JPX Group considers the impact of natural disasters, along with other risks, when choosing locations for offices or data centers, and monitors the possible impacts on each facility with reference to the latest hazard maps, weather data, and other information. The Group also enacts dialogue with the providers of infrastructure services that it uses and requests improvements where necessary.
Results
Based on the above, JPX Group considers that the physical climate change risks that are currently foreseeable are covered by its present Group-wide risk management processes, and that as a result, possible impacts on the Group's business continuity, strategy, and finances are limited.
Analysis of Transition Risks and Opportunities
Transition risks are those that arise from changes in government policies, legal affairs, technological innovation, market preferences and other such developments that occur in conjunction with transition to a low-carbon economy.
Process
JPX identified the transition risks that could affect the Group, and used the below process to analyze those risks.
A) Transition risks/opportunities identified
Risks
| Classification | Possible risks brought on by climate change | Timeframe | Impacted financial indicator(s) | Related actions |
|---|---|---|---|---|
| Policy and legal | Greenhouse gas emissions costs associated with business activities and costs associated with investments to reduce emissions may increase if government policies and regulations pertaining to reductions in greenhouse gas emissions become more stringent (introduction of carbon tax, fines, etc.). | Medium to long term | Expenses |
|
| Products handled by the Group, markets operated by the Group, and its own business operations would likely be affected if laws and regulations became more stringent regarding ESG information disclosure practices and relevant products and services. For instance, the Group's earnings could be affected if there were products that could not comply with more stringent laws and regulations or if market users moved away from the market having become weary of more stringent regulations. | Short to long term | Revenue (equities) |
|
|
| Technology | If innovation intensifies around technology creation relating to the drive for decarbonization, costs associated with capital investment could increase as it becomes necessary to incorporate new technologies into IT systems or other areas of business. | Medium to long term | Expenses |
|
| Market | If climate change initiatives or information disclosure practices by companies or related to products listed on markets operated by the Group are deemed inadequate as investors demand higher standards, demand for products and services provided by JPX Group could fall, affecting the Group's earnings. | Short to long term | Revenue (equities) |
|
| Reputation | If initiatives to address climate change in terms of the Group's market operations and commitment, or in terms of management policies of Japanese companies, are considered insufficient, leading to a decline in confidence in and evaluations of the Group and the Japanese market overall, this could result in diminishing business opportunities and rising financing costs. | Short to long term | Revenue (equities, derivatives, market-related services) |
|
Opportunities
| Classification | Possible opportunities brought on by climate change | Timeframe | Impacted financial indicator(s) | Related actions |
|---|---|---|---|---|
| Products and services | Income related to ESG could increase if JPX Group were to expand its provision of products and services related to climate change and other ESG issues in response to growing ESG investment. | Short to medium term | Revenue (equities, derivatives, market-related services) |
|
| The Group may be able to reduce financing costs by utilizing green bonds and other forms of sustainable finance. | Short to medium term | Expenses |
|
|
| Energy source | The Group may be able to reduce its exposure to price volatility related to energy procurement and to potential increases in carbon taxes and other carbon emissions costs by seeking greater diversity in its means of procuring energy, including ownership of renewable energy generation facilities. | Short to medium term | Expenses |
|
B) Scope of analysis decided
Analysis was focused on revenue related to the cash equity market, as this comprises around 60% of JPX Group's revenue and can also be thought to impact on revenue from other areas (derivatives, market-related services) in the medium to long term.
- Subject: Revenue related to the cash equity market
- Main scenarios referenced: Network for Greening the Financial System (NGFS) scenarios (Net Zero 2050, Delayed Transition, Current Policies)
- Timeframes: Long term (to 2050)
C) Analysis performed using scenarios
Since the vast majority of companies listed on the equity market that JPX Group operates are domestic companies, a certain level of correlation can be expected to exist between Japanese GDP and the variables (trading value, market capitalization) that impact revenue related to the cash equity market. Based on this, JPX estimated the impact of Japanese GDP figures suggested by three NGFS scenarios (Net Zero 2050, Delayed Transition, and Current Policies) on said revenue.
D) Risk response approach and measures confirmed
As transition risks and opportunities hold a high level of uncertainty, JPX works to keep track of changes in the regulatory environment and trends in the market. While doing this, in order to both manage the risks and realize the opportunities, JPX positions them as management issues and has integrated climate change responses into Group-wide risk management and business planning processes to inform its actions.
In addition, through participation in the GX League, the Japan chapter of GFANZ, and the roundtable with the Net-Zero Data Public Utility, the Group is working with domestic and international stakeholders on the transition to a decarbonized society.
Results
The results of the above analysis showed that there could be negative impact on revenue related to the cash equity market in the short term, if emissions reduction policies were to be rapidly implemented. Over the long term, though, more success in avoiding temperature rises in the relevant scenario correlated with less negative impact on JPX Group.
Also, since the differences between the figures calculated from each scenario were at most still less than 5% of the Group's overall revenue related to the cash equity market, the estimated impact is limited. This being said, as JPX sees supporting an orderly transition to net zero as important for both reducing negative impacts on the Group from climate change and creating business opportunities, it will make sure to complete the projects it is currently working on under its Green Strategy, while also continuing to search for new fields and projects that can contribute even further.
Risk Management
JPX Group has established a Risk Policy Committee chaired by an outside director, and a Risk Management Committee chaired by the Group CEO, in order to address the various risks faced by the Group. In line with the Group's Risk Management Policy, these committees are responsible for identifying risks as well as developing and implementing preventative measures, and also form a system which ensures a swift and appropriate response in the case that risks do or are likely to materialize.
Under the Risk Management Policy, the Group identifies and classifies the risks faced by the company, each of which is managed by the department with jurisdiction. Information on assessments of these operations and issues to be addressed are periodically brought before the Risk Policy Committee (semiannually) and Risk Management Committee (quarterly) and reported to the Board of Directors.
The Risk Policy Committee has identified sustainability related risks, including climate change, as a significant risk under "business environment and business strategy risk." These risks are managed by the Sustainability Department.
For more information on JPX Group’s risk management structure, see the below page.
Metrics and Targets
In preparation for more stringent policies and regulations regarding greenhouse gas emission reductions, JPX Group has reviewed its approach to procuring electricity, which is the primary factor in its emissions. This move aims to switch 100% of electricity consumed throughout the Group to renewable energy by FY2024, and to achieve carbon neutrality (Scopes 1 and 2) across Group companies in the same time frame. The Group also calculates other CO2 emissions (Scope 3) and works to reduce GHG emissions while appropriately managing emissions throughout the value chain. Also, in its Medium-Term Management Plan 2024, the Group has set "aim for carbon neutrality in securities market operations by 2030" as a long-term ESG target.
To achieve these targets, by combining various methods depending on the electricity demand at each site, including generating renewable energy through JPX-owned facilities, the Group achieved a renewable energy usage rate of approximately 81% in FY2023, reducing CO2 emissions by approximately 12,000 tons compared to FY2020.
In addition, for Scope 1, city gas and gasoline use were also reduced, while FY2023 emissions have been offset with J-Credits.
The capital goods that account for the majority of Scope 3 emissions are connected to the development of the software that supports the Group's IT infrastructure. The Group aims to gradually reduce these emissions through emissions management while maintaining the investment required for stable market operations.
Environmental data for JPX Group, including Scope 1, Scope 2, and Scope 3 emissions, are published on the below page.