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SFDR Sustainability-related Disclosures

Product Name: Japan Prime Realty Investment Corporation

Legal entity identifier: 353800NJOQJAY1ODEX72

Japan Prime Realty Investment Corporation (“JPR”) promotes environmental or 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”). JPR 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 Tokyo Tatemono Realty Investment Management, Inc. (“Asset Manager”), to manage and operate the properties in our portfolio. JPR and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our.”

Summary

No sustainable investment objective The financial products offered by JPR promotes environmental or social characteristics, but do not have as their objective sustainable investment.
Environmental or social characteristics of the financial product The Asset Manager closely monitors the impact of JPR’s portfolio and its management and operations on environmental factors such as reducing energy consumption, reducing greenhouse gas emissions, reducing water use, promoting wall greening and rooftop greening, including “Green Lease” provisions in our agreements, and collaboration with property managers as well as social factors such as providing support to tenants and their employees, supporting local communities and social development, business continuity planning, respecting human rights, and providing support for employees.
Investment strategy Our basic philosophy is to build a profitable and stable portfolio by continuously reinforcing growth potential through focused investments in office properties in Tokyo, while achieving diversification with a certain level of investment in urban retail properties and in major regional cities. In order to realize sustainability in our asset management while maximizing our portfolio value, we consider environmental, social and governance (“ESG”) factors in our investment and asset management processes. In particular, we have developed a Sustainability Finance Framework based on the Sustainability Bond Guidelines 2021, the Green Bond Principles 2021 and the Social Bond Principles 2021, etc. in order to implement sustainability finance and green finance practices. Proceeds from sustainability financing, etc. will be used to fund the acquisition of specified assets, to fund the renovation of Eligible Green Assets, and to fund the refinancing of loans and investment corporation bonds necessary for the acquisition of target specified assets.
Proportion of investments JPR offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective.
We have developed a Sustainability Finance Framework and reviewed the eligibility criteria as follows. Under this framework, we call our properties that meet the green eligibility criteria described below “Eligible Green Assets.” Also, we call our properties that meet both of “Green buildings” of the green eligibility criteria and social eligibility criteria described below “Eligible Sustainability Assets.”
As of December 31, 2023, 85.7% of the properties in the portfolio were Eligible Green Assets, and 14.3% were not considered as the Eligible Green Assets based on acquisition price. Of the Eligible Green Assets, 7.3% were Eligible Sustainability Assets.
Monitoring of environmental or social characteristics We use the following indicators to measure the attainment of the E/S characteristics we promote; (i) Sustainability evaluation; (ii) Environmental certification of individual properties; (iii) Climate change initiatives; (iv) Social initiatives – tenants; (v) Social initiatives – employees; and (vi) Social initiatives – society, each as further described below.
Methodologies The Asset Manager　has established the Sustainability Committee, with the Asset Manager’s Representative Directive as its chairperson, which generally meets four times every year to discuss basic policies, monitor activities and establish systems to promote sustainability. Details of major activities of the Sustainability Committee are reported to JPR’s and the Asset Manager’s Board of Directors. The Asset Manager also has established a sustainability group, which confirms and reports on the status of initiatives to improve the environmental performance of our properties, is engaged in communication with and disclosure to our investors and rating agencies, and otherwise addresses management risks related to climate change. The sustainability group also manages and promotes various teams under the Sustainability Committee working on sustainability-related issues. Details on the indicators above are described below.
Data sources and processing As further described below, the Asset Manager obtains certain ESG related data from third-party organizations that issue environmental certifications, tenants, property management companies, etc. The Asset Manager seeks to ensure data accuracy and quality coordinating with relevant departments and third-party organizations.
Limitations to methodologies and data The primary limitation to the methodology or data source is the reliance on the tenants and property management companies for data at the property level. Like many other real estate investment corporations and asset management companies, we rely on data provided by the tenants and property management companies. In addition, data at the property level provided by the tenants and property management companies are generally updated annually. Property-specific data will therefore not always be fully updated.
In principle, we obtain documentation such as invoices for usage fees from tenants and property management companies as evidence for environmental data provided. Data at the property level are compiled internally at the Asset Manager, but for energy data and employee-related data at the property level, we also use third-party quality assurance or verification. A third-party organization also conducts on-site inspections of several properties each year to verify the accuracy of the data.
Limitations to the methodology and data are not expected to affect the attainment of the environmental or social characteristics promoted by JPR in any material way.
Due diligence When acquiring a new property, JPR and the Asset Manager always check the environmental and social risks such as soil contamination by using outside experts in addition to site visits and investigations before concluding a sales contract, to avoid the risks. Tokyo Tatemono, the main sponsor, takes a range of environmentally-conscious measures including full compliance with environmental laws and regulations regarding soil contamination based on its Group Environmental Policy.
Additionally, the Due Diligence Subcommittee convenes in advance to enhance the investigation of due diligence matters.
Engagement policies We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our environmental standards based on their history of land usage and soil contamination assessment by experts and examination of presence of hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), unless appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property we may acquire is compliant with applicable law.
When investing in properties using proceeds from green financing or sustainability financing, we do not consider properties that do not meet the criteria under our Sustainability Finance Framework. We also consider environment and nature of the soil synthetically when investing in properties.
In addition, we generally include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy consumption of our tenants and to facilitate and improve ESG certification.
Designated reference benchmark JPR has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by JPR.

No sustainable investment objective

The financial products offered by JPR promote environmental or social characteristics, but do not have as their objective sustainable investment.

Environmental or social characteristics of the financial product

We believe that our sustainability initiatives are essential for our sustainable growth. We improve long-term returns of investors and contribute to the realization of sustainable society and urban development by implementing initiatives that address social issues. Under our sustainability policies and framework, we, in collaboration with the Asset Manager, take actions on climate change, including energy conservation, use of renewable energy, and being resilient in times of disasters.
JPR does not have a specific index designated as a reference benchmark to determine whether JPR is aligned with the environmental or social characteristics that it promotes.

We implement various environmental initiatives at our properties including the following.

  • Reducing energy consumption from our properties. We aim to reduce energy consumption by installing energy saving equipment such as LED lighting, sensor lighting and efficient air-conditioning systems at our properties.
  • Reducing greenhouse gas emissions from our properties. We have established a target of 46.2% reduction in GHG emissions in 2030 (compared to the 2019 level) and a target of achieving net zero emission in 2050. We have submitted our commitment to the above targets to SBTi in November 2022 and acquired certification from SBTi in April 2023. We have entered into agreements with electric power companies pursuant to which we monitor on an ongoing basis not only greenhouse gas emissions but also the underlying factors such as the composition of our power sources, and take actions to reduce them. We also regularly review our electric current under our agreements with electric power companies for the purpose of reducing greenhouse gas emissions. We have installed renewable energy in a part of our properties. We are considering introducing renewable electricity to other of our properties in the future. In addition, we upgraded to LED fixtures, and upgraded air conditioning and ventilation system, ELVs, and ESCs at our properties.
  • Reducing water use. We have installed high-performance water-saving appliances to reduce water usage at our properties. We aim to reduce water use by 10% between 2017 and 2030 based on intensity. We have also installed water-recycling facilities for rainwater and recycled water to reduce water consumption at some of our properties.
  • Promoting wall greening and rooftop greening. We build green walls and rooftops at our properties. Such greening reduces electricity consumption from air-conditioning through thermal insulation and thermal load inside buildings. Rooftop and site greening is also in place at Grand Front Osaka, which was acquired in December 2021.
  • Including “Green Lease” provisions in our agreements. We have standardized environmental provisions, which we refer to as “Green Lease” provisions, in the leases with our tenants. Our Green Lease provisions include clauses requiring our tenants to collaborate with us in implementing various measures, including for energy savings and improving the office environment.
  • Collaboration with property managers. We regularly share information with property managers and discuss initiatives on energy-saving and environmental issues. We also hold workshops for property managers and other business partners to raise their awareness of sustainability and enhance their readiness.

We implement various social initiatives at our properties including the following.

  • Providing support to tenants and their employees. We retain a third party to periodically conduct a tenant satisfaction survey for tenants once a year and consider ways to improve our properties based on the results.
  • Supporting local communities and social development. We offer our properties as places to facilitate local community building, including providing facilities to support parenting, rooftop gardens open to the public and public illumination. We also periodically undertake cleanup activities, together with Tokyo Tatemono Co., Ltd., our main sponsor, in the Nihonbashi, Yaesu and Kyobashi areas, where our head office is located.
  • Business continuity planning. We have established crisis management procedures and business continuity plans in order to prepare for unforeseen circumstances such as natural disasters. Our primary goal is to protect the lives of people at our properties with rapid deployment of countermeasures in times of crises while preserving assets. We conduct regular emergency drills and awareness activities to improve our ability to deal with disasters at our properties. We have created a list to monitor major climate change risks, and will report and review this list annually at the Sustainability Committee to check our progress in addressing these risks.
  • Respecting human rights. We support the Universal Declaration of Human Rights in the International Bill of Human Rights, international labor standards such as the ILO Declaration on Fundamental Principles and Rights at Work, and the UN Guiding Principles on Business and Human Rights. We conduct human rights due diligence review, in cooperation with outside experts, of our core business and supply chain to identify and assess risks that might have a negative impact on human rights. We also provide compliance training covering human rights to our employees and managers from time to time.
  • Providing support for employees. The Asset Manager regularly provides sustainability training, compliance training, healthcare training and information management and literacy training for all employees and officers in order to improve each person’s skills and capabilities as members of the Asset Manager. The Asset Manager also supports employees to obtain qualifications such as the ARES Certified Master by covering expenses that arise from obtaining qualifications. The Asset Manager has introduced a telework system to provide a comfortable work environment for employees with childcare, nursing care, or other circumstances. The Asset Manager also conducts a periodic survey on all employees on a broad range of topics such as the office environment, health issues including mental health, and personnel policies in order to improve employees’ satisfaction. The Asset Manager has been certified under the Certified Health & Productivity Management Organizations Recognition Program conducted by the Ministry of Economy, Trade and Industry of Japan every year since 2021 . Also, the Asset Manager has received the “Silver Certification,” for excellence in health by Japan Health Insurance Association every year since 2019. We have introduced an "Advisor System" to support new employees. In order to help new employees acquire the knowledge and skills necessary for practical work and increase their motivation, senior employees in the same department provide advice on work procedures and communication methods, as well as financial support for periodic lunches and receptions, in an effort to create a comfortable working environment that allows employees to take an active role early on.

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 and due diligence policies as described below are related to real estate and real estate-related assets.

Our basic philosophy is to build a profitable and stable portfolio by continuously reinforcing growth potential through focused investments in office properties in Tokyo, while achieving diversification with a certain level of investment in urban retail properties and in major regional cities. In order to realize sustainability in our asset management while maximizing our portfolio value, we consider environmental, social and governance (“ESG”) factors in our investment and asset management processes. In particular, we have developed a Sustainability Finance Framework based on the Sustainability Bond Guidelines 2021, the Green Bond Principles 2021 and the Social Bond Principles 2021, etc. in order to implement sustainability finance and green finance practices. Proceeds from sustainability financing, etc. will be used to fund the acquisition of specified assets, to fund the renovation of Eligible Green Assets, and to fund the refinancing of loans and investment corporation bonds necessary for the acquisition of target specified assets. As of December 31, 2023, the outstanding balance of green financing was 33 billion yen, of which 12 billion yen was green bonds and 21 billion yen was green loans. As of December 31, 2023, the outstanding balance of sustainability financing was 4.5 billion yen, of which 1.4 billion yen was sustainability bonds and 3.1 billion yen was sustainability loans.

  • Selection of projects that qualify for green financing. When determining whether to acquire or invest in properties by green financing or sustainability financing, we rely on whether they qualify as Eligible Green Assets or Eligible Sustainability Assets.
  • Third-party evaluation. Our green finance framework has been subject to the Green Finance Framework Evaluation by Japan Credit Rating Agency, which has granted us “Green 1 (F),” the highest grade.

While there is no third-party rating used for assessment of JPR’s governance practices, JPR and the Asset Manager have introduced the following measures to assess and enhance JPR’s governance systems:

  • Adoption of a decision-making process in conflict-of-interest transactions involving independent outside experts. We have adopted a governance structure stricter than what is legally required. JPR’s Board of Directors Regulations prohibit participation by any executive or supervisory officer in any decision at a Board of Directors meeting where such officer is an interested party in the relevant transaction. The Asset Manager also reviews and examines conflict-of-interest transactions through its Compliance Committee, whose members include outside counsel. Furthermore, prior consent of JPR’s Board of Directors, which is composed of executive and supervisory officers independent from the Asset Manager’s shareholders, is required to carry out a transaction so approved by the Asset Manager’s Compliance Committee.
  • Transparent and appropriate information disclosure. We recognize that information disclosure has a significant impact on development and success of the J-REIT market. One of our management principles is to earn the trust of society and unitholders through highly transparent fund management based on timely and appropriate information disclosure and IR activities. We make efforts to proactively disclose information, not only to comply with the timely disclosure rules of the Tokyo Stock Exchange but also to provide useful information to investors to enable informed investment decisions.
  • Eligible Green Assets-related disclosures. We make annual disclosures of the following information as of December 31 each year so long as green bonds and loans are outstanding: allocation of proceeds, number of properties classified as Eligible Green Assets, third-party certifications acquired by each Eligible Green Asset, total floor area of Eligible Green Assets, energy consumption, CO2 emissions, water consumption and impact of repairs and maintenance.

Proportion of investments

JPR offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective.
We have developed a Sustainability Finance Framework and reviewed the eligibility criteria as follows. Under this framework, we call our properties that meet the green eligibility criteria described below “Eligible Green Assets.” Also, we call our properties that meet both of “Green buildings” of the green eligibility criteria and social eligibility criteria described below “Eligible Sustainability Assets.”
As of December 31, 2023, 85.7% of the properties in the portfolio were Eligible Green Assets, and 14.3% were not considered as the Eligible Green Assets based on acquisition price. Of the Eligible Green Assets, 7.3% were Eligible Sustainability Assets.

  • Green Eligibility Criteria
    • Green Building: Has obtained or plans to obtain one of the following certifications
      • DBJ Green Building Certification: 5 stars, 4 stars or 3stars
      • CASBEE: Rank S, Rank A or Rank B+
      • BELS: 5 stars, 4stars or 3 stars
      • LEED: Platinum, Gold or Silver
    • Renovations: The following criteria must be met, and the work must have been completed or be scheduled to be completed within the past three years from the date of the Sustainability Financing
      • Reduction in CO2 emissions or energy consumption exceeding 30%
      • Reduction of water use exceeding 30%
      • Acquisition of a new certification or improvement of an existing certification by one or more levels in any of the certifications specified in "Green Building" above
  • Social Eligibility Criteria: At least two of the following functions that contribute to the resolution of social issues must fall within a certain level or higher.
    • Disaster prevention in the community
    • Medical services
    • Childcare support
    • Startup support facilities
    • Barrier-free facilities

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the E/S characteristics we promote:

  • Sustainability evaluation: GRESB is an annual benchmarking assessment to measure ESG integration of real estate companies and funds, as well as the name of organization which runs the assessment. It was founded in 2009 by a group of major European pension funds who played leading roles in launching Principles for Responsible Investment (“PRI”). Of the survey subjects, GRESB Real Estate Assessment covers real estate companies and funds that are mainly engaged in managing existing properties.
  • Environmental certification of individual properties: 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, and other equivalent certifications. With respect to DBJ certifications, we consider a property to have sufficient environmental certification if it received 3 stars or higher out of DBJ’s five-star ranking system. With respect to CASBEE, we consider a property to have sufficient environmental certification if it received B+ Rank or higher out of the CASBEE ranking system featuring Rank S (excellent), Rank A (very good), Rank B+ (good), Rank B- (slightly inferior) and Rank C (inferior).
  • Climate change initiatives: We recognize that climate-related issues will have a major impact on our business and aim to reduce our environmental burden by promoting energy saving and reduction of greenhouse gas emissions, proactively disclosing information on environmental impact, effectively using water and applying “3R” (reuse, reduce and recycle) to waste management. The Asset Manager also has adopted the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”), which was established by the Financial Stability Board (“FSB”). The Asset Manager analyzes climate-related risks and opportunities and actively discloses climate-related initiatives. In 2023, based on the Carbon Risk Real Estate Monitor (“CRREM”), we analyzed the timing of our properties becoming stranded assets.We aim to make greenhouse gas emissions net zero by 2050 and we have established the target of 46.2% reduction in GHG emissions in 2030 (compared to the 2019 level) toward achieving the 2050 net zero target and submitted our targets to SBTi in November 2022 and acquired certification from SBTi in April 2023. We had also set a goal of obtaining 4-star or A rank or higher environmental certifications such as from DBJ for 80% of our properties by 2030 (based on total floor area). The percentage calculated under the standard has steadily increased from 70.5% as of December 31, 2022 to 77.4% as of December 31, 2023. Therefore, the goal has been raised to "4-star or A rank or higher for 90% of our properties by 2030" and "4-star or A rank or higher for 100% of our properties by 2050".
  • Social initiatives – tenants: We work with integrity and hold ourselves accountable to our tenants, and make efforts to deliver a unique value to them. We retain a third party to periodically conduct a tenant satisfaction survey for tenants and consider and implement improvements to our properties. Due to efforts to prevent the spread of the corona virus and an increase in remote work of tenant personnel, the direct delivery and receipt of questionnaires has been discontinued and replaced with a web-based questionnaire system. Signage has been installed in the elevator hall and inside the elevators, showing evacuation sites and BCP measures to improve resilience. We installed signage in JPR Harajuku Bld. that displays the status of restroom use to discourage long use and reduce congestion and will donate a portion of the profits from the signage advertisements to developing countries.
  • Social initiatives – employees: We respect all employees and aim to achieve an employee-friendly workplace, helping them enhance their abilities as professionals. To this end, we conduct annual interviews of all employees to obtain feedback on a wide range of topics, including the workplace or workplace relationships, problems with their health or family and career aspirations, and follow up with appropriate support to employees and improvement to the workplace environment. We also have established rank-based training in line with the skills necessary for each grade and position while considering each employee’s medium- to long-term development and engage in career development and training to develop the next generation of management. In addition to an annual meeting with the HR manager, employees meet with their evaluators three times a year to provide career support, personnel evaluation feedback, and assistance in achieving work goals.
  • Social initiatives – society: We comply with laws and regulations as well as the rules of society, and conduct business operations with a focus on transparency and objectivity while maintaining high moral standards. To this end, the Asset Manager provides compliance trainings for all of its officers and employees, who are required to participate and be tested on their compliance awareness. In addition, internal audit is conducted periodically every year.

Methodologies

The Asset Manager　has established the Sustainability Committee, with the Asset Manager’s Representative Directive as its chairperson, which generally meets four times every year to discuss basic policies, monitor activities and establish systems to promote sustainability. Details of major activities of the Sustainability Committee are reported to JPR’s and the Asset Manager’s Board of Directors. The Asset Manager also has established a sustainability group, which confirms and reports on the status of initiatives to improve the environmental performance of our properties, is engaged in communication with and disclosure to our investors and rating agencies, and otherwise addresses management risks related to climate change. The sustainability group also manages and promotes various teams under the Sustainability Committee working on sustainability-related issues.

  • Sustainability evaluation. To assess JPR’s attainment of social or environmental characteristics, JPR participates in the GRESB Real Estate Assessment, which generally covers a broader scope of evaluation items related to sustainability and ESG than the evaluation items used for due diligence conducted at the time of investment. After obtaining the results report, the Asset Manager conducts comparative analysis with a consulting firm, receives reports and advice from the firm on issues to be addressed to improve the scores, and takes actions to improve the evaluations in the subsequent years.　The Asset Manager also reports the ratings result to the Sustainability Committee and shares it with JPR’s and the Asset Manager's Board of Directors. The evaluations obtained are disclosed on the website without delay.
  • Environmental certification of individual properties. The Sustainability Committee regularly reviews the Climate Change Risk Monitoring Sheet once a year, which includes the receiving status of environmental certifications. The progress and future plans are reported to the JPR Board of Directors and the TRIM Board of Directors. The Asset Engineering Department is in charge of receiving environmental certifications. It shares the progress status as one of the priority issues with the Sustainability Group at the end of June and December every year without delay. The Sustainability Committee confirms the receiving status of the environmental certifications as of the end of December. Prior to acquisition of properties, the Seller or co-owner confirms the receiving status of the environmental certifications at the properties under consideration. After the acquisition of the properties, we confirm the properties' characteristics, such as environmental performance and management and operation, and select the most effective environmental certification and proceed with the relevant procedures. In addition, we consider necessary energy-saving renovations, and establish and implement the medium- to long-term maintenance and repair plan for improving the properties’ environmental ratings.
  • ESG data coverage. Regarding climate change risks, data as of the end of December is confirmed by the Sustainability Committee without delay. The Sustainability Committee confirms the data on GHG emissions (Scope 1, 2, and 3) and waste data, which are of high importance, in principle at the July meeting after the accuracy verification by a third-party verifying organization. Energy consumption data is confirmed on a monthly basis, and other data such as waste data is collected on a fiscal year basis. Energy data (i.e., electricity, gas, and water) is collected on an annual basis, and its accuracy is ensured by a system provided by a third-party organization. Waste data is verified based on an electronic industrial waste manifest and a reuse plan. Data on LED light coverage and physical risk management status is managed internally. Energy-related data is entered by collecting invoices for each property. We outsource the data entry to an external organization to reduce errors, and the Asset Engineering Department, the department in charge of data entry for the Asset Manager, checks the data again to ensure accuracy. In addition to environment-related data, employee-related data is prepared by the Business Administration Department on a fiscal year basis, and is usually confirmed by a third-party verification organization around May each year. The data is then confirmed by the Sustainability Committee at the same time as the environment-related data.
  • Climate change initiatives. Environment-related data is collected and calculated on a calendar year basis and is confirmed for accuracy by a third-party verification organization in April or May of each year. Waste data is calculated on a fiscal year basis and confirmed by a third-party verification organization in June or July of each year. The Sustainability Committee reviews the above data in July of each year in principle. The Asset Engineering Department is in charge of preparing environment-related data, and the Sustainability Group is in charge of communicating with the third-party verification organization.
  • Social initiatives – tenants. To ensure data objectivity, we use a third-party think tank to conduct periodic tenant satisfaction surveys. Data has been collected through web-based questionnaire. The think tank presents the data from the surveys in the forms of reports and descriptive responses. The Investment Management Division 1 receives the results and share them with property managers and local building managers to discuss future improvement measures. Data on the overall satisfaction level, comparisons with the previous year’s data, and tenants’ opinions are reported to the Sustainability Committee.
  • Social initiatives – employees. Regarding the annual interviews with employees, a one-year goal-setting meeting is held with their supervisors at the beginning of each fiscal year. The goals are set by each employee based on the business plan, which includes sustainability-related work. At the midpoint of the fiscal year, interviews are held again to share the progress of the plan and any obstacles and to make improvements. After the end of the fiscal year, a feedback meeting is held to share the results of the annual evaluation, including the degree of achievement and other contributions. After the interview with the supervisor of the department to which the employee belongs, the General Manager of the Finance and Administration Division and the Department Manager of the Business Administration Department, who are responsible for human resources, are reported and make a personnel evaluation. The results of the interviews are used to determine bonuses by integrating qualitative factors such as the degree of contribution to the organization as well as the degree of goal attainment. The General Manager of the Finance and Administration Division and the Department Manager of the Business Administration Department, who are responsible for human resources, conduct interviews with all employees to discuss the workplace environment and career paths, etc. In addition, an annual employee satisfaction survey is conducted to manage human capital risk.
  • Social initiatives – society. The Compliance Office is in charge of compliance training and conducts training on about 10 topics per year. The Compliance Office confirms the number of employees who have taken the training each time, and those who have not taken the training are given a refresher course in order to achieve a 100% participation rate. The Compliance General Manager (Head of the Compliance Office) regularly exchanges information with the Compliance Officers (Group Leader) on general compliance issues, and reports the results to the Compliance Committee. When an act in violation of compliance is recognized, the Compliance Officer makes a recommendation to the staff member who violated the compliance to cease the act or make improvements, etc., and reports the matter to the Compliance Manager (general manager of each division and department manager of each department). The Compliance Manager will report to the Compliance General Manager, who will in turn report to the Compliance Executive (the President) and take necessary measures as appropriate, including measures to prevent recurrence of the violation. The Compliance Office is in charge of internal audits, which are conducted periodically, once a year in principle. The Compliance Office prepares an internal audit plan, which is approved by the Board of Directors after deliberation by the Compliance Committee. When the internal audit identifies a significant issue, the head of the relevant department prepares an improvement plan, which is deliberated by the Compliance Committee and then reported to the Board of Directors. The internal audit manager periodically manages the status of improvement of the identified issues and report the status to the Compliance Committee and the Board of Directors. Internal audits are outsourced to an external organization to ensure objectivity and improve quality.

Data sources and processing

We use the following data sources:

  • Sustainability evaluation. Information and data evidence related to each question of the GRESB are kept at the Asset Manager (please refer to the following sections for the collection and process regarding each type of ESG data). Responses to technical or specialized questionnaires are reviewed by the responsible departments to ensure accuracy. Environmental and social data reported in the GRESB are verified for accuracy by a third-party organization, and a letter of assurance is also obtained.
  • Environmental certification of individual properties. The Asset Engineering Department receives and aggregates environmental certifications and shares the progress status as of the end of June and December every year with the Sustainability Group. The Sustainability Group conducts monitoring of properties that received the certifications. The Sustainability Committee confirms the receiving status of the environmental certifications as of the end of June and December.
  • ESG data coverage. The Asset Engineering Department collects and compiles GHG emission data. It then shares the data with the Sustainability Group. The data is submitted to the Sustainability Committee after verification by a third-party organization. Energy-related data is collected from tenants and property management companies based on invoices for each property. Waste data is verified based on the electronic industrial waste manifest and the reuse plan. Data on LED light coverage and physical risk management status is managed internally. The Corporate Management Department prepares employee-related data on a fiscal year basis. To ensure data quality, the Sustainability Committee obtains accuracy verification from third-party verifying organization for the GHG emissions data (Scope 1, 2, and 3) and waste data. Energy data accuracy is ensured by a system provided by a third-party organization. Data entry is outsourced to an external organization to reduce errors. The Asset Engineering Department, the department in charge of data entry for the Asset Manager, checks the data again to ensure accuracy. Employee-related data is usually confirmed by a third-party verification organization around May each year. Both employee-related and environment-related data are confirmed by the Sustainability Committee without delay.
  • Climate change initiatives. The Asset Engineering Department receives environmental certifications and shares the progress status as of the end of June and December every year with the Sustainability Group, which calculates the percentage of our projects that have obtained environmental certifications. Regarding the GHG emission reduction, the Asset Engineering Department obtains GHG emission data and shares it with the Sustainability Group. The data is submitted to the Sustainability Committee after verification by a third-party organization. GHG emissions data are analyzed in transition graphs for energy consumption and Scope 1, 2, and 3, and compared to past results and progress toward the net-zero target.
  • Social initiatives – tenants. To ensure data objectivity, we use a third-party think tank to conduct periodic tenant satisfaction surveys. Data has been collected through web-based questionnaire. The think tank presents the data from the surveys in the forms of reports and descriptive responses. The Investment Management Division 1 receives the results and share them with property managers and local building managers to discuss future improvement measures. Data on the overall satisfaction level, comparisons with the previous year’s data, and tenants’ opinions are reported to the Sustainability Committee.
  • Social initiatives – employees. We collect data and information about employees’ feedback on the workplace environment, workplace relationship, health and family problems, and career aspirations through annual interviews of all employees. We analyze the above data and follow up with appropriate support to employees and improvement to the workplace environment. The Business Administration Department analyzes the results of feedback meetings with employees We also collect information regarding employees’ career issues, including any career support needed and personal feedback, through meeting between employees and their evaluators three times a year. Data and information from employee evaluation and feedback meetings are reported by supervisors of each department to the General Manager of the Finance and Administration Division and the Department Manager of the Business Administration Department, who are responsible for human resources, for them to make personnel evaluation and to conduct further discussions with all employees.
  • Social initiatives – society. We collect data and information about our employees’ compliance knowledge and awareness. The Compliance Office confirms the number of employees who attend compliance training each time and provide those who failed to attend a refresher course in order to achieve a 100% participation rate. Information and data on compliance violation is shared across the Compliance Officer (Group Leader), the Compliance Manager (general manager of each division and department manager of each department), the Compliance General Manager, and the Compliance Executive (the President) for appropriate measures to be taken. The Compliance Office is in charge of internal audits, which are conducted periodically, once a year in principle. The Compliance Office also prepares internal audit plans, which are approved by the Board of Directors after deliberation by the Compliance Committee. When the internal audit identifies a significant issue, the head of the relevant department prepares an improvement plan, which is deliberated by the Compliance Committee and then reported to the Board of Directors. The internal audit manager periodically manages the status of improvement of the identified issues and report the status to the Compliance Committee and the Board of Directors. Internal audits are outsourced to an external organization to ensure objectivity and improve quality.

Limitations to methodologies and data

The primary limitation to the methodology or data source is the reliance on the tenants and property management companies for data at the property level. Like many other real estate investment corporations and asset management companies, we rely on data provided by the tenants and property management companies. In addition, data at the property level provided by the tenants and property management companies are generally updated annually. Property-specific data will therefore not always be fully updated.

In principle, we obtain documentation such as invoices for usage fees from tenants and property management companies as evidence for environmental data provided. Data at the property level are compiled internally at the Asset Manager, but for energy data and employee-related data at the property level, we also use third-party quality assurance or verification. A third-party organization also conducts on-site inspections of several properties each year to verify the accuracy of the data.

Limitations to the methodology and data are not expected to affect the attainment of the environmental or social characteristics promoted by JPR in any material way.

Due diligence

When acquiring a new property, JPR and the Asset Manager always check the environmental and social risks such as soil contamination by using outside experts in addition to site visits and investigations before concluding a sales contract, to avoid the risks. Tokyo Tatemono, the main sponsor, takes a range of environmentally-conscious measures including full compliance with environmental laws and regulations regarding soil contamination based on its Group Environmental Policy.
Additionally, the Due Diligence Subcommittee convenes in advance to enhance the investigation of due diligence matters.

Engagement policies

We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our environmental standards based on their history of land usage and soil contamination assessment by experts and examination of presence of hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), unless appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property we may acquire is compliant with applicable law.

When investing in properties using proceeds from green financing or sustainability financing, we do not consider properties that do not meet the criteria under our Sustainability Finance Framework. We also consider environment and nature of the soil synthetically when investing in properties.

In addition, we generally include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy consumption of our tenants and to facilitate and improve ESG certification.

Designated reference benchmark

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

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.

  • Employees of the Asset Manager receive remuneration according to their job grade that is determined based on the employee’s work capabilities including, in some cases, contribution to sustainability targets.
  • Remuneration, methods of calculation and payment, timing of payment, and increases in remuneration are determined according to the Asset Manager’s compensation rules, which are established based on statutory requirements.
  • Monthly remuneration is composed of job grade-based pay, overtime allowance, management allowance and other allowances. Employees may receive increases or reductions of their monthly remunerations based on, in some cases, contribution to sustainability targets.
  • Employees of the Asset Manager generally receive bonuses twice a year. Such bonus may be reduced or may not be paid depending on the Asset Manager’s performance, including with respect to sustainability targets.

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

We address sustainability risks by taking into account ESG factors in our investment decision process and on a continuous basis.

We have established the Sustainability Committee, which generally meets four times every year to discuss basic policies, monitor activities and establish system to promote sustainability. Details of major activities of the Sustainability Committee are reported to JPR’s and the Asset Manager’s Board of Directors.

In order to realize sustainability in our asset management and to maximize the value of our portfolio assets, we have emphasized taking ESG factors into consideration concerning our investment and asset management processes. The Asset Manager has established a green finance framework in accordance with the 2018 Green Bond Principles and the 2017 Green Bond Guidelines to conduct sustainable finance. Green financing under our green finance framework consists of green bonds where proceeds are used only to acquire Eligible Green Assets or refinance loans or bonds financed for such acquisition.

Under this organizational structure, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote E/S characteristics. Such initiatives include climate change initiatives, water resources and waste management initiatives and tenant initiatives.

While sustainability issues will severely impact our business activities, we believe that such issues may also become potential business opportunities to create new value for sustainable growth. Accordingly, we position our commitment to sustainability as a top priority in our management strategies. We also believe that integrating sustainability factors alongside traditional financial and operational metrics in our investment decision process helps us make a more holistic assessment of a property’s risks and opportunities and is commensurate with the pursuit of superior risk-adjusted returns.

The following tables present the key climate-related risks that may have financial impacts on our real investment management business (including returns) and the initiatives that we have taken to address those risks.

Physical risks

Type of risk Risk that was identified Strategies Financial impact Time span Level of impact
Flood and storm risk Increase in repair costs associated with water damage risk
  • Monitoring the latest risks in areas where individual properties are located
  • Regular onsite inspection of each property's equipment conditions
  • Improving and repairing equipment as a measure addressing water damage
  • Increasing resilience by holding disaster drills
 Water damage due to climate change, such as that caused by typhoons or flooding, resulting in an increase in repair costs. Short, medium,
and long		 High
Natural resources risk Cost increase resulting from the increase of energy prices
  • Promoting with the introduction of LED lighting
  • Switching to contracts with electric power companies based on emission coefficients and costs
 Increasing fossil fuel price leads to higher unit cost of electricity and others, resulting in higher operating cost. Short, medium,
and long		 High

Transition risks

Type of risk Risk that was identified Strategies Financial impact Time span Level of impact
General transition risk Increase in operation costs resulting from the introduction of a carbon tax
  • Promotion of construction work to reduce environmental impact, such as promoting the introduction of LED lighting
  • Switching to contracts with electric power companies with low emission coefficients and contracts for renewable electricity
  • Considering ZEB
 Carbon tax imposed under tightened environmental laws and regulations leads to an increase in the risks surrounding the operations of owned properties. Medium to long High
Loss of tenants due to a delay in taking green building measures
  • Increasing the percentage of properties that have acquired environmental certification
 A delay in taking green building measures results in a failure to cater to the needs of companies aiming to achieve carbon neutrality. This leads to a loss of tenants and a loss of fixed-amount income, such as rents and CAM charges Short, medium,
and long		 High
Withdrawal of investors due to a delay in taking green building measures
  • Promoting financial institutions' understanding by increasing the number of green buildings in the portfolio and disclosing appropriate information
  • Reinforcing the funding base by enhancing relationships with investors who are interested in ESG investment
 A delay in taking green building measures leads to financial institutions' withdrawal from loans and investments, resulting in increased funding costs. Medium to long High

Social and governance risks

Type of risk Risk that was identified Strategies Financial impact Time span Level of impact
Tax risk Risks related to pass-through taxation requirement and tax law changes
  • Continuously monitor the risk of deviation from requirements to qualify for pass-through taxation treatment
  • Work with outside third parties to identify trends in tax law changes
 Failure to meet pass-through taxation requirements increases tax burden on JPR, resulting in an adverse impact on the amount of distributions to unitholders and other factors. Medium to long High

Statement on principal adverse impacts of investment decisions on sustainability factors

June 30, 2023 Statement on principal adverse impacts of investment decisions on sustainability factorsPDF 240KB