Daio Paper Corporation/ Daio Paper Green Bond 2018

DNV GL GREEN BOND PERIODIC REVIEW

Oct. 2019

DNV GL Business Assurance Japan K.K.

DNV GL Business Assurance Australia Pty. Ltd. Level 4, 181 Miller Street, North Sydney, NSW Australia, 2060. Ph: 〇61 (2) 9922 1966 https://www.dnvgl.com/assurance/

Page 2 of 10

Objective and Scope
Daio Paper Co., Ltd. (hereinafter called “Daio Paper” or “Issuer”) has commissioned DNV GL BusinessAssurance Japan Co., Ltd. (hereinafter called “DNV GL”) to conduct periodic review of “Daio Paper Green
Bond 2018”. The objective of DNV GL’s periodic review is to conduct an assessment to confirm that the DaioPaper Green Bond (hereinafter called, “the BOND”) meets the identified criteria of the Green Bond Principles
and the associated technical criteria, as set out below, and to provide the Issuer with independent secondparty opinion on the eligibility of the BOND.
Daio Paper issued the BOND on October 25, 2018, and the amount of the BOND issued was 20.0 billion
Japanese Yen. The review team of DNV GL conducted the first green bond periodic review based on theGreen Bond Guidelines 2017, which was formulated by the Ministry of the Environment (Japan) (hereinaftercalled “GBGLs”), and the Green Bond Principles 2018 (hereinafter called “GBP”), with the information of theIssuer as of August 2019. (reviewing period: from June 2019 to October 2019)
In this report, no assurance is provided regarding the financial performance of the BOND, the value of any
investments in the BOND, or the long-term environmental benefits of the transaction.

Project description
Daio Paper embarked the Third Medium-term Business Plan from FY2018 to FY2020. The key strategies ofthis plan include a structural reform of manufacturing process of Pulp and Paper business segment
capitalized on Daio Paper’s strength in line with “Radical cross-business structural reform of Paper andPaperboard Business and H&PC Business”, and that is based on “building the foundation of for sustainablegrowth”. The net proceeds from the BOND issued by Daio Paper is planned to be allocated to the following
nominated green projects that are aligned with this Third Medium-term Business Plan, as well as Daio Papergroup management philosophy and DAIO Global Environmental Charter:- Recycling and productive usage of hard-to-recycle recovered paper (Project 01)- New facility of biomass power plant (Project 02)(each includes development, construction, operation and improvement/expansion)
The BOND is intended to finance investments in the specific project categories below:- A project categorized in ‘Pollution prevention and control’- A project categorized in ‘Renewable energy’
In addition, ‘CO2 emission reduction’ is prospected as a secondary benefit.

Total amount of the BOND is JPY 20.0 billion (JPY 15.0 billion of seven-year BOND, and JPY 5.0 billion often-year BOND) and Issuer is planning to fully allocate it to the nominated green projects (a part of it has
been already allocated). The amount of BOND allocated is reported/disclosed in the Issuer’s Integrated

Page 3 of 10
Report and/or its company website annually. There is no plan to refinance a part of the proceeds of theBOND to some existing projects as of today.
Through the first periodic review of the BOND, it is confirmed that there is no major change in the progressof the nominated green projects. The progress of the nominated green projects and assets is summarized inTable-1 below.

Table-1 Progress of the green projects (as of the end of August, 2019) *Please refer to Schedule-1 for details.
Recycling and productive usage ofNew facility of biomass power planthard-to-recycle recovered paper(Project 02)(Project 01)
Location

Mishima Mill, Daio Paper Corporation

Mishima Mill, Daio Paper Corporation(Shikokuchuo City, Ehime Prefecture)(Shikokuchuo City, Ehime Prefecture)

Commercial operation

April of 2020 (scheduled)

July of 2020 (scheduled)(Year and month)*Partially in operation

AmountApprox. JPY 5.6 billion/approx. JPY 3.4Approx. JPY 7.3 billion/approx. JPY 3.7

allocated/unallocatedbillionbillion(JPY 9.0 billion, initially scheduled)(JPY 11.0 billion, initially scheduled)

From a viewpoint of environmental improvement, Project 01 has a plan to reduce waste by promoting usageof hard-to-recycle recovered paper, which is estimated approx.140k ton/year on an input basis. Also,
Project 02 is expected to use power generation from waste and thus reduce CO 2 emissions indirectly
through construction and operation of approx. 60MW-scale biomass power generation plant. Therefore, thenominated two green projects are considered to contribute ‘waste reduction’, ‘power generation from waste’and ‘indirect (Scope 2) GHG emission reductions’. In the meantime, from a viewpoint of environmental risk,
it is confirmed that the Issuer has conducted environmental surveys and evaluations related to thenominated green projects, in order to comply with the relevant laws and regulations, including
environmental laws, and mitigate the adverse environmental effects.

Responsibilities of the Management of the Issuer and DNV GL
The management of the Issuer has provided the information and data used by DNV GL during the deliveryof this review. Our statement represents an independent opinion and is intended to inform the Issuer’smanagement and other interested stakeholders in the BOND as to whether the established criteria havebeen met, based on the information provided to us. In our review we have relied on the information and thefacts presented to us by the Issuer. DNV GL is not responsible for any aspect of the nominated assets
referred to in this opinion and cannot be held liable if estimates, findings, opinions, or conclusions areincorrect. Thus, DNV GL shall not be held liable if any of the information or data provided by the Issuer’smanagement and used as a basis for this review were not correct or complete.

Page 4 of 10

Basis of DNV GL’s opinion
DNV GL have adapted our GBP*1, GBGLs*2 and Climate Bond Standard*3 assessment methodologies, which
incorporate the requirements of the GBP, to create the Issuer-specific Green Bond Eligibility Assessment
Protocol (hereinafter called “Protocol”). Our Protocol includes a set of suitable criteria that can be used tounderpin DNV GL’s opinion. The overarching principle behind the criteria is that a green bond should “enable
capital-raising and investment for new and existing projects with environmental benefits”.
As per our Protocol, the criteria against which the BOND has been reviewed are grouped under the fourPrinciples:Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirement that anissuer of a green bond must use the funds raised to finance eligible activities. The eligible activities
should produce clear environmental benefits.

Principle Two: Process for Project Evaluation and Selection. The Project Evaluation and Selection
criteria are guided by the requirements that an issuer of a green bond should outline the process it
follows when determining eligibility of an investment using Green Bond proceeds and outline any
impact objectives it will consider.

Principle Three: Management of Proceeds. The Management of Proceeds criteria are guided by therequirements that a green bond should be tracked within the issuing organization, that separate
portfolios should be created when necessary ant that a declaration of how unallocated funds will behandled should be made.

Principle Four: Reporting. The Reporting criteria are guided by the recommendation that at least
Sustainability Reporting to the bond investors should be made of the use of bond proceeds and thatquantitative and/or qualitative performance indicators should be used, where feasible.
*1: Green Bond Principles (June 2018, International Capital Market Association)*2: Green Bond Guidelines (2017, the Ministry of the Environment (Japan))*3: Climate Bond Standard (version 2.1, Climate Bonds Initiative)

Page 5 of 10

Figure-1 Rendering image of new facility of biomass power plant (Project 02)

Work undertaken
Our work constituted a high level of review of the available information, based on the understanding that
this information was provided to us by the Issuer in good faith. We have not performed an audit or othertests to check the veracity of the information provided to us. The work undertaken to form our opinion
included:
Initial Assessment:•Creation of the Issuer-specific Protocol, adapted to the purpose of the BOND, as described above
and in Schedule-2 to this Assessment.

•Assessment of documentary evidence provided by the Issuer on the BOND and supplemented
assessment by a high-level desktop research. These checks refer to current assessment bestpractices and standards methodology;•Discussions with the Issuer, and review of relevant documentation;•Documentation of findings against each element of the criteria.

Page 6 of 10
Periodic Assessment:•

Evaluation of the supporting documents provided by the Issuer related to bond issuance, high level
desktop surveys, document reviews, and interviews with key personnel of the issuer. These checks
refer to current assessment best practices and standard methodologies.

•Discussion with the Issuer management and review of relevant documentation.

•Field survey and inspection, if required.

•Review of the nominated projects and assets as described in Schedule 2 as at the time of periodic
assessment•Review and testing where possible of reporting data;•Documentation of findings for Periodic assessment as detailed in this document.

Our opinion as detailed below is a summary of these findings.

Page 7 of 10Findings
DNV GL’s findings are listed below:

Principle One, Use of Proceed
DNV GL has confirmed that the net proceeds raised by the BOND is planned to be allocated (or has been
already allocated partially) to the nominated two green projects that meet the green bond eligibility criteria
below:- ‘Pollution prevention and control’ (Project 01)- ‘Renewable energy’ (Project 02)
Specifically, all of the net proceeds of the BOND are allocated to the installation cost of facilities and therelevant expenses that falls under representative green bond eligibility criteria shown in Schedule-1, “wastereduction”, “recycling of waste” (GBP and GBGLs), and “biomass power generation” (GBG). As of the end ofAugust 2019, approximately JPY 5.6 billion has been allocated to Project 01 (recycling and productive usageof hard-to-recycle recovered paper), and approximately JPY 7.3 billion has been allocated to Project 02 (newfacility of biomass power plant), and thus totally approximately JPY 12.9 billion has been allocatedaccordingly.

Principle Two, Process for Project Evaluation and Selection
DNV GL has confirmed that the nominated two green projects described in the Schedule-1, were evaluatedand selected through the appropriate process by the relevant department of the Issuer based on itscorporate philosophy and policy of the contribution to the environment, including “DAIO Global EnvironmentCharter”. In addition, DNV GL has reviewed evidences demonstrating that the Issuer regularly assesses
opportunities for improvement and devises action plans to mitigate negative environmental and social
impacts from its operation.
Specifically, as for the negative impact caused by construction and operation of these green projects, DNV
GL has confirmed that appropriate countermeasures and practical action plans have been and will be takenby the Issuer after the evaluation of environmental risk, such as air pollution and water pollution.
Furthermore, DNV GL confirmed that CO2 emissions caused by operation of biomass power generation plant
were also considered and evaluated as adverse environmental impacts. As a result, negative impacts of CO2emissions that could occur incidentally were assessed sufficiently immaterial.

Principle Three, Management of Proceeds
DNV GL has reviewed and confirmed evidence showing how the Issuer has traced/managed the proceedsfrom the BOND, from the time of issuance to the time of disbursement. DNV GL has confirmed that theIssuer manages the cash or cash equivalents, which equals to fund, until decision of the proceed allocationand the Issuer periodically reviews the outstanding balance of the BOND. As of the end of August 2019,

Page 8 of 10
approximately JPY 12.9 billion has been allocated, while JPY 20.0 billion has been raised. Unallocatedproceeds have been managed in cash or cash equivalents. Note that, as stated above, DNV GL provides noassurance regarding the financial performance of the BOND, the value of any investments in the BOND, orthe long-term environmental benefits of the transaction.

Principle Four, ReportingDNV GL has confirmed that the Issuer is reporting/disclosing the specific information required by the GBP
periodically in the Issuer’s Integrated Report and/or its company website. These include description of theproject and its progress, allocation and management of the proceeds invested, as well as the associatedqualitative and quantitative environmental impacts (the amount of usage of hard-to-recycle recovered paper,biomass power generation, CO2 emission reductions from each of the nominated green projects).
Note that, after the completion of each green project, the evaluation of environmental impact is planned tobe calculated in an appropriate manner based on the operation results, such as operation records, andfinally reported. DNV GL is going to conduct periodic reviews until almost all proceeds are fully allocated,
and report the quantified metrics, such as the amount of waste reductions, the amount of CO2 emission
reductions, and the output of power generation from waste, in the review report respectively.
As a part of green projects has already commenced operation, the results of the environmental
improvement effects during this periodic review are shown below:
Table-2 Progress of environmental improvement effects
Recycling and productive usage of hard-

New facility of biomass power

to-recycle recovered paper (Project 01)

plant (Project 02)

Amount of waste

FY2018 Plan:

Scheduled to start operation

reductions

FY2018 Actual: 153,589 ton/year

from July 2020

Amount of CO2

FY2018 Plan:

Same as above

emission reductions

FY2018 Actual: 51,397 t-CO2/year

Output of power

FY2018 Actual:

144,725 ton/year(usage of hard-torecycle recoveredpaper)
38,933 t-CO2/year
6,006 MWh/year

Same as above

generation fromwaste

As a result, it is confirmed through periodic review that Recycling and productive usage of hard-to-recycle
recovered paper and the construction of new facility of biomass power plant were planned and implemented
according to the relevant GBP.

Page 9 of 10

DNV GL’s opinion
On the basis of the information provided by Daio Paper and the work undertaken, it is DNV GL’s opinion thatthe BOND meets the criteria established in the Protocol and that it is aligned with the stated definition or
purpose of green bonds within the Green Bond Principles and Green Bond Guidelines, which is to “enablecapital-raising and investment for new and existing projects with environmental benefits”.

DNV GL Business Assurance Japan K.K.

25th Oct. 2019Mark Robinson

Naoki Maeda

Manager, Sustainability Services

Managing Director

DNV GL – Business Assurance, AUS

DNV GL – Business Assurance Japan K.K.

Masato Kanedome
Project leader
DNV GL – Business Assurance Japan K.K.

About DNV GL
Driven by our purpose of safeguarding life, property and the environment, DNV GL enables organisations to advance thesafety and sustainability of their business. Combining leading technical and operational expertise, risk methodology andin-depth industry knowledge, we empower our customers’ decisions and actions with trust and confidence. We
continuously invest in research and collaborative innovation to provide customers and society with operational andtechnological foresight. With our origins stretching back to 1864, our reach today is global. Operating in more than 100countries, our 16,000 professionals are dedicated to helping customers make the world safer, smarter and greener.

Page 10 of 10

1. Schedule-1 (Nominated assets & Green bond project outline)
Project

Nominated projects andassets

GBP category

GBP Sub category
GBP

Funded amount(Plan)

Remarks

01

Recycling and productive

Pollution- Waste prevention

Total JPY

Allocation- Location: Mishima Mill, Daio Paper Corporation

usage of hard-to-recycle

prevention and- Waste recycling

20.0

plan: JPY

- Commercial operation: April of 2020 (estimated)recovered paper

control- Greenhouse gasbillion

9.0 billion(redempt(Allocated- Amount of waste reductions: approx. 140k ton/y

improvemention

as of Aug.

(waste type: hard-to-recycle recovered paper,(finance and refinance)

period 72019:(including 20 % waste including metal etc, whichyrs.: JPYapprox.

cannot be recycled is considered)

15.0

JPY 5.6- waste recycle product amount : 140k ton/y×80%

billionbillion)- waste re-product type: corrugated paper, etc.

-new fabrication, partialcontrol

and 10*Partially in operation- CO2 emission reductions by waste recycle,yrs.: JPY

comparing with the conventional manner (waste5.0

burned by incinerator)

billion02

Biomass power plant facility

Renewable

Production

Allocation- Location: Mishima Mill, Daio Paper Corporation

constructionenergy(Biomass)

plan: JPY- Commercial operation: July of 2020 (estimated)-new facility construction

9.0 billion- Biomass fuel type: Black liquor by Kraft process. *1(finance and refinance)(Allocated- Electricity output: approx.60MW

as of Aug.

- CO2 emission reduction (as energy source) by2019:approx.
JPY 5.6billion)*1：Categorized by METI/Agency for natural resources and energy

biomass electricity generation.