Climate Change Initiatives

Awareness of climate change

The Paris Agreement adopted in 2015 clearly states a shared global goal of keeping the rise in average temperatures from pre-industrial revolution levels to well below 2℃. The Sixth IPCC Assessment Report (Working Group I Report), published in 2021, states that there is no longer any doubt that human activities have an impact on global warming; that unless significant reductions in greenhouse gas emissions are made over the next few decades the rise in temperature from pre-industrial revolution levels will exceed 1.5℃ and 2℃ during the 21st century; and that the climate system will undergo changes, including an increase in the intensity and frequency of natural disasters.

In November 2017, the Asset Management Company established the “ESG (Environment, Society, Governance) Policy” and is promoting ESG responses in order to maintain and improve the corporate value and the asset value of the properties under management over the medium to long term, and to contribute to all stakeholders. We recognize that addressing climate change is one of the most important issues.

Endorsement of the TCFD recommendations and participation in the TCFD Consortium and JCI

In FY2021, the Asset Management Company endorsed the TCFD recommendations.

Identifying, assessing, and managing the risks and opportunities that climate change poses to MFLP-REIT’s asset management business in line with the TCFD Final Recommendations and enhancing the resilience of the business, are essential to ensure the MFLP-REIT’s sustainable and stable earnings over the long term. We will consider further enhancement of information disclosure in the future.

By endorsing the TCFD recommendations, the Asset Management Company joined the TCFD Consortium and the Japan Climate Initiative (JCI). Many Japanese companies and organizations that have endorsed the TCFD recommendations participate in this Consortium, where their approaches to promoting climate-related disclosure are discussed and shared. JCI, a Japanese domestic network for decarbonization, disseminates messages toward net zero and aggregates and provides information on climate change.　In addition to exchanging information with other participants through its activities in the TCFD Consortium and JCI, the Asset Management Company proactively disseminates information on its approach to climate-related disclosure.

In addition, as a member of the Association for Real Estate Securitization, the Asset Management Company regularly collects information on outstanding efforts by other member companies to reduce environmental burdens and build a sustainable society, which will be useful for further raising environmental awareness and expanding such efforts.

*TCFD is an abbreviation for Task Force on Climate-related Financial Disclosures. This organization was established by the Financial Stability Board at the request of the G20, and provides a framework for climate-related disclosure.

Governance

In accordance with the Climate Change Resilience Policy, the Asset Management Company has designated the President & CEO as the responsible director for climate-related issues and the Chief Investment Officer as the responsible executive for climate-related issues.

The responsible executive regularly reports to the Sustainability Promotion Committee, which includes the responsible director, on matters related to the identification and evaluation of the impact arising from climate change, the management of risks and opportunities, progress of initiatives, and the setting of indicators and targets.

The Sustainability Promotion Committee deliberates and reviews each agenda item, and decisions are made by the responsible director.

Climate-related issues are promoted within a supervisory framework centered on the President & CEO, who is the responsible director.

Strategy

In order to incorporate the uncertainties arising from the progression of climate change into the business strategy of the Asset Management Company, we have identified risks and opportunities, conducted scenario analyses based on a 1.5-2℃ scenario and a 4℃ scenario, and assessed the financial impact of climate-related risks and opportunities.

Scope of scenario analysis

The scope of the analysis is the asset management business of MFLP-REIT.

Main scenarios referenced

This table can be scrolled sideways.

	Publishing agency/organization	1.5-2℃ scenario	4℃ scenario
Transition risk	International Energy Agency (IEA)	IEA World Energy Outlook2020 NZE2050	IEA World Energy Outlook2020 SPS
Physical risk	Intergovernmental Panel on Climate Change (IPCC)	Fifth IPCC Assessment Report IPCC RCP2.6	Fifth IPCC Assessment Report IPCC RCP8.5

This table can be scrolled sideways.

		Related item for property management	Expected financial impact	Category	4℃ scenario		1.5-2℃ scenario		Response by the Asset Management Company
					Degree of financial impact
					Short/ medium term	Long term	Short/ medium term	Long term
Transition risks/opportunities	Policies and laws	Strengthening of energy-saving standards for properties held	Increase in renovation costs Fines, etc. Increase in operating costs	Risk	Small	Middle	Middle	Large	Utilization of Mitsui Fudosan’s information and know-how Introduction of green leases Systematic switch to LED lighting Establishment of green energy procurement system Additional installation of solar power generation equipment and own consumption, electricity consignment
	Policies and laws	Introduction of carbon taxes, etc. Purchase of CO2 emission credits	Increase in costs such as carbon taxes Increase in cost of purchasing CO2 emission credits Cost increase through secondary cost shifting	Risk	Small	Middle	Middle	Middle
	Technology	Evolution of renewable energy and energy-saving technologies, diffusion of new technologies (Conversion of portfolio to ZEB)	Increase in new technology introduction cost	Risk	Small	Small	Small	Middle
	Technology		Decrease in operating costs Reduction of costs through energy saving	Opportunity	Small	Small	Small	Middle
	Market/reputation	Changes in tenant behavior	Decrease in competitiveness of properties with low environmental performance	Risk	Small	Small	Small	Middle	Improved environmental performance of the portfolio Obtaining external evaluations and certifications Establishment of procurement system for green electricity Implement tenant satisfaction surveys Promotion of cooperation with tenants
		Changes in tenant behavior	Increase in rental revenues due to growing demand for properties with high environmental performance	Opportunity	Small	Small	Middle	Large
		Change in status of financing	Decline in financing opportunities and deterioration of financing conditions due to low evaluation from investors and financial institutions	Risk	Small	Middle	Middle	Middle	Improvement of the environmental performance of the portfolio Obtaining external evaluations and certifications Utilize ESG finance Expansion of disclosure of ESG-related information
		Change in status of financing	Increased financing opportunities and improved financing conditions due to high evaluation by investors and financial institutions	Opportunity	Small	Small	Small	Middle
Physical risks/opportunities	Acute	Increase in the frequency and intensity of natural disasters (concentrated torrential rain, typhoons, floods, landslides, etc.)	Occurrence of losses Increase in expenses of repair expenses and insurance premiums, etc. BCP measures and increased costs	Risk	Middle	Large	Small	Middle	Thorough BCP measures Implementation of regular disaster drills Implementation of regular disaster risk evaluations and implementation of response measures
	Acute		Increased demand for properties with a high level of BCP both in terms of hardware and software and increased rental revenues	Opportunity	Middle	Large	Small	Middle
	Chronic	Flooding caused by rising sea levels	Increase in costs caused by major renovations (construction of embankments)	Risk	Middle	Large	Small	Middle
	Chronic	Increase in extremely hot or extremely cold days	Increase in operating costs and repair costs of air conditioners due to an increase in air conditioning operating time	Risk	Middle	Large	Small	Middle	Consideration and introduction of high-efficiency air conditioning systems

Note that on the time axis, “short term” indicates 1-3 years, “medium term” indicates 4-10 years, and “long term” indicates a period of over 10 years.
Based on the results of scenario analysis, the Asset Management Company will establish an internal structure, and examine countermeasures, and incorporate such measures into business strategies, while formulating, implementing, and monitoring them repeatedly and continuously, aiming to enhance corporate value and heighten business resilience. Specific initiatives are presented on Environmental Performance Results and Initiatives.

Risk management

In order to mitigate climate-related risks and take advantage of opportunities, the Asset Management Company identifies, evaluates, and manages climate-related risks and opportunities based on the following framework.

Process for identifying and evaluating climate-related risks and opportunities

Once a year, the responsible executive invites those who are essential to a climate-related working group, and identifies and evaluates climate-related risks for the Asset Management Company. Climate-related risks in this analysis are based on the following framework.

(1) Transition risk: impact on the business of the low-carbon/decarbonization transition of society and the economy

(a) Policy, law and regulation risk: risk of strengthened regulations caused by policy-driven promotion of decarbonization
(b) Technology risk: risk arising from the development of new technology, and its adoption by the mainstream, related to low-carbon/decarbonization
(c) Market risk: risks associated with markets, such as volatility in energy prices and fluctuations in demand for services
(d) Reputation risk: risk of negative changes in reputation among stakeholders such as customers, the general public, employees, and investors

(2) Physical risk: impact on the business arising from the progression of climate change, resulting in variations from previous weather patterns and climatic phenomena

(e) Acute physical risk: risks originating in events such as typhoons and flooding
(f) Chronic physical risk: risks originating in long-term shifts in weather patterns, such as high or low temperatures sustained over long periods

In addition, in cases where themes and elements that could provide business opportunities to the Asset Management Company and MFLP-REIT are identified during the process of uncovering risks, these are identified as climate-related opportunities in a separate category from risks, and their feasibility is investigated.

The responsible executive provides regular reports to the Sustainability Promotion Committee on the progress and outcomes of work to uncover risks and opportunities performed by the working group.

Process for managing climate-related risks and opportunities

For important climate-related risk and opportunity factors that the Asset Management Company has determined should be addressed as a priority based on the above process, a management process is set out as follows, with the aim of mitigating risks and taking advantage of opportunities.

For high-priority climate-related risks and opportunities that have been deliberated by the Sustainability Promotion Committee and that are important in the context of business and financial plans, the responsible director designates a team in charge of addressing the issue, and instructs them to draft appropriate measures.
The measures drafted by the team in charge of addressing the issue will be deliberated by the Sustainability Promotion Committee as necessary, and the details will be finalized in accordance with the appropriate rules governing administrative authority.
The responsible director gives instructions for climate-related risks that are important in the context of business and financial plans to be taken into account by the existing company-wide risk management program with the aim of integrating risk identification, evaluation and management processes.

Indicators and targets

The Asset Management Company works to establish environmental KPIs, and to set and monitor indicators and targets, with the objective of mitigating climate-related risks and taking advantage of climate-related opportunities. The state of progress for each initiative is summarized at least once a year by the responsible executive, who presents a report to the Sustainability Promotion Committee.

The environmental KPIs that are currently established by the Asset Management Company, together with historical data, are shown on Environmental KPIs, Environmental Performance Results and Initiatives, and Initiatives to Obtain Green Building Certification.

The Asset Management Company will continue to consider and disclose any new environmental KPIs that seemappropriate to set.