SFDR SUSTAINABILITY-RELATED DISCLOSURE

• Principal Adverse Impacts Statement (SFDR Article 4 Disclosure)pdf(201KB)
• Pre-Contractual Product Disclosure (SFDR Article 8(1) Disclosure)pdf(343KB)
• Product Disclosure in Periodic Reports (SFDR Article 11 Disclosure)pdf(117KB)

Product Name: Japan Real Estate Investment Corporation

Japan Real Estate Investment Corporation (“JRE”) promotes environmental and social characteristics, but does not have as its objective a sustainable investment within the meaning of Article 9(1) of Regulation (EU) 2019/2088 (“SFDR”). JRE has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on Japan Real Estate Asset Management Co., Ltd. (the “Asset Manager”) to manage and operate the properties in JRE’s portfolio. JRE and the Asset Manager are hereinafter referred to collectively as “we”, “us” or “our” unless noted otherwise. References to “fiscal year” or “FY” are to the 12 months began or beginning April 1 of the year specified in line with the fiscal year of the Asset Manager, unless noted otherwise.

Summary

No sustainable investment objective	The financial product offered by JRE promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product	We are committed to pursuing social sustainability, making socially responsible investments, and maximizing unitholder value by being mindful of the environment, contributing to society, and enhancing governance. We view environmental, social, and governance (“ESG”) initiatives as essential for a business to be both sustainable and stable, and are committed to implementing such initiatives in cooperation with our stakeholders. Toward this goal, based on the Sustainability Policy established by the Asset Manager, we implement various initiatives as described below.
Investment strategy	We invest directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment policies as described below are related to real estate and real estate-related assets. JRE’s investment management operations are conducted in conformity with the Sustainability Policy, which stipulates JRE’s priority issues and basic policies on sustainability with regard to its real estate investment management. To ensure implementation of the Sustainability Policy and execute a plan-do-check-act (“PCDA”) cycle related to the same, the Asset Manager established the Sustainability Committee in May 2016. When acquiring real estate properties, we take into account various ESG criteria described below and conduct due diligence, including on-site inspections and investigations through real estate appraisal reports and engineering reports. In addition, we have established a green bond framework to conduct green financing. The net proceeds from green bonds are used to refinance and/or finance refurbishments to or acquisition of assets that meet the eligibility criteria described below.
Proportion of investments	JRE offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of March 31, 2023, 76.3% of the properties in our portfolio were Green Assets (as defined below) and 23.7% were uncertified assets, based on gross floor area of owned buildings. We plan to maintain the percentage of Green Assets at more than 70% of JRE’s properties.
Monitoring of environmental or social characteristics	We measure progress made on the environmental or social characteristics promoted by JRE through (i) environmental initiatives regarding climate change, water saving, waste management, and renewable energy, (ii) environmental consideration of portfolio, (iii) tenant engagement, (iv) employee health and well-being at the Asset Manager, and (v) international initiatives and external evaluations.
Methodologies	To implement the Sustainability Policy, the Sustainability Committee examines and reports on various initiatives taken based on the Sustainability Policy. The Committee executes the related PDCA cycle by examining and planning measures, reporting and evaluating progress and analyzing results, and then examining and planning improvement actions, thereby making improvements on a continual basis. After matters are examined by the Sustainability Committee, the Asset Manager makes decisions on those matters and implements appropriate measures, and the results are reported to JRE’s Board of Directors once a year. The details of the methodologies used for each initiative and indicator are further described below.
Data sources and processing	The property‑level environmental data is collected by property management companies and compiled and analyzed by a company specializing in EMS. Such data is reported to the Asset Manager on a monthly basis. To ensure data quality and accuracy, we obtain an assurance by a third-party organization in accordance with International Standard on Assurance Engagements 3000 and 3410.
Limitations to methodologies and data	The primary limitation to the methodologies and data sources is the necessity of our reliance on the property management companies for raw data at the property level. However, the Asset Manager implements a verification process with respect to the accuracy of such raw data and JRE’s environmental performance data has been given limited assurance by a third-party organization. Therefore, limitations on the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by JRE in any material way.
Due diligence	When acquiring real estate properties, we conduct on-site inspections and also investigate soil contamination and toxic substances, such as asbestos and PCBs, by obtaining real estate appraisal reports and engineering reports in addition to receiving related disclosure materials from the sellers. Findings from due diligence review conducted prior to an acquisition of a property, including environment assessment and evaluation of earthquake resistance and probable maximum loss, are binding on our investment strategy, and we will not acquire a property that does not meet certain criteria based on such findings. We also take into account the acquisition of green building certifications and environmental performance including CO2 emissions, which promotes acquisition of properties with high environmental performance.
Engagement policies	The Asset Manager’s investment decision-making process involves assessment of material ESG related-risks and opportunities to ensure that JRE’s sustainable investment strategy is implemented on a continuous basis. With each acquisition opportunity, we review ESG-related due diligence findings and take into account the acquisition of green building certifications and environmental performance including CO2 emissions. These findings and factors are deliberated at the Asset Manager’s Investment Management Council, where a final decision is made on the investment.
Designated reference benchmark	JRE has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by JRE.

No sustainable investment objective

The financial product offered by JRE promotes environmental or social characteristics, but does not have as its objective sustainable investment.

Environmental or social characteristics of the financial product

We are committed to pursuing social sustainability, making socially responsible investments, and maximizing unitholder value by being mindful of the environment, contributing to society, and enhancing governance. We view environmental, social, and governance (“ESG”) initiatives as essential for a business to be both sustainable and stable, and are committed to implementing such initiatives in cooperation with our stakeholders. More specifically, we are committed to improving the environmental performance of our real estate portfolio while generating greater returns on our office investments, achieving sustainable development alongside all of our stakeholders, including unitholders, tenants, employees, suppliers and local communities, to contribute to sustainable society, and maximizing unitholder value. Our basic policy is to strictly observe legal requirements and relevant social norms, and under this basic policy, we have established a Sustainability Policy to implement the initiatives described below.

• Environmental Initiative. Based on items “1. Climate change initiative (promoting decarbonization and strengthening resilience)” and “2. Contribution to resource conservation including water and resource recycling” of the Sustainability Policy, JRE has set reduction targets for energy consumption and greenhouse gas (“GHG”) emissions in order to improve the environmental performance of its real estate portfolio. In order to achieve these targets, the Asset Manager implements measures to improve the operational performance of buildings, conducts energy efficiency retrofits, and engages tenant on energy efficiency based on its “Energy Conservation Policy”, which stipulates operational policies for improving energy efficiency of the real estate portfolio, and “GHG Emissions Reduction Policy”, which aims to create a decarbonized society.
• Environmental Consideration of Portfolio. To track the environmental performance of our properties, we rely on certifications issued by third-party organizations, such as the Development Bank of Japan’s (“DBJ”) Green Building Certification, Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification, Building Energy-efficiency Labeling System (“BELS”) certification, Net Zero Energy Building (“ZEB”) certification and other equivalent certifications.
• Tenant Engagement. To increase the satisfaction of tenants in each building, we periodically carry out tenant satisfaction surveys. JRE is also implementing various initiatives to enhance the sustainability of each building in collaboration with tenants, such as distribution of sustainability guides. Sustainability guides introduce activities to improve the office environment, such as creating open spaces to promote communications among workers and introducing sustainable daily efforts to reduce electricity and water consumption. Regarding lease agreements, we include Green Lease provisions in our lease agreements that require tenants to achieve certain operational improvements and install energy-efficient retrofits. Specifically, Green Leases include provisions requiring each party to cooperate with the other party on measures to achieve sustainability targets and obtain environmental certifications, and to share energy-consumption and water usage data. We conduct periodic surveys of property managers of all of our properties based on the questions from Global Real Estate Sustainability Benchmark (“GRESB”), and we analyze sustainability efforts based on survey results, which are shared with the property managers. The survey includes questions on whether a property manager has introduced any measures to reduce energy consumption, water usage and waste, whether it has implemented any sustainability measures and conducted any satisfaction survey for tenants and whether it has engaged in any social activities with local communities. As for property level energy, water usage, and waste-related data, we utilize a system to give online feedback regarding such data.
• Employee Health and Well-being at the Asset Manager. We believe that the physical and mental health of employees and the creation of an accommodating work environment are key to maintaining and improving our business performance. As an example of related initiatives, we conduct annual anonymous surveys of all employees on a wide range of topics, including the work environment, benefits and educational support. The survey results are reported to the Asset Manager’s President & CEO and are used for improving our activities. In addition, the HR department interviews employees to gather their opinions on how to improve operational efficiency. Furthermore, all employees can consult with the General Manager of the Asset Manager’s Compliance Department, a law firm, or an outside specialist on matters such as risks/problems at work, grievances and improvement requests as well as whistleblowing on illegal or unethical behavior by officers and employees. Every employee can seek any of the foregoing consultations anonymously, and whistleblowers are given protection under the Whistleblower Protection Act of Japan. If deemed necessary, such matters of consultations are reported to the President & CEO, who will conduct an investigation and take measures necessary for resolution of the issue. In addition, we have implemented various measures, including creating a productive and employee-friendly workplace and promoting diverse work styles, to promote the physical and mental health of employees, help them achieve good work-life balance, and increase employees’ motivation.
• International Initiatives and External Evaluations. We attach great importance to ESG-conscious investing in order to continuously improve the value of assets under management, and are a signatory or participant in various international initiatives, such as PRI, RE100 and, as a member of Mitsubishi Estate Group, the United Nations Global Compact (UNGC). Also, JRE’s updated CO₂ emissions reduction target has been approved by the Science Based Targets initiatives (SBTi), which is a global joint initiative by CDP, the United Nations Global Compact, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). Furthermore, several of the Asset Manager’s ESG initiatives have been evaluated highly by external organizations in Japan and overseas. Going forward, we will maximize long-term returns by strengthening our environmental, social, and governance initiatives.

Investment strategy

We invest directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment policies as described below are related to real estate and real estate-related assets.

JRE invests primarily in office buildings located in major cities all over Japan. JRE’s investment management operation is conducted in conformity with the Sustainability Policy established by the Asset Manager, which stipulates JRE’s priority issues and basic policies on sustainability with regard to its real estate investment management. In this manner, we have incorporated ESG factors into our asset investment and management decision-making processes and aim to achieve healthy asset growth and stable distributions over the medium to long term. To ensure implementation of the Sustainability Policy and execute a plan-do-check-act (“PCDA”) cycle related to the same, the Asset Manager established the Sustainability Committee in May 2016.

We take into account sustainability in our investment process as follows.

• Due Diligence. When acquiring real estate properties, we conduct on-site inspections and also investigate soil contamination and toxic substances, such as asbestos and PCBs, by obtaining real estate appraisal reports and engineering reports in addition to receiving related disclosure materials from the sellers.
• Incorporation of ESG Criteria for Property Acquisition. In December 2020, we added the following factors to the assessment criteria (in addition to location and building specifications) that we consider when acquiring properties: (i) green building certifications and (ii) environmental performance including CO₂ emissions. In incorporating these ESG criteria, we have obtained a second-party opinion from CSR Design Green Investment Advisory, Co., Ltd.
• Green Bond Framework. In order to further promote our sustainability initiatives, we have established a green bond framework to conduct green financing. The net proceeds from green bonds are used to refinance and/or finance refurbishments to or acquisition of assets that meet the following eligibility criteria:
  • Refurbishments with a primary purpose of achieving one of the following criteria which have been completed within 36 months prior to the date of the green bond issuance and/or will be completed in the near future: (i) refurbishments with more than 10% reduction in CO₂ emissions or energy consumption, (ii) refurbishments with more than 10% reduction in water consumption, (iii) more than one level of star/rank improvement in the green building certifications listed in the following paragraph, (iv) refurbishments that contribute to the conservation and recovery of biodiversity, including of diversity of outdoor plants, if one or more of criteria (i) to (iii) above are met, (v) refurbishments that contribute to the local community by improving public open space connected to the building and renovation to accommodate people who are temporarily unable to return home, if one or more of criteria (i) to (iii) above are met, and (vi) obtaining a certification or recertification listed in the following paragraph.
  • Acquisition of buildings that have achieved the following top three levels of third-party green building certification or recertification within 36 months prior to the date of green bond issuance and/or will achieve: (i) DBJ Green Building Certification (three-stars or better), (ii) BELS certification (three-stars or better) and (iii) CASBEE for Real Estate certification (B+ rank or better).

Proportion of investments

JRE offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. We define properties that have received any of the green building certifications and energy-saving certifications as “Green Assets”. As of March 31, 2023, 76.3% of the properties in our portfolio were Green Assets and 23.7% were uncertified assets, based on gross floor area of owned buildings. We plan to maintain the percentage of Green Assets at more than 70% of JRE’s properties.

Monitoring of environmental or social characteristics

We use the following indicators to measure progress made on the environmental or social characteristics promoted by JRE.

• Environmental Initiative
  • Climate Change Initiatives. The Asset Manager tracks and monitors GHG emissions of JRE’s properties recognizing that reduction of GHG emissions is of critical importance to ensure the sustainability of our business. We aim to achieve a 80% reduction in total CO₂ emissions from our portfolio by FY2030 compared with the 2019 level and net zero CO₂ emissions from our portfolio by FY2050. We also have been working to reduce energy consumption of our portfolio by installing eco-friendly equipment such as LED lighting, which reduces electronic usage, and energy-saving air conditioning systems. The Asset Manager monitors and tracks total energy consumption, the percentage of progress in installing LED light bulbs in certain common areas for the entire portfolio and the number of properties in which we had introduced 100% renewable electricity.
  • Water Saving Initiatives. We aim to achieve a 20% reduction in water use (intensity) in our portfolio by FY2030 as compared with the 2019 level. To achieve such target, the Asset Manager tracks and monitors water use (intensity) of our properties. Some of the buildings we own are equipped with facilities for reusing rainwater and greywater, as we endeavor to reduce the consumption of tap water.
  • Waste Management Initiatives. We aim to achieve a more than 90% waste recycling rate in our portfolio by FY2030. Based on such initiative, the Asset Manager tracks and monitors waste recycling rate in our portfolio. We have reduced waste and promoted efficient use of resources through the promotion of reuse and recycling at our properties.
  • Renewable Energy. We are making efforts to accelerate the use of electricity from renewable energy recognized by RE100 (where “RE” stands for renewable electricity), which is a global corporate renewable energy initiative bringing together hundreds of large and ambitious businesses committed to 100% renewable electricity. In May 2022, JRE joined the international initiative RE100 as the first J-REIT. We aim to make 90% of electricity (of Scope 2) used at our buildings renewable energy by FY2030 and 100% by FY2050. The Asset Manager monitors the progress of achieving this target by monitoring and tracking the renewal energy rate (Scope 2) of our portfolio.
• Environmental Consideration of Portfolio. To measure progress of environmental consideration of our portfolio, the Asset Manager tracks and monitors the acquisition rate of environmental certifications. As of March 31, 2023, 76.3% of our properties were green-certified based on gross floor area of owned buildings.
• Tenant Engagement
  • Including “Green Lease” provisions in our agreements. JRE has increasingly entered into Green Leases. The Asset Manager tracks and monitors the floor area percentage for buildings leased under a Green Lease agreement that contains a cost recovery clause.
  • Sustainability program for tenants. We conduct periodic satisfaction surveys to solicit feedback from tenants to maintain a high level of tenant satisfaction and use such feedback to improve our buildings’ sustainability. The coverage of our survey on tenant satisfaction is calculated based on the number of buildings and monitored and tracked by the Asset Manager.
• Employee Health and Well-being at the Asset Manager. The Asset Manager conducts annual anonymous surveys of all employees on a wide range of topics, including the work environment, benefits and educational support. This survey’s results are aggregated into the employee satisfaction level on a 5-point scale.
• International Initiatives and External Evaluations
  • PRI Assessment. The Asset Manager is a PRI (Principles for Responsible Investment) signatory. As a signatory, the Asset Manager is required to report annually on the status of its ESG integration practices for evaluation, and receives assessment result.
  • MSCI Japan ESG Select Leaders Index. The MSCI Japan ESG Select Leaders Index is an index to represent companies with high ESG performance selected based on the data from the MSCI Japan IMI Index. The index has been selected by the Government Pension Investment Fund as one of their ESG indices for their passive investment strategy. JRE was selected as a constituent of the MSCI Japan ESG Select Leaders Index as of June 1, 2022.
  • GRESB Real Estate Rating. GRESB was founded in 2009 by a group of major European pension funds who played leading roles in launching PRI. GRESB assesses real estate companies and funds including JRE measuring their ESG integration by annual benchmarking.
  • Carbon Disclosure Project (“CDP”) score. CDP is a global non-profit charity that runs the world’s environmental disclosure system and assesses over 13,000 companies on their environmental transparency and actions. CDP sends questionnaires every year to major companies including JRE to assess corporate actions on climate change.

Methodologies

The Asset Manager established the Sustainability Committee to implement the Sustainability Policy while maximizing unitholder value. The Asset Manager’s Sustainability Committee is composed of the President & CEO as the Chief Sustainability Officer, Head of the Sustainability Management Department as the Sustainability Officer, General Managers of other departments and other members who are invited as appropriate. The Sustainability Committee examines and reports on various initiatives taken based on the Sustainability Policy. The Committee generally meets four times a year and executes the PDCA cycle by examining and planning measures, reporting and evaluating progress and analyzing results, and then examining and planning improvement actions, thereby making improvements on a continual basis. After matters are examined by the Sustainability Committee, the Asset Manager makes decisions on those matters and implements appropriate measures, and the results are reported to JRE’s Board of Directors once a year.

• Environmental Initiative. As described above, We have set various environmental initiatives based on the Asset Manager’s Sustainability Policy to improve the environmental performance of our portfolio. The progress of each environmental initiative is monitored and promoted by our PCDA cycle related to the Sustainability Policy. Under our PDCA cycle, the Asset Manager collects and monitors property level data such as energy consumption, water use, and waste, and then reports to the President & CEO on a monthly basis. The analysis to the data is used to guide decision making on future asset management and the establishment of new initiatives.
• Environmental Consideration of Portfolio. – Environmental Certification (including ZEB-certified Buildings). We consider it helpful to obtain environmental certification and monitor the acquisition rate of these certifications on our portfolio for tracking the environmental performance of our properties. We set the target of maintaining the percentage of green building-certified properties (green building certifications, energy ratings, etc.) at more than 70% of our properties. For the properties that have not obtained any certifications, we monitor and track environmental data to improve the environmental performance of such properties and, as appropriate, consider obtaining applicable environmental certifications.
• Tenant Engagement
  • Including “Green Lease” provisions in our agreements. Aiming to make environmental contributions by collaborating with tenants, we have been gradually introducing Green Leases that incorporate both operational improvements and efficiency retrofits.
  • Sustainability program for tenants. – Tenant Satisfaction Surveys. We carry out satisfaction surveys to achieve a high level of tenant satisfaction and realize sustainable buildings. These satisfaction surveys are conducted per property by collecting responses from persons in charge of general affairs in each tenant.
• Employee Health and Well-being at the Asset Manager – Annual anonymous surveys for all employees of the Asset Manager. As described above, to maintain employee health and well-being, the Asset Manager conducts anonymous surveys for all employees every year. The Asset Manager measures the implementation of this survey by response rate. The results of this survey are fed back to the President & CEO of the Asset Manager and are used for improvement activities.
• International Initiatives and External Evaluations– External Evaluations on ESG Integration. We have become a signatory to various international initiatives, such as SBTi, RE100, PRI, etc., and participated in UNGC based on the idea that asset management considering ESG is essential to the sustainable growth of the asset value. We also participate in external evaluations, which evaluate a broader scope of items related to sustainability and ESG, to assess our attainment of social or environmental characteristics.

Data sources and processing

We use the following data sources.

• Environmental Initiative. The property level environmental data collected from the property management companies are compiled and analyzed by a company specializing in EMS, which then reports to the Asset Manager on a monthly basis. To ensure data quality and accuracy, we obtain an assurance by a third-party organization in accordance with International Standard on Assurance Engagements 3000 and 3410. In addition, if there is a large difference in collected data from previous month or year, the Asset Manager investigates the case by conducting an interview with the relevant property management company.
• Environmental Consideration of Portfolio– Environmental Certification (including ZEB-certified Buildings). The Asset Manager collects the relevant data from the property management companies and compiles them for obtaining environmental certifications including DBJ Green Building Certification, CASBEE certification, BELS certification, and ZEB certification, which are issued by third-party organizations. Application procedures for some certifications are carried out with the advice of both internal and external engineering experts. The Asset Manager monitors the certification status of each property, and then calculates and discloses the percentage of green certified buildings for the entire portfolio.
• Tenant Engagement
  • Including “Green Lease” provisions in our agreements. The Asset Manager promotes incorporation of Green Lease clauses related to both refurbishments and arrangements for environmentally conscious building operations into lease contracts. The Asset Manager collects information reported from property management companies on the floor area leased under contracts with Green Lease clauses and calculates the percentage in each fiscal year.
  • Sustainability program for tenants. – Tenant Satisfaction Surveys. Property management companies conduct satisfaction surveys of the contents including the location of the property, equipment in common areas, operation services, building retrofitting, equipment and fixture inspections, security, cleaning status, and open text boxes. The Asset Manager collects information for each building on implementation status of tenant satisfaction survey from the property management company and calculates the percentage in each fiscal year.
• Employee Health and Well-being at the Asset Manager – Annual anonymous surveys for all employees of the Asset Manager. The Asset Manager conducts the employee satisfaction survey and reports the results to the President & CEO of the Asset Manager. The response rate of this survey is also monitored.
• International Initiatives and External Evaluations – External Evaluations on ESG Integration. The Asset Manager takes the initiative in such activities and reports the results to the Sustainability Committee. It collects the relevant data and prepares documentation using them for obtaining external evaluations with the assistance from ESG consulting firms.

Limitations to methodologies and data

The primary limitation to the methodologies and data sources is the necessity of our reliance on the property management companies for raw data at the property level.

However, the Asset Manager implements the verification process with respect to the accuracy of such raw data and JRE’s environmental performance data has been given limited assurance by a third-party organization.

Therefore, limitations on the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by JRE in any material way.

Due diligence

When acquiring real estate properties, we conduct on-site inspections and also investigate soil contamination and toxic substances, such as asbestos and PCBs, by obtaining real estate appraisal reports and engineering reports in addition to receiving related disclosure materials from the sellers.

Findings from due diligence review conducted prior to an acquisition of a property, including environment assessment and evaluation of earthquake resistance and probable maximum loss, are binding on our investment strategy, and we will not acquire a property that does not meet certain criteria based on such findings. We also take into account the acquisition of green building certifications and environmental performance including CO₂ emissions, which promotes acquisition of properties with high environmental performance.

Engagement policies

The Asset Manager’s investment decision-making process involves assessment of material ESG related-risks and opportunities to ensure that JRE’s sustainable investment strategy is implemented on a continuous basis. With each acquisition opportunity, we review ESG-related due diligence findings and take into account the acquisition of green building certifications and environmental performance including CO₂ emissions. These findings and factors are deliberated at the Asset Manager’s Investment Management Council, where a final decision is made on the investment. Moreover, taking into account the Sustainability Policy and the examination of the magnitude of the financial impact of risks and opportunities presented by climate change for scenarios involving temperature increases between 1.5°C and 4°C, we strategically replace properties in our portfolio and select properties that help us achieve competitive strength over the medium to long term, including through high environmental performance.

Designated reference benchmark

JRE has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by JRE.

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

The Asset Manager has a remuneration policy in place which aims to support its strategy, values and long-term interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks as follows.

• Remuneration for employees of the Asset Manager (payment period, payment method, pay raises, promotions, etc.) is stipulated by pay regulations and personnel evaluation regulations, and decided by objective evaluation of the process as well as achievements that take into account the overall corporate performance, including the contribution to sustainability targets.
• Monthly pay consists of base pay, work allowance, executive allowance and overtime pay. Pay raises are based on the results of performance evaluations that take into account management results, including the contribution to sustainability targets, from the previous fiscal year, and are carried out in April every year. Promotions are dealt with in the same way.
• As for bonuses, the base number of multiples of monthly pay as bonuses is determined in advance by qualifications of the employee. Increases (or decreases) in the amount paid are based on the results of performance evaluations, which take into account corporate performance, including the contribution to sustainability targets, in the previous fiscal year.

INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISIONS, AND THE IMPACT OF SUCH RISKS ON THE RETURNS OF JRE (SFDR ARTICLE 6 DISCLOSURE)

JRE and the Asset Manager address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.

The Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that our investment strategy is sustainable. With each acquisition opportunity, JRE and the Asset Manager review ESG-related due diligence findings and risk assessment. These findings and assessment are deliberated at the Asset Manager’s Investment Management Council, where a final decision is made on the investment.

As part of due diligence review prior to investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance and probable maximum loss. The Asset Manager also reviews each property’s green building certification and environmental performance including CO₂ emissions at the time of acquisition. In addition to the review of environmental issues discovered through due diligence review, we evaluate risks associated with climate change and environmental issues.

Furthermore, the Asset Manager tracks sustainability measures including climate change initiatives, water-saving initiatives and waste management initiatives.

As a result of the growing interest in ESG factors among our investors and other stakeholders, we believe that insufficient engagement in ESG-related issues could materially adversely impact our reputation, business activities and our unit price. Having established the Sustainability Policy, we will take ESG factors into serious consideration when investing in new properties and managing our portfolio in accordance with such policy. We believe that our ongoing ESG initiatives will contribute to our sustainable growth and improve unitholders’ value while mitigating such ESG-related risks. In addition, we believe that such initiatives also contribute to reduction of the environmental impact of Japan’s overall economy while contributing to local communities and regional economies and at the same time generate sustainable growth in returns.

The following table presents the key climate-related risks that may have a financial impact on our real estate investment management business and the initiatives that we have taken to address those risks.

Category	Risk and Opportunity Factors	Identified Risks (Financial Impacts)	Initiatives
Transition Risk - Policy and Legal	Introduction of CO2 emission regulations Adoption of carbon taxes	Increase in cost of complying with laws and regulations (e.g., carbon taxes, carbon credit purchases)	Set CO2 reduction targets (80% reduction compared with FY2019) Reduce energy intensity in a planned manner Proactively conduct resource efficiency-related capital improvements using internal carbon pricing (in cooperation with external experts) Replace existing properties with properties with good environmental performance Manage energy consumption using our proprietary EMS Increase use of renewable energy
	Introduction of carbon emission-related regulations Introduction of health and welfare regulations Strengthening of energy regulations	Increase in expense of acquiring environmental certification	Acquire environmental certifications and energy-efficiency ratings based on a medium- to long-term GHG emissions reduction plan
Transition Risk - Technology	Spread of low-carbon technology (Improvement of environmental performance of existing properties)	Increase in costs incurred in procuring ZEBs and in conducting research on converting properties to ZEBs and installing new technology	Acquire ZEBs Convert existing properties to ZEBs in a proactive and planned manner
		Rise in retrofit costs associated with introducing energy efficient equipment and renewable energy and promoting the carbon neutralization of real estate	Cooperate with outside experts Provide support for technical assessments and equipment, including for energy efficiency Review lifecycle costs Formulate medium- to long-term refurbishment plans to achieve net zero emissions Promote switch to renewable energy sources
Transition Risk – Market and Regulation	Growth in importance of transition risks	Increase in fund procurement costs due to high climate risk assessment	Reduce portfolio energy intensity in a planned manner Proactively conduct resource efficiency-related capital improvements using internal carbon pricing (in cooperation with outside experts) Replace existing properties with those with good environmental performance
	Changes in tenants’ environmental performance needs	Decrease in earnings resulting from properties becoming stranded assets following decline in environmental performance	Acquire environmental certifications and energy-efficiency ratings based on a medium- to long-term GHG emissions reduction plan Improve portfolio competitiveness by acquiring properties with good environmental performance by applying ESG evaluation criteria at the time of acquisition
Physical Risk - Acute	Increase in typhoons, concentrated heavy rains, floods	Increase in the cost of refurbishments and expense of up-front countermeasures and property insurance premiums due to flooding of properties	Perform flood risk assessment in due diligence process Understand flood risks by checking hazard maps, for both existing and anticipated properties Implement hard (e.g., installation of water-stopping plates) and soft (e.g., evacuation drills and formulation of BCP) disaster measures
		Loss of sales opportunities due to flooding of properties
		Decrease in asset value of properties with high risk of flooding
Physical Risk - Chronic	Rise in annual average temperature	Rise in costs resulting from growth in demand for air-conditioning	Install highly efficient air-conditioning (implement as an energy-saving measure)
	Rise in sea levels	Increase in costs incurred for measures to tackle rising sea levels	Implement hard (e.g., installation of water-stopping plates) and soft (e.g., evacuation drills and formulation of BCP) disaster measures