Daio Paper Corporation Green Bond Framework
1.

Introduction

1.1: Overview of the Company
Daio Paper Corporation (hereinafter “Daio Paper”) is a full-range paper manufacturer andwas established in 1943 through a merger of 14 paper companies such as Shikoku Paper
Corporation. The Company is headquartered in Ehime and Tokyo.
The main businesses of the Daio Paper Group (hereinafter the “Group”) are manufacturing
and sale of paper, paperboards, pulps and household-use paper products. It engages inprocurement of raw materials, logistics and other related business activities.
Specifically, it conducts operations including the following:-Manufacturing, converting and sales of paper, paperboards, pulps and their by-products
Manufacturing, converting and sale of commodities and miscellaneous goods.
Manufacturing, converting and sale of function added film, adhesive sheet, and synthetic
resin materials including adhesives.
Design, installation, and buying/selling of plants related to the above businesses;
Buying/selling of raw materials and fuel for manufacture and converting of paper,
paperboards and pulps;
Sales and reforestation of forest lands and timber resources, reforestation, sawing andprocessing of wood, and landscape gardening and etc.

1.2: Daio Paper's Environmental Policy
1.2.1: The Group Management Philosophy
The Group's management philosophy “Shaping an Abundant and Affable Future for the World”,
contains the Group’s desire to bring about a compassionate future that provides “abundant andaffable” lifestyles for people around the world through its business activities. The Group isworking towards the realization of this management philosophy in unity, with a focus on the fourpillars: “Dedication to Manufacturing,” “Bonds with Local Communities,” “Corporate Culture
Providing Safety and Motivation to Work,” and “Contribution to the Global Environment.”
In particular as regards “Contribution to the Global Environment,” the Group has been
advancing initiatives to reduce environmental burden: high usage of recovered paper, effective
use of biomass energy, promotion of energy conservation , and CO2 absorption and fixation
through forestation at Republic of Chile. The Group aims to contribute to the formation of asustainable, recycling-based society through business activities that are in harmony with theglobal environment.
1Daio Paper has also established “Daio Paper Group's Code of Conduct” and “Daio Global
Environmental Charter,” based on which Daio Paper strives to realize its corporate philosophy
mentioned above.
1.2.2: Daio Global Environmental Charter
With the Daio Global Environmental Charter as its concrete guidelines, Daio Paper sets thefollowing eight basic approaches to environmental issues: (1) global warming mitigation
measures, (2) promotion of the effective use of resources and environment-conscious
procurement of materials, (3) reduction of environmental load including in its supply chain, (4)forest preservation, (5) reduction and productive utilization of wastes, (6) development andintroduction of technologies and products with reduced environmental load, (7) realization ofsustainable partnerships, and (8) proactive environmental communication and co-existence withlocal communities. Based on these approaches, Daio Paper proactively addresses environmental
issues through its global business conducted in harmony with the global environment and seeks
to help realize a sustainable society.
1.2.3: Long-term Vision of the GroupThe Group sets a Long-term Vision to “To strategically transform its business portfolio andbecome a sustainable corporate group capable of continuous growth.” Under this vision, it seeks
co-existence with the environment and local communities to sustainably increase its corporate
value by addressing and helping solve social issues through its business activities towardrealizing the above-mentioned management philosophy.
1.2.4: The 3rd Medium-Term Business Plan
According to the Third Medium-term Business Plan for the three years from FY2018 to FY2020,
Daio Paper will resolutely implement growth strategies aimed at achieving the Long-term Vision,
while advancing the reform of its corporate structure to strengthen resilience to sudden changes
in the external environment.
Key strategies in the Third Medium-term Business Plan include the following:(1) Reform of the Paper business’ production structure that capitalizes on tDaio Paper’s
strengths
Daio Paper will effectively use hard-to-recycle recovered paper leveraging its
technological capability of sorting and re-pulping hard-to-recycle recovered paper(recovered paper which is difficult for standard facilities to turn into pulp due to attachedplastics etc.), which is one of the strengths of Daio Paper’s Mishima Mill, as well as its
technology of the automated metal, plastic and other objects sorting.

2(2) Building the foundation for sustainable growth
Daio Paper seeks to realize sustainable growth as a corporate by proactively
implementing initiatives to tackle environmental, social and governance issues throughits business activities. The initiatives include the following:(i)
Environmental:- Commence biomass power generation under the FIT scheme (July 2020)- Make effective use of its forest plantation and hard-to-recycle recovered paper,and reduce waste, etc.
(ii)
Social:- Improve infrastructure (e.g. bridges and roads) of its forest plantation in Chile- Provide support for home-based nursing care within the framework of the“Community-based Integrated Care System”, etc.
(iii)
Governance:- Establish sound governance structure to support sustainable growth

1.3: Daio Paper Green Bonds
The proceeds of the green bonds will be allocated to the following projects: "Facility for theeffective use of hard-to-recycle recovered paper", and "Biomass power plant", which are key
strategies in the Third Medium-term Business Plan. Through the issuance of the green bonds,
Daio Paper will seek to realize a sustainable society.
Eligible projects for the use of green bonds proceeds are aligned with the Group’s management
philosophy, the Daido Global Environmental Charter, and Long-term Vision of the Group.

2.

Green Bond Framework

Daio Paper sets out a framework for the green bonds to be issued based on requirements
provided in the Green Bond Principles (2018) formulated by International Capital Market
Association (ICMA), the Green Bond Guidelines (2017) by Japanese Ministry of theEnvironment, and the Climate Bond Standard (version 2.1) by Climate Bonds Initiative (CBI), as
follows:
2.1: Use of Proceeds
The proceeds of the green bonds will be allocated towards financing or refinancing of projects
that meet one of the following eligibility criteria.
In the case of the use for refinancing, the expenditure must have been implemented within 24
months preceding the date of the green bonds issuance.
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Eligibility Criteria and Eligible Projects
Eligible Project 1: Recycling and productive usage of hard-to-recycle recovered paper(“Pollution Prevention and Control” category in Green Bond Principles 2018)
Financing and/or refinancing investments relating to development, construction, operation,
improvement and/or expansion of hard-to-recycle recovered paper facilities.
(1) Context
In line with the Third Medium-term Business Plan for the three years from FY2018 toFY2020, Daio Paper will effectively use the strength of its domestic leading
technological capability of sorting and re-pulping hard-to-recycle recovered paper byincorporating the automated metal, plastic and other objects sorting technology that theGroup possesses into its recovered paper processing facilities. In the future, Daio Paper
aims to develop this technology further and increase its usage of hard-to-recyclerecovered paper to approx. 30% of the recovered paper used in containerboard production.
*Hard-to-recycle recovered paper refers to recovered paper, which is particularly difficult
to process for reuse, within unsorted recovered paper that has vinyl and other materials
attached to it. This is an original term established by Daio Paper.
(2) Details(i)Daio Paper will set up the facilities which contribute recycling and productive
usage of hard-to-recycle recovered paper as papermaking raw materials to bereprocessed into cardboards.
(ii)
Selecting papermaking raw materials from hard-to-recycle recovered paper
produces waste, such as vinyl and other materials attached to it. Daio Paper plansto utilize heat energy generated from waste incineration for power generation andin the drying process of papermaking.
(iii)
By conducting material recycling and thermal recycling as stated above, it isprojected that the following benefits will occur:- Waste reduction
Making use of hard-to-recycle recovered paper, which has been difficult forstandard facilities to reuse, thus reducing the amount of waste materials.
- Reduction of CO2 emissions
Less volume of paper waste (for incineration) reduces CO2 emission fromincineration.
- Power generation with fuel derived from waste:
Steam and electricity generated from waste incineration will be used forplants’ production activities and hence reduce the amount of fossil fuelsnecessary for power generation.

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Eligible Project 2: Biomass power plant facility (FIT boiler) (“Renewable Energy”
category in the Green Bond Principles 2018)
Financing and/or refinancing investments relating to development, construction, operation,
improvement and/or expansion of biomass boiler and power generation facility whose soleenergy source will be “black liquor” (lignin: resin extracted from tree)(1) Context:
The Third Medium-term Business Plan shows Daio Paper’s intention of engaging inbiomass power generation under the FIT scheme as part of its initiatives for building afoundation toward sustainable growth and thereby proactively helping solve
environmental issues through its business activities. The Group will continue to seek toreduce environmental load by effectively utilizing renewable energy.
(2) Details:(i)Daio Paper will construct biomass boiler and power generation facilitiesusing“black liquor” as its fuel that is generated from the pulping process.
(ii)
The boiler to be installed will use 100%black liquor, a type of biomass fuel.”(except for startup and shutdown of the facility).
(iii)
The launch of the biomass boiler is projected to bring about the following
environmental benefit:- Reduction of CO2 emissions
Power generation using biomass fuels produces less CO2 emissions than power
generation using fossil fuels.

2.2: Process for Projects Evaluation and Selection
Daio Paperhas evaluated and selected eligible projects that are aligned with the Groupmanagement philosophy, the Daido Global Environmental Charter, the Group Long-Term Vision,
the Third Medium-term Business Plan and the Eligibility Criteria through a process consistent
with the Green Bond Principles (2018) formulated by International Capital Market Association(ICMA), the Green Bond Guidelines (2017) by Ministry of the Environment, and the Climate
Bond Standard (version 2.1) by Climate Bonds Initiative (CBI).
Based on this project selection process, 1) Finance Department and CSR Department of DaioPaper selected eligible candidate projects. 2) Based on consulting with related divisions, DaioPaper’s representative director made the final decision to take them on.
Environmental risks anticipated in relation to these projects are as follows: (1) a possible
increase in CO2 emissions due to an increase in the use of electricity for the new and added
facilities; (2) possible increase in discharge water due to an increase in paper board production,5(3) a possible increase in emissions due to an increase in vehicles carrying hard-to-recycle
recovered paper in the premises of the plant, (4) possible production of dioxins from incinerationof chlorine-containing plastics attached to recovered paper.
Daio Paper is taking the following risk-mitigating measures vis-à-vis these environmental risks:(1) Compliance with laws and regulations(i)Compliance with environment-related laws and regulations:
As part of its compliance enhancement actions, the Group enforces all directors
and employees to comply with environmental and other laws and regulations.
(ii)

Environmental assessment:
In accordance with the ordinances set forth by the local government of the region
where Daio Paper’s facilities are located, Daio Paper conducts, as necessary,environmental impact assessments and studies for the purpose of mitigating
potential negative environmental impacts of its large-scale development projects.

(iii)

Law Concerning Waste Disposal and Scavenging (Waste Disposal Law):
Pursuant to the Waste Disposal Law, Daio Paper operates its facilities withconstruction permits obtained from the governor of the prefecture where thefacility is located.
In the process of obtaining the said permit, Daio Paper studies the impacts on theliving environment of the residents in the neighboring areas in accordance with
Ministry of the Environment’s ordinances. Both of the above-described eligible
green projects meet the relevant requirements.
Furthermore, obtaining the said permit necessitates fulfillment of the Air Quality
Standard. The surrounding areas of the facilities for these eligible projects are,therefore, deemed to meet the Air Quality Standard.

(iv)

Studies on the impacts of waste disposal facilities on residents’ living
environment:
For both of the above-described eligible projects, Daio Paper has completed
studies on the impacts of waste disposal facilities on residents’ living environment
and environmental impacts in terms of air, noise, vibration, odor, water quality
and groundwater.

(v)

Biomass power generation project:
The power generation facility using biomass boilers is being built under the FIT
scheme. This means that it complies with the business planning guidelines6

(biomass power generation) and regulations concerning the Feed-in Tariff
Scheme for Renewable Energy formulated based on the revised Act on Special
Measures Concerning Procurement of Electricity from Renewable Energy
Sources by Electricity Utilities. These law and regulations present guidelines forland and environmental assessments and other measures necessary forenvironmental protection.
(2) Practical measures(i)
The plant where the new facility will be installed generates power for its own use
and plans to cover the increase in the use of electricity with its private power
generation. Furthermore, Daio Paper plans to proactively utilize energy with low
environmental load with power generation facilities using biomass and refusederived fuel.
(ii)
In processing hard-to-recycle recovered paper and other low quality recovered
paper, Daio Paper will minimize the increase of discharged water by using
reclaimed water from the plant discharged water. Furthermore, all the discharged
water from our plants is treated in waste water treatment facilities to avoid
environmental impact.
(iii)
Daio Paper will improve the logistic layout and transportation efficiency tominimize an increase in emission gas associated with movements within thepremises.
2.3: Management of Proceeds
Daio Paper’s Finance Department will be in charge of allocation and management of theproceeds.
In cooperation with related divisions, Finance Department will trace and manage the investment
plan (payment plan) and actual expenditure for the projects on a monthly basis in accordancewith a management flow designated by Daio Paper. It also manages the status of allocation of theproceeds on a monthly basis.
It will also manage documents and data concerning the expenditure from the proceeds inaccordance with relevant laws, regulations and internal rules such as Document ManagementRules.
Most of the expenditure from the proceeds will be made within approx. two years from theissuance of the green bonds. Until the allocation of the proceeds is determined, Daio Paper will
manage the amount of funds equal to the proceeds as cash and cash equivalent.
(Ref.)
Attachment: Green Bond Proceeds Management Flow72.4: Reporting
The status of allocation of the proceeds to the eligible projects and environmental impacts will bereported once a year.

2.4.1: Reporting
Allocation Reporting
Daio Paper will disclose the allocation of the proceeds on its integrated report and/or website
once a year until the redemption of the green bonds.
In the case of any significant change in the planned allocation of the proceeds or in the financial
situation after the commencement of allocation of the proceeds, it will be disclosed on a timelybasis.
Impact Reporting
Daio Paper will disclose once a year the progress status and environmental performanceindicators of the eligible projects to which the proceeds are allocated on its integrated report
and/or website until the redemption of the green bonds.

Recycling and productive use of hard-to-recycle recovered paper
(i)
(ii)
(iii)

Reduction of waste with the reuse of hard-to-recycle recovered paper
Power generated from thermal recycling of vinyl and other materials attached torecovered paper
Reduction in CO2 emissions with the implementation of the above-mentioned
initiatives (i) and (ii)

Biomass power plant facility (FIT boiler)(i)Reduction of CO2 emissions compared to fossil fuel power generation

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2.4.2: Compliance Review
Daio Paper will engage DNV GL Business Assurance Japan K.K., a third-party evaluation
agency, to review the projects financed by Daio Paper Green Bond in order to assess thecompliance of the projects with the Daio Paper Green Bond Framework after the issuance of theBonds. This review will be conducted annually until approx. two years from the issuance of theBonds, the period during which most of the proceeds are expected to be allocated. Regarding thethird year and later, Daio Paper will determine whether to continue receiving the reviews
depending on the status of allocation of the proceeds.

9Attachment: Green Bond Proceeds Management Flow
1. Before the payment

Investment plans[Green projects]
Order placement →Completion→ Inspection

Check the scheduled payment for the green
projects
Internalmanagement
documents

Internal system

2. Execution of payment

Execute payment based on thetiming of inspection

The Company's bank accountProceeds from the GreenBonds

Completion of payment

3. After the payment

Check actual payment for the Green
Projects
Actual payment data;
andactual deposit balance

Internalmanagement
documents
Check and adjust consistence between
fund allocation to the Green Projects on aninternal management basis and deposit
balance of proceeds from the Green Bonds
in the bank accountMonth 1Months 2 to 12

Year 1

Year 2
Annual compliance review

10Year X
Annual compliance review

Year X

Annual compliance review for the
final year
(Determine whether to conduct thereview depending on the status ofallocation)

Redemption