Outside Officers Interview

August 2022

Board of Directors' Contributions to Issues Related to Climate Change

Shinya Katanozaka (Left)
Outside Director

After joining All Nippon Airways, Shinya Katanozaka served as General Manager of the Human Resources Department, President and Representative Director of ANA Holdings, Inc., and currently serves as Chairman and Representative Director of ANA. He has held his position as a director at Tokio Marine Holdings since June 2020.

Emi Osono (Right)
Outside Director

Emi Osono is currently the ICS department head and professor of business administration at Hitotsubashi University Business School. She has held her position as a director of Tokio Marine Holdings since June 2021.

Contributions of the Board of Directors on Issues Relating to Climate Change and Its Effectiveness

Engaging in effective discussions with independent directors who have diverse experience and skills to tackle the important social issue of climate change head on

Q We have identified climate change as an issue of paramount importance. What discussions have there been on this issue at Board of Directors meetings?
Katanozaka
In fiscal 2021, four intensive discussions were held on the topic of sustainability with a focus on climate change. They included dialogue on the formulation of a medium- to long-range sustainability strategy for the Group, annual and medium- to long-term business plans based on this strategy, and revisions to insurance underwriting, alongside investment and lending policies for coal-fired power generation projects and other similar projects. The opinions of the independent directors were generally supportive of the Companyʼs policy, but discussion ensued on points that warrant further consideration and attention.
Osono
For example, in December last year, Tokio Marine Holdings announced its 2050 Net Zero GHG Emissions Target, and one independent director who has experience as a senior executive commented on the importance of using such targets effectively while also finding ways to make progress on the actual situation. As one of the worldʼs leading global insurance companies, I believe this opinion reflects the shared desire of independent directors for the Company to set its sights on achieving numerical targets, while also confronting the issue of climate change head-on and implementing substantive solutions. This requires addressing the reality facing Japan as a small, resource-limited country when engaging on the larger goal of achieving net zero emissions worldwide.
Katanozaka
I fully agree. As a global insurance company and an institutional investor, it would be simplistic to assume that, in making a divestment, corporate responsibilities have been fulfilled. Instead, we must think about how to genuinely contribute to the realization of a net-zero society. In my opinion, the Board of Directors must continue to have proper discussions on what is and isnʼt feasible for the Company to achieve in this area.
Osono
Sometimes divestment is necessary, but it is important to bring it to an expanded equilibrium by encouraging transitions through innovation. We must say with confidence that we will stand firm with our customers in their transitions and keep our feet on the ground regardless of trends in society. Moreover, in saying this, it is essential that the Company takes responsibility and accumulates results, and I hope that every effort will be taken to support our customersʼ transitions.
Katanozaka
Speaking of keeping our feet on the ground, during discussions on the Groupʼs medium- to long-term sustainability strategy at a Board meeting, one of the independent directors pointed out that “the emphasis on climate change as a medium- to long-term issue in the Companyʼs sustainability strategy, which cites the years 2030 and 2050, feels somewhat overstated. To begin with, responding to climate change represents a business opportunity for our Company, and it might be better to place more emphasis on the fact that we will rise to this opportunity immediately.” Providing more explicit statements on plans and strategies regarding the Companyʼs commitment to tackling climate change through our core business will heighten the “sense of ownership” among employees, who are the main actors in these efforts. This is another reason we must keep our feet firmly grounded.
Osono
Thatʼs right. This was actually incorporated into the Companyʼs Annual Sustainability Plan in the form of a section on the “development and provision of products and services that contribute to a sustainable society” and led to quicker consideration of disaster resilience‒related products and services.
I have a sense that the comments being made by independent directors at Board meetings are steadily assuming concrete form. For example, we were the first Japanese insurance company to join the Net-Zero Insurance Alliance (NZIA). Afterward, the Company issued a statement saying that we would contribute to the realization of a net-zero society even through insurance underwriting, a move that was made based on the opinion of one of our independent directors that “insurance underwriting should be included in the 2050 net-zero target.” While this has yet to take shape, responding to the opinion of an independent director that the Company “should set milestones (interim targets) toward the 2050 net-zero target so as to make it more effective,” discussions are under way regarding setting these targets once the estimated GHG emissions from the Groupʼs insurance underwriting activities and asset management portfolios have been calculated.
Q What is your opinion on the effectiveness of the Board of Directors?
Katanozaka
As Ms. Osono says, the Company listens carefully to the opinions of its independent directors and makes every effort to bring them out. I like how the Chairman makes doubly sure at the end of each Board meeting to ask, “No more opinions?” It conveys a sense of Tokio Marineʼs appetite to improve its corporate value. Not all the opinions of independent directors are adopted unconditionally. Take, for example, the Task Force on Climate-related Financial Disclosures (TFCD) relative to physical risk. One of the independent directors argued that we should disclose our expected loss figures, but the Company decided not to do so because “disclosing expected loss data as is would be akin to a manufacturer disclosing a blueprint and would not lead to an increase in corporate value.” Accordingly, the Company decided to disclose “the range of fluctuation in claims paid” as a physical risk, based on the scenario analysis tool of the United Nations Environment Finance Initiative (UNEP FI), for which we are a participant and a discussion leader. At any rate, I think it is extremely healthy that the opinions of independent directors are taken seriously, and after discussion, conclusions are reached that are acceptable to all members of the Board.
As you can see, the broad cross-section of independent directors means that our Board of Directorsʼ meetings are often animated, with a high volume of opinions exchanged. I know this comment is made frequently, but I genuinely feel that our meetings are lively and that the Board engages in deep, meaningful discussions.
Osono
I agree. I think all members contribute to important discussions, having already shared Company policy background. The different backgrounds and skills of the independent directors are highly beneficial to discussions on climate change, an issue that demands consideration from many perspectives. We all take the pursuit of fundamental solutions to issues confronting us extremely seriously. I became an external auditor at TMNF in 2017, and my first comment at my first Board meeting was, “Isnʼt there anything we can do about transfers?” I asked whether labor practices established when full-time housewives were the norm should still apply today, arguing that the burden imposed on families is too strong, and I called for a fundamental review of these practices and values.
Katanozaka
And thatʼs been accomplished, hasnʼt it?
Osono
Itʼs taken some time, but with the boost offered by new work styles such as remote work taking root during the coronavirus pandemic, we are reviewing our transfer policy with the aim of eliminating transfers to other locations without employee consent. Any change to the operation of a system tends to generate friction, and I believe the structuring process is being undertaken with great caution, alongside careful monitoring of work sites. One of the strengths of this Company is our ability to think carefully about the fundamental measures needed to tackle the issue at hand and then execute them in a way that exceeds expectations. Accordingly, Iʼm confident that we will be able to find the optimal solution to climate change, an issue that will require the coordination of many different interests.
Katanozaka
In addition, the Company will introduce non-financial indicators in its performance-based compensation for executives from fiscal 2022 onward. This is something that has been under consideration by the Compensation Committee for two and a half years. I have shared with the execution side an example of its implementation in ANAʼs executive compensation packages. In our case, we decided to introduce an “employment engagement indicator” and a “sustainability strategy indicator” of 5% each in the KPI that determines company performance. These percentages might be small, but the move is commendable in that the indicators demonstrate preparedness both internally and externally, and that is a good place to start. As the promotion of sustainability strategies, including climate change countermeasures, is largely beyond the power of individuals alone, I would like to see the Company ensure that its employees understand the importance of these efforts and encourage their promotion.

Your Expectations of the Company

To further enhance corporate value, while respecting the culture, demonstrating leadership and increasing the speed of navigation

QYou mentioned that this initiative took a tremendous amount of time to accomplish. What are your expectations for Tokio Marine to further increase its corporate value?
Osono
I appreciate how the Company consistently maintains the idea that it is important to solve the root causes of issues such as climate change and diversity, rather than just setting numerical targets. The company culture is excellent. However, these issues take time to resolve. In Europe, companies start by trying out new measures. They then make improvements while monitoring the results. Itʼs the role of independent directors̶here at Tokio Marine, too̶to keep asking if there are ways to expedite this process.
Katanozaka
As I see it, given that we are working to solve the social issue of climate change while pursuing growth as a company, unless we change the way we do business, we will not be able to keep pace with the drastic changes in the environment. With regard to transforming the way we work, to take a proximate example, I think it would be good to report to the Board of Directors at a much earlier, rawer stage of the process. After all, the essence is in the table talk. The tempo should be something along these lines: “We started that this year, but weʼve detected these problems so weʼre going to set about fixing them.” Adjusting in small increments will also help speed up the process.
Osono
I agree. The “fail fast, fail forward” mantra has already been communicated throughout the Company, but youʼre welcome to fall a whole lot further forward in front of us (laughs). Iʼd like to see the company makes use of us (independent directors) at an earlier stage in the problem-solving process, or as leverage for what it hopes to accomplish moving forward.
In this sense, we set off fireworks to provide direction. Irrespective of whether success is guaranteed, I believe itʼs good to take up the challenge, to be the first, even if there are risks involved. Tokio Marine has established a strong brand name for itself in Japan, but if the Group is to succeed in growing its brand worldwide, it needs to take a solid position and demonstrate stronger leadership through its words and actions. Confronting climate change is uncharted territory. That being the case, we can make our own rules for how we respond. Tokio Marine has consistently adopted this approach throughout its history, which is why we are the industry leader. If, however, the Company wants to remain at the forefront of the insurance industry, we hope to do more in this area.
Katanozaka
I couldnʼt agree more. The Group has already launched several initiatives that are enabling the Company to demonstrate its leadership in the fight against climate change: the use of data relating to climate change at Tokio Marine dR, the Groupʼs digital vehicle, for example, and the acquisition of GCube, which is contributing to the development of renewable energy. Bringing these to the fore in appealing to both internal and external audiences will offer an effective means of increasing the Companyʼs value.
Katanozaka
While there are many different social issues that require attention, tackling climate change through our core business represents the No. 1 priority for Tokio Marine. It is that critical, but it is a business opportunity, too. I hope that Tokio Marine will continue to lead the way as a top corporate group in Japan and around the world.
Osono
The Ministry of Economy, Trade, and Industryʼs Green Innovation Fund, of which I am a part, has taken a bold step by allocating a total budget of 2 trillion yen over a 10-year period. This budget will support everything from R&D and verification to social implementation for innovations in a diverse range of fields, including biofuels and high-speed, high-efficiency optical transistors. Without solutions created by innovative technologies, it will be impossible to balance the twin goals of economic growth and reduced environmental impact. When it comes to supporting transitions, we need to have our antenna up, have a good grasp of the issues, run alongside our clients, and have their backs. I am confident that we are a corporate Group that can achieve this and we, the independent directors, will be unstinting in providing the necessary cooperation.
Katanozaka
Thatʼs right, we can do it!!

Thank you for taking time out of your busy schedules to talk with us today.