Mitsubishi UFJ Financial Group, Inc. (8306) Earnings Call Transcript & Summary

I'm Takase, Chief Strategy Officer of MUFG. Thank you very much for joining us today. Please turn to Page 2. First, I will explain MUFG's initiatives on climate change, followed by Zeniya, our Chief Sustainability Officer, who will explain the key points of the investor updates from the proposals and MUFG's views on them. Please proceed to Page 4. First, I would like to explain our response to climate change in our new medium-term business plan. Our new medium-term business plan started this fiscal year. We have positioned driving social and environment progress as one of the 3 pillars of the new plan. In particular, since addressing climate change is a highly urgent issue as we move towards a world target of 1.5 degrees, we have made achievement of carbon neutral society, one of the most important priorities as we tackle this issue as a unified group. Please turn to Page 5. I would like to explain our governance structure. First, commitment from the managers. The CEO and other members of the management team are promoting the response to climate change as one of the most important management priorities. At a management level below the CEO, a wide range of topics are discussed mainly by the Sustainability Committee under the Executive Committee. In addition, numerous steering committee and sustainability review meetings have been held to allow prompt decision-making on strategies and policies related to climate change. See Page 6. In addition, regarding oversight by the Board of Directors, sustainability, including climate change, has been designated as an important discussion topic for deliberation at the Board of Directors, which is composed of directors with knowledge, expertise and experience in sustainability as well as by the various committees under its umbrella. In FY '23, the Board of Directors and the committees under its umbrella deliberated approximately 30 proposals related to sustainability. Please turn to Page 7. This slide shows the progress to date. Since the announcement of MUFG Carbon Neutrality Declaration in May 2021, we have been making efforts towards decarbonization, specifically in addition to creating a framework for transition finance at NZBA, and supporting our clients' transitions, we have set interim sector-specific targets in our investment and loan portfolio. In April this year, we published MUFG Climate Report, 2024, which is a comprehensive description of our climate change efforts to date, coinciding with the release of a new medium-term business plan. Please turn to Page 8. This is our approach for climate change. We have talked on this several times before, but allow me to reiterate it. MUFG aims to achieve its biggest goal of achieving net zero or 1.5 degree target by 2050 by supporting a smooth transition to a decarbonized society and contributing to a virtuous cycle between the environment and the economy. To achieve this goal, it is essential to offer support to clients to decarbonize their businesses, and we will share challenges with them through engagement based on regional and business characteristics and work together with them towards decarbonization. Next is Page 9. This is about engagement and transition support. Here is our approach to supporting transitions. First, we will collaborate with industry and government agencies to make policy recommendations through the Transition Whitepaper initiative and the development of a Transition Finance frameworks. Then we will enhance our capability to provide solutions through GX value chain support, promotion of sustainable finance and investment and innovation projects. Furthermore, our approach is to provide feedback to industries and government agencies on the new needs and issues we have identified through our decarbonization support to a wide range of clients, linking them to new policy recommendations. Please turn to Page 10. This is an operating framework for effective management. In order to promote disciplined transition support and achieve the 2030 interim targets, we have developed an operating framework to enhance effectiveness of management. Specifically, we will strengthen the framework for assessing client transition status and the decision-making process for individual cases as well as monitoring progress in emission reductions. In addition, we have introduced an escalation process and established a system for monitoring the progress of transition plans. Next is Page 11. This is our policy for the next steps. This fiscal year, we will continue to advance initiatives in each of our areas of engagement and expand the disclosure of our progress. In particular, we believe it is important to strengthen engagement activities, transition support and monitoring of transition plans. We believe that compliance with nonfinancial disclosure regulations needs to be strengthened as well. This ends the explanation of MUFG's climate change initiatives. Finally, I would like to explain the opinion of the Board on the shareholder proposal submitted in April. Please turn to Page 12. There are 3 key points in the shareholder proposal. The first is the competency of the Board of Directors. The second is our assessment of our clients transition plan. And the third is these provisions in the articles of incorporation. Board of Directors object to the proposals for the following 3 reasons. First, MUFG's Board of Directors has a balanced composition of knowledge, expertise and experience, including in the areas of climate change and sustainability. In addition, the Board of Directors had disclosed already its appointment policies and evaluation of its effectiveness. Second, we have already disclosed the assessment of our clients' transition status, including alignment with a 1.5-degree target under our response to clients' failure to develop credible transition plans. Third, in Japan, the articles of incorporation set forth the basic matters of the organization and operation of a company, and we do not think it is appropriate to stipulate specific matters concerning the execution of the individual specific business. That was a summary of the Board of Directors' opinion. Next, our Chief Sustainability Officer, Zeniya, will explain the key points of the investor presentation material released by the proposal and our views on them.

I am Chief Sustainability Officer, Zeniya. Thank you for your time. Please proceed to Page 14. We recognize the following 4 key points of the investor updates announced by the proposals to support the shareholder proposals. The first is about the Board of Directors' Climate Change Risk Management and its related competencies. The second is the financing processes for fossil fuel sector. The third is the fossil fuel sector's GHG interim emission targets and balance targets. The fourth is about transition support and efforts to improve the environment. Each of these will be explained in detail on the next and subsequent slides. Please turn to Page 15. Regarding the first point of the claim, the competency of the Board of Directors on Climate Change Risk Management, we have received 3 opinions. The first point that the expertise and experience of the Board members regarding climate change risks and opportunities should be disclosed. As shown in the directors' skills matrix, the Board of Directors, after the approval of the proposal at the shareholders' meeting, will consist of 11 members out of 16 members with knowledge, expertise and experience in sustainability, including climate change. The skills matrix has already been disclosed in the integrated report and corporate governance report. Please see Page 16. 6 of the 9 outside directors and candidates have sustainability competencies and a detailed description of their knowledge, expertise and experience can be found on this page. Please look to the right of the page. The second point of the first claim relates to the improving the competency of the Board of Directors. In this regard, we are working to improve competency through advanced briefings from the executive on various topics and regular study sessions for directors as well as through business execution reports from the heads of business units for timely updates of information. In addition, meetings are regularly held to exchange opinions between executive offices and external advisers with expertise in the environmental and social fields, so as to leverage external expertise to improve the knowledge and expertise of MUFG as a whole. Please turn to Page 17. The third point of the first plan is that the criteria for evaluating the competencies of the Board of Directors and the results of the evaluation should be disclosed. Regarding this matter, we have been using third-party organizations to evaluate our Board of Directors annually since 2013. All directors have surveyed and interviewed about the purpose of the Board of Directors, its composition and expertise, agendas and discussions, promotional reform and each director's self-assessment. The results are reported and discussed by the Nominating and Governance Committee and the Board of Directors. Please turn to Page 18. This is a result of the evaluation of the effectiveness of the Board of Directors in Fiscal Year 2023. We have been continuously improving the operation and structure of the Board of Directors. And in FY '23, we confirm that the monitoring functioned effectively and the effectiveness of the Board of Directors was ensured, including an important agenda items such as sustainability. The policy regarding the evaluation of the effectiveness of the Board of Directors and the results of the evaluation have been disclosed previously in the Corporate Governance Report. Please turn to Page 19. The second point of the claim is about the financing policies for the fossil fuel sectors. First, let me explain about the oil and gas sector. For oil and gas, from the viewpoint of ensuring stable energy supply and security as well as access to energy, we do not envision a prohibition policy at present. However, we will periodically consider future revisions of the policy as necessary in reflection to the change in the dynamics of our business environment. Then for project finance, we are checking transition with GHG emissions, alignment with national and regional transition strategies and transition strategy of the sponsor through the equator principles and assessment of climate change risk. Next for alignment with 1.5 degree target for Project Finance, we confirm the 1.5 degrees alignment of the sponsors' transition strategies. And for Corporate Finance, we confirmed through the transition assessment framework. The last one is the exclusion threshold of transactions with clients that have plans to expand their oil and gas operations or operating unconventional oil and gas operations. In doing business with them, we confirm details of decarbonization plans as well as interim targets and transition plans for 1.5 degrees alignment through the transition assessment framework. In addition, unconventional oil and gas projects are controlled as transactions of high caution and financing will not be provided if we cannot sufficiently confirm the environmental and social management approach of the client. Please turn to Page 20. Next is a policy for the coal mining sector. First, the claim that financing for clients' expanding thermal coal mining should be prohibited. MUFG has already prohibited financing to new expansion of infrastructures projects as well as new clients related to thermal coal mining for power generation. However, we do not envisage prohibiting financing for the general working capital of our existing clients. Secondly, the opinion that MUFG should prohibit financing new coking coal mining. MUFG has no prohibition policy envisaged at present for financing new coking coal mining as coking coal is difficult to substitute and is essential, especially in the steel manufacturing industry. Next is 21. Here, you will find the revised policies for fossil fuel sectors to date and the progress of the actual performance of the balance targets. As you can see, MUFG is continually reviewing enhancing its policies for the fossil-fuel sectors in its environmental and social policy framework. Please turn to Page 22. The third point of the claim regarding the GHG interim and balance targets for the fossil fuel sectors. First, let me explain the GHG interim target. First, the opinion that the interim emission target for the electricity and oil and gas sectors should be set only for the 1.5-degree scenario. The interim targets for these sectors were ranged targets consistent with the Paris Agreement following the effective NZBA guidelines at the time, back in 2021. In the future, we will consider revising the targets based on the NZBA guidelines revised in April 2024, taking into account the revision status of Japan's Strategic Energy Plan and renewal of NDCs of other countries. Next to your point that the GHG interim targets for the oil and gas sector should include mid-to downstream emissions. MUFG's interim targets, while targeting clients whose main business is upstream, cover all Scope 1 through 3, which means all emissions from the time of extraction to final consumption that is from mid- to downstream, are included. Please turn to Page 23. Next is the GHG balance target for coal mining and coal-fired power generation. First, regarding the opinion that the balanced target for coal mining should be consistent with a 45% reduction in global coal production by 2030 in the IEA NZE scenario. MUFG's balance target is in line with the IEA NZE scenario, which assumes a phaseout of coal-fired power without emission reduction measures by FY 2030 in OECD countries and by FY 2040 in all other regions as well as the G7 statement. Note that this target setting is also an acceptable approach supported by NZBA, and has been adopted by a majority of financial institutions. Next, I would like to address your claim that the coal-fired power balance targets should be consistent with the 2030 IEA NZE scenario that unabated coal-fired power will account for less than 50% of electricity generation. We have already set targets of 50% reduction in FY 2030 and reduced the zero balance in FY '40 for coal-fired project finance and zero balance in FY '40 for coal-fired power corporate finance. Financing of new and expansion coal-fired power has already been prohibited and balance reductions will progress in accordance with the agreed repayment schedule. Page 24. We have received 3 comments on the fourth point of the claim, efforts to create a supportive environment for transitions. Regarding the first point, the comment that the Asia Transition Finance guideline, developed by MUFG through the Asian Transition Finance Study Group reflect Japan's energy policies and thus are suitable for Southeast Asia. The guidelines developed to the National Authorities of Southeast Asian countries as observers, and rebuilt by the participating banks. The guideline was agreed upon after review by the participating banks with the authorities of each country as observers and the quantity as a practical guideline that organizes a process for financial institutions to consider Transition Finance. And as sample case to check consistence with the prospects of each country's government, the Japanese government pathway is simply mentioned. Second, regarding the comment that MUFG-led NZBA Transition Finance guide blindly follow the Japanese Ministry of Economy Trade and Industry Technology road map. The guide was reviewed and approved by the steering group, which is equivalent of the NZBA Board of Directors and finalized. The steering group consists of 12 banks, 5 from Americas, 4 from Europe, one from Africa and the Middle East and 2 from Asia Pacific region, including our bank. The contents of the report include a summary of how financial institutions in each country are promoting transitions. As an example, the EU Taxonomy and METI Technology Roadmap are presented as examples but they are not blindly followed. Please turn to Page 25. Finally, the comment that MUFG's Asia Transition Whitepaper reiterates the use of ammonia co-firing and CCUS, which prolonged the use of fossil fuels. The purpose of publishing the Asia Transition Whitepaper is to understand the challenges and strategies for decarbonization in Thailand and Indonesia, and to advocate potential solutions for adopting renewable energy in the country. The mention of ammonia co-firing and the use of CCUS are reference examples of technologies included in the decarbonization strategy of the state-owned power companies in Thailand and Indonesia. Those were our views on the investor updates by the proposals. MUFG is addressing a wide range of sustainability issues, including biodiversity and respect for human rights. In addition to climate change, while being aware of the trends of our global competitors, and we continue to enhance the sophistication of our disclosures. We would like to thank you all for your continued understanding and support. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]