The region and Financial Institution are a community. As a leader in the region, we will implement decarbonization support measures to strengthen the business foundations of local companies and the regional Industry base.

--Thank you for joining us today. First of all, could you tell us about the Industry structure of Okayama Prefecture?

Mr. Arakawa: Compared to the national average, Okayama Prefecture has more petroleum, steel, chemical, and transportation machinery. In addition, there is a concentration of related companies located in the Mizushima Industrial Park. Associated with this is transportation and Industry waste, and the area is also home to many local Industry such as the famous school uniforms, as well as clothing and textile Manufacturing. There are also many suppliers to major oil Company and automobile OEMs, so there are more Manufacturing industries than primary Industry , and more small and medium-sized enterprises than large corporations.

Mizushima Industrial Area (Mizushima Petrochemical Complex)

--Please tell us why Bank of China is working on decarbonization support. Also, why do you think decarbonization support is necessary for the management of Bank of China?

Mr. Arakawa: The reason why Chugoku Bank is working on regional decarbonization is that we recognize decarbonization as a social Issue . Toward that end, we, as a local Financial Institution that does business with many small and medium-sized enterprises across Industry , believe that we are expected by stakeholders to play the role of "supporter." We are aware of this and are working on it with the feeling that we must be a leader.

Next, I would like to talk about why decarbonization is necessary for Chugoku Bank's management. As a Financial Institution, supporting local companies' climate change measures will lead to strengthening the business base of local companies and the local Industry base. We understand that this will ultimately lead to Chugoku Bank's own revenue opportunities and reduced credit risk, which will also lead to the stability of our management. As we move forward with decarbonization, there will be investments in the future, which we believe will become business opportunities for us.

--So you're not saying that decarbonization will immediately create demand for funds, but rather you're working on this with an eye to the future?

Kawachi: In terms of industrial production, large companies account for a large proportion, but the reality is that there are many local medium-sized and small companies scattered around.

In the future, when global changes occur, such as the trend toward decarbonization, local small and medium-sized enterprises are left behind, but regional banks cannot shift the focus of their business from the region. Because they have a structure that is closely tied to regional companies, I think they need to take steps to ensure that local small and medium-sized enterprises survive, or at least continue their business.

I think there are obvious benefits to having small and medium-sized enterprises keep up with the times, or even lead the way, so that they are not left behind within the supply chain framework. If we can successfully create a way for companies to grow even amid the trend toward decarbonization, I think it will be beneficial in many ways for us as a regional Financial Institution.

I think that the region and Financial Institution are a community in a sense, so if small and medium-sized enterprises are doing well, we are happy and it is certainly an easy business environment to do business in. Conversely, if small and medium-sized enterprises are suffering, I think that our management will also be in a negative situation.

To achieve this, businesses need to communicate their message effectively and vigorously. With a lack of manpower, it is difficult to imagine an environment in which a lot of information is coming in, so we want to provide information and tools as quickly as possible and help small and medium-sized businesses create a business environment and foundation in which they can continue to operate.

--What is the awareness of local small and medium-sized enterprises about decarbonization?

Mr. Arakawa: I wouldn't say it's particularly high. It's gradual, but as someone on the front lines, I'm feeling that the information provided by banks and the surveys from suppliers are becoming more and more intense. I'm sure that this will continue to be felt in the future.

Bank of China exterior

Promoting "measurement" by providing the white label "Chugin GX Board" * 1) free of charge

--In this situation, could you tell us how your company is encouraging medium-sized and small businesses to take on decarbonization efforts?

Mr. Arakawa: We provide the Chugin GX Board, a white label version of Zeroboard , as a tool for calculating GHG (greenhouse gas) emission amount . As we provide this service, we have prepared a support menu for each phase of the customer's life. Specifically, we divide the phases into enlightenment and understanding, measurement, goal setting and certification, reduction, and disclosure, and we are in a position to provide support for all of these phases.

-Do your sales staff interview customers and determine the phase?

Mr. Arakawa: Yes, we have templates for conversations with customers at our sales offices. The idea is that they will come to us with a summary of what phase the customer is in during the conversation, what their requests are, etc.

Penetration of sustainability in sales branches is also an Issue for us, but we have about 140 branches, and each branch has one person in charge of sustainability promotion. We hold group training sessions with this person in mind several times a year, and in reality, we are trying to take what we learn there back to each branch and spread awareness, but in reality, it is difficult to spread awareness. I think that by spreading awareness in each sales branch, we will see more reactions and requests from customers.

--In the "measure" phase mentioned earlier, you provide the "Chugin GX Board," but how many companies have introduced it so far?

Mr. Arakawa: It's been about a month since the announcement, and we've already received 30 applications. (*This is the actual result at the time of the interview on September 18. As of November, we have received 200 orders.)

In order to advance decarbonization, we can't get started without first getting people to measure their emissions. In order to come up with effective reduction measures, we first wanted to get people to understand the importance of "measuring."

We have been partnering with Zeroboard for business matching for two years. However, Zeroboard's regular plan seems to be mostly used by large companies, including listed companies, and the monthly usage fee is a bottleneck for small and medium-sized enterprises. For example, 10,000 yen per month for calculating GHG emission amount is considered to be too expensive. So we consulted with Zeroboard about how to make the tool more affordable and easy to use. They approached us about white labeling, and we thought that by simplifying the functions and offering it at an affordable price, including a free plan, it would appeal to small and medium-sized enterprises and encourage them to start "measuring". This is the start of our current initiative.

Companies look at this from the perspective of return on investment, so the question becomes how much they will spend and how much profit they will make. However, because this is an investment to increase corporate value, we thought we first needed to provide a tool that could be used as a starting point.

I think you should try it for free first, and if it works for you, you can move up to a higher-level plan or Zeroboard's regular plan.

The incentives for "measuring" are positive effects on transactions, early response to legal regulations, and adoption effects among Generation Z.

--Why is it important for companies to measure? What are the benefits and incentives of measuring? What kind of effects do you expect?

Arakawa: Although there will be some variation depending on the industry and the position in the supply chain, the number of companies that will be required to calculate and report emission amount will increase. If we do not respond, I think there is a very high possibility that it will eventually affect transactions. The first benefit is that you can understand emission amount and consider ways to reduce them. Carbon taxes are expected to be applied in the future, and another benefit of working on "measurement" is that you can respond to such legislation early on.

Other than that, I think it will also have an impact on activity students who are motivated to solve social Issue . Also, if you obtain SBT certification, you will receive incentives such as points when bidding for public works and applying for subsidies. The incentives may not be many yet, but I think they will be strengthened in the future, so I think we can expect good things in the future.

--It's easy to understand when the tool visualizes current emission amount and how much they will be reduced after capital investment.

Mr. Arakawa: For example, if you have several factories, you can analyze what is so different between them. I think visualization is essential in order to measure and analyze each location thoroughly and then come up with a strategy.

We would like to use the Chugin GX Board to consider reduction measures together with companies, taking advantage of the opportunity to calculate GHG emissions. The growth of companies leads to the growth of Chugoku Bank.

--I understand that you will be holding study sessions together with Zeroboard in the future. How do you plan to advance decarbonization through collaboration between the two companies?

Mr. Arakawa: For companies that have had their emissions calculated using the Chugin GX Board, we would like to not only help you with the calculation, but also work together with you to come up with reduction measures.

We offer a range of sustainability finance-related services, including sustainability-linked loans, green loans, and impact finance, so some companies may need to measure these as preferential conditions, and they may also want to migrate their current Excel management to the cloud.

Our bank can also check the data that companies have calculated using the Chugin GX Board, so we can provide timely advice and consultation based on that data.

--Has the reaction of your business partners gradually changed since you began supporting decarbonization?

Mr. Arakawa: Although we have just started, the number of inquiries from our branches about the Chugin GX Board and other decarbonization options in general is on the rise.

Personally, I think that if there was public support for the enlightenment and calculation stages, in addition to the already generous energy conservation subsidies, companies would be more likely to start working on it. Also, having SBT certification is appreciated by stakeholders, so I think it can be said to be effective in exploring business opportunities. In fact, there are stories of Community being formed among companies that have obtained SBT certification, which has led to business opportunities.

-- Chugoku Bank has introduced "Zeroboard for the PCAF Standard" to calculate financed emissions. What are the aims and objectives of this?

Kawachi: I believe that as local companies advance their efforts toward decarbonization and build a strong business foundation, Chugoku Bank will develop, which will improve Chugoku Bank's Category 15(emission amount of investment and lending destinations) score. As long as we use secondary data for calculations, we will only end up with the conclusion that "emission amount will not decrease unless we reduce the amount of lending," which would mean that the bank itself has given up on its desire to grow. Naturally, banks aim to grow within the banking industry, and I believe that this is what decarbonization efforts are all about.

We appreciate your continued support.

--Thank you for today. I look forward to your continued support.

* 1) overview of the Chugin GX Board

https://www.chugin.co.jp/assets/media/2024/08/240801.pdf?0c74d867e58d09ee44095dc1be2df4dc

(Related information)

・An article covering the project conducted by the Nikkan Kogyo Shimbun has also been published.

How small and medium-sized businesses can decarbonize: Chugoku Bank, The Bank of Iwate, Ltd....regional Financial Institution take the lead

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