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Daio Paper Corporation/ Daio Paper Green Projects 2018

Green bond eligibility pre-issue assessment report

DNV GL second party opinion

Oct. 2018 (Rev.1)

DNV GL Business Assurance Japan K.K.

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Contents
IIntroduction (About issuer and green bond)3

Ⅱ

Scope and Objectives

5

Ⅲ

Responsibilities of the Directors of Issuer(Daio Paper) and the assurance providers

7

Ⅳ

Basis of DNV GL’s opinion

8

ⅤWork undertaken

9Ⅵ

Findings and DNV GL’s opinion (eligibility against for GB criteria)

10

Schedule-1 (Nominated assets & Green bond project outline)14Revision

Issued date

Initial issue

28th. Sep. 2018

Remarks
Initial issue

Revision 1

24th. Oct. 2018

Additional information of total amount of proceeds and fund plan
to each green projects are described. (Chapter Ⅱand Ⅵ)

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Daio Paper Green Bond project 2018

DNV GL Second Party Opinion

IIntroduction (About issuer and green bond)
Daio Paper Corporation (hereafter “Daio Paper”) is full-range paper manufacturer
company and was established through a merger of 14 paper companies such as
Shikoku Paper Corporation. Daio Paper engages following enterprise.
1. Manufacturing, converting and sales of paper, paperboard, pulp and their byproducts.
2. Manufacturing, converting and sales of commodities and miscellaneous goods.
3. Manufacturing, converting and sales of function added film, adhesive sheet andsynthetic resin material including adhesives.
4. Design, installation and buying/selling of plants related to each of the previous
items, and technical instruction
5. Buying/selling of raw materials and fuel for manufacturing and converting paper,
paperboard and pulp
6. Sales and reforestation of forest lands and timber resources, sawing andprocessing of wood, and landscape gardening and etc.
Daio Paper sets its corporate philosophy “Shaping an abundant and affable future
for the world”. In order to realize its philosophy, Daio Paper focuses on the fourpillars constituting the philosophy including ‘Contribution to the globalenvironment’. ‘Contribution to the global environment’ contributes to achievesustainable circulation society which harmonizes with those activities such as“Recycling and productive utilization of hard-to-recycle recovered paper” and“Biomass power” utilization and energy efficiency, etc. activity through its business.
Daio Paper also defined their code of conduct as “Daio group code of conduct”
which is basic concept for CO2 emission reduction activities. Moreover, based on“DAIO Global Environmental Charter” established 1993 declares to achieve
recycling and productive utilization of hard-to-Recycle recovered paper, energy
efficiency and biodiversity which contribute to achieve sustainable circulationsociety.
Daio Paper embarked the Third Medium-term Business Plan from FY2018 toFY2020. The key strategies of this plan include (1) structural reform of
manufacturing process of Pulp and Paper business segment capitalized on DaioPaper’s strength, (2) building the foundation of for sustainable growth.

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The net proceeds from Daio Paper’s green bond which will be issued by Daio Paperwill be allocated to “Recycling and productive utilization of hard-to-recycle
recovered paper” project and “Biomass power” project. These green projects arealigned with Daio Paper group management philosophy and DAIO Global
Environmental Charter, including followings.

-1- Recycling and productive usage of hard-to-recycle recovered paper-2- Biomass power plant facility(each includes development, construction, operation and improvement/expansion)

In this paper, no assurance is provided regarding the financial performance of theBOND, the value of any investments in the BONDS, or the long term
environmental benefits of the transaction. DNV GL Business Assurance JapanK.K.(henceforth referred to as DNV GL) ’s objective has been to provide anassessment that the BOND has met the criteria of the Green Bond Principle andthe associated Technical Criteria on the basis set out below.

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Scope and Objectives

Daio Paper intends to finance investments in specific project categories, including:----The projects is categorized in ‘Pollution prevention and control’ and ‘Renewableenergy’As some secondary benefit, including ‘CO2 emission reduction’ is prospected.
Total amount of Daio Paper’s green bond will be 20 billion JPY (redemption period: 7years : 15 billion JPY, 10 years : 5 billion JPY) and fully allocated to green activities.
The amount of fund will be defined in the legal documentation. The amount allocatedto each Green Project and if the proceeds is used to existing projects as refinance,refinance amount and/or share will be reported/disclosed in Corporate report and/orits company website(homepage) annually.
Projects contribute to reduce the waste by hard-to-recycle recovered paper which isestimated approx.140kt/year and to mitigate electric generation by approx. 60MW
biomass power plant construction and operation. Projects can achieve/meet to the‘Waste reduction’, ‘Waste recycle’ and CO2 emission reduction from energy source.
In this green bond projects, environmental impact was evaluated by the issuer andsatisfied the relevant laws, such as environmental investigation and estimation inorder to mitigate detrimental effects.
Schedule-1 shows the nominated projects and assets outline.

DNV GL holds no other engagements with Daio Paper including its direct shareholders,for which we foresee conflict of interest to carry out the Scope of Work as defined in theRequest for Proposal.

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Daio Paper intends to distribute any unallocated proceeds in line with the Use ofProceeds and Management of Proceeds sections set out in the Daio Paper Green
Bond Framework.
DNV GL conducted and independent assessment of the Green Bond Framework
and proposed issuance against the Green Bond Principles 2018.
In this paper, no assurance is provided regarding the financial performance of theBOND, the value of any investments in the BONDS, or the long term environmental
benefits of the transaction. Our objective has been to provide an assessment thatthe BOND has met the criteria established on the basis set out below.
The scope of this DNV GL opinion is limited to the Green Bond Principles 2018
(GBP2018). DNV GL also considered the requirements of the Green BondGuidelines (MOE, Japan 2017) and Climate Bond Standard Version 2.1 during its
assessment, however at the time of review, no Technical Criteria for - ‘Pollution
prevention and control’ (Waste management) is available for Issuer use. TechnicalCriteria for ‘Renewable energy’ (Bioenergy) is only applicable to this BOND. No
opinion of conformance with the Standard is provided here and no Certification has
been applied for at this time. Any future application for Certification under theClimate Bond Standard would be at the discretion of the Issuer, Daio Paper .

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Ⅲ

Responsibilities of the Directors of Issuer(Daio Paper) and theassurance providers
The management of Daio Paper has provided the information and data used by DNV
GL during the delivery of this review. Our statement represents an independent
opinion and is intended to inform Daio Paper management and other interested
stakeholders in the BOND as to whether the established criteria have been met,
based on the information provided to us. In our work we have relied on theinformation and the facts presented to us by Daio Paper. 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 are incorrect. Thus, DNV GL shallnot be held liable if any of the information or data provided by Daio Paper’smanagement and used as a basis for this assessment were not correct or complete.

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Basis of DNV GL’s opinion
To provide as much flexibility for the issuer, Daio Paper as possible, we haveadapted our Green Bond Principles*1, Green Bond Guidelines*2 and Climate BondStandard*3 assessment methodologies, which incorporates the requirements of theGBP, to create a Daio Paper-specific Green Bond Eligibility Assessment Protocol(henceforth referred to as “Protocol”).
Daio Paper-specific Protocol has the capacity for potential application of the Bond
under the Green Bond Guidelines and Climate Bond Standard should TechnicalCriteria under the Standard become available. Our Protocol includes a set ofsuitable criteria that can be used to underpin DNV GL’s opinion. The overarching
principle behind the criteria is that a green bond should “enable capital-raising andinvestment for new and existing projects with environmental benefits”.
As per our Protocol, the criteria against which the BOND has been reviewed aregrouped under the four Principles:•Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirementthat an issuer 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 andSelection 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 the requirements that a green bond should be tracked within the issuing organization, that
separate portfolios should be created when necessary and that a declaration of how unallocatedfunds will be handled should be made.

•Principle Four: Reporting. The Reporting criteria are guided by the recommendation that atleast Sustainability Reporting to the bond investors should be made of the use of bond proceeds
and that quantitative and/or qualitative performance indicators should be used, where feasible.

*1:Green bond principle (June 2018, International Capital Market Association)*2:Green Bond Guidelines, 2017 (March 2017, Ministry of the Environment)*3:Climate Bond Standard | version 2.1 (Climate Bonds Initiative)

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ⅤWork undertaken
Our work constituted a high level review of the available information, based on theunderstanding that this information was provided to us by Daio Paper in good faith.
We have not performed an audit or other tests to check the veracity of theinformation provided to us. The work undertaken to form our opinion included:•Creation of an Daio Paper-specific Protocol, adapted to the purpose of theBOND, as described above and in Schedule 2 to this Assessment;•Assessment of documentary evidence provided by Daio Paper on the BONDand supplemented by a high-level desktop research. These checks refer tocurrent assessment best practices and standards methodology;•Discussions with Daio Paper management, and review of relevant
documentation;•Documentation of findings against each element of the criteria. Our opinion asdetailed below is a summary of these findings.

Page 10 of 15ⅥFindings and DNV GL’s opinion (eligibility against for GB criteria)

1. Principle One, Use of Proceed
DNV GL has confirmed that the proceeds from the bond issued by Daio Paper willbe allocated to the two projects which meet the green bond criteria below;

Eligibility Criteria of Green Bond:
Pollution prevention and control (Project 01)
Renewable energy (Project 02)

All the proceeds will be allocated to construction and related to “waste reduction”,“waste recycling” (GBP2018, GBG2017) and “biomass power” (GBG2017) projects
which are proposed in the Schedule-1 (two projects; “Recycling and productiveusage of hard-to-recycle recovered paper” and “Biomass power plant facility”). The
outline of the projects is as follows;

Project 01 : Recycling and productive usage of hard-to-recycle recovered paper(funded amount plan : balance of project 02)
Daio Paper will install the facilities which contribute recycling and productive
usage of hard-to-recycle recovered paper which used to be disposed by burning.
Daio Paper will also apply the technology of selection and pulping from hard-torecycle paper which has been developed by Daio Paper and as its core competence.
Implementation of this project 01 contributes to achieve both waste reduction andwaste recycling at the same time.

Project 02 : Biomass power plant facility(funded amount plan : more than 50% of total proceeds)
Daio Paper will construct the biomass boiler and power generation facility whoseenergy source is the black liquor (lignin : resin extracted from tree) derived fromcrafting process. Black liquor is officially categorized in biomass from paper/pulp
mill process. Daio Paper utilizes its own black liquor as biomass fuel for biomassenergy. Electricity will be distributed to its paper/pulp manufacturing facilities andexisting electricity grid. Implementation of this project 02 contributes to energy
source CO2 emission reduction.

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2. Principle Two, Process for Project Evaluation and Selection
DNV GL has confirmed that the two projects described in the Schedule-1, wereevaluated and selected through the appropriate process by the relevant
department of Daio Paper based on its corporate philosophy and policy of thecontribution to the environment including “DAIO Global Environment Charter”. DNV
GL has reviewed evidence that demonstrates that Daio Paper regularly assesses
opportunities for improvement and devises action plans and initiatives to mitigate
negative environmental and social impacts from its operation.
Specifically, as for the negative impact caused by construction and operation ofthese projects, appropriate countermeasures and practical action plans have been
and will be taken after the evaluation (e.g. effluent gas quality/amount and waterquality). Negative effect such as secondary CO2 emission by operation of biomassenergy facilities was also considered/evaluated by Daio paper. DNV GL confirmedthat the amount of these secondary CO2 emissions was estimated to be immaterial
compared to the estimated reduction benefit of CO2 emission by operation of thebiomass energy facilities.

3. Principle Three, Management of Proceeds
DNV GL has reviewed and confirmed Daio Paper’s plans to trace/manage theproceeds from the Bond, from the time of issuance to the time of disbursement, as
well as the appropriateness and clarity of their plan to manage total amount of theproceeds. Daio Paper will manage the cash or cash equivalents which equals tofund, until decision of the proceed allocation. DNV GL has confirmed that DaioPaper will periodically review the outstanding balance of the Bond. Total amount offund has not been defined in this document, then will be disclosed in the legal
documentation. The amount allocated to each Green Project and if the proceeds isused to existing projects as refinance, refinance amount and/or share will bereported/disclosed in Corporate report and/or its company website(homepage)
annually.
Allocation amount and if the proceeds is used to existing projects as refinance,refinance amount and/or share will be reported/disclosed in corporate report
and/or its company
As stated above, DNV GL provides no assurance regarding the financial
performance of the Bond, the value of any investments in the Bond, or the effectsof the transaction.

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4. Principle Four, ReportingDNV GL has confirmed that Daio Paper has plans to report/disclose the specificinformation required by the Green Bond in Corporate report and/or its company
website(homepage) annually. These will include description of the project and its
progress, allocation and management of the proceeds invested, as well as theassociated qualitative or quantitative environmental impacts (amount of waste
recycle and reduction of CO2 emission). Refinance amount and/or share will bereported/disclosed in corporate report and/or its company website(homepage)
annually.
As for evaluation of waste reduction and CO2 emission reduction, DNV GL has
confirmed that Daio Paper plans to evaluate/calculate in the appropriate method
based on the operation performance of each project (such as operation record).
DNV GL will conduct periodic ongoing reviews and state that quantified waste
reduction and CO2 emission reduction will be reported in those reviews until almost
full proceeds allocation is completed.

Considering all of the above assessments, DNV GL has confirmed that thenominated green projects of Daio Paper are designed and are planned to be
executed in accordance with related criteria of the green bond (Green BondPrinciples 2018 and Green Bond Guidelines by Ministry of the Environment).

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DNV GL Business Assurance Japan K.K.

24th. Oct. 2018 (Rev.1)

Mark Robinson

Naoki Maeda

Manager, Sustainability Services
DNV GL – Business Assurance, Australia

Managing Director
DNV GL – Business Assurance Japan K.K.

Masato Kanedome
Project LeaderDNV 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 advancethe safety and sustainability of their business. Combining leading technical and operational expertise, risk
methodology and in-depth industry knowledge, we empower our customers’ decisions and actions with trust andconfidence. We continuously invest in research and collaborative innovation to provide customers and society withoperational and technological foresight.
With our origins stretching back to 1864, our reach today is global. Operating in more than 100 countries, our 16,000
professionals are dedicated to helping customers make the world safer, smarter and greener.

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

Pro
ject

Nominated projects andassets

GBP category

GBP Sub
category

Funded amount (Plan)
total 20 billion JPY01

Recycling and productive usage

Pollution- Waste prevention

Total 20 billion JPY

balanceof hard-to-recycle recovered

prevention and- Waste recycling(redemption periodproject 02

papercontrol- Green house gas

7 years : 15 billion(including 20 % waste including metal etc, which

JPY and 10 years : 5

can not be recycled is considered)-new fabrication, partial

control

improvement

Remarksofbillion JPY)

- waste reduction amount : approx 140kt/y (wastetype:hard-to-recycle

recoveredpaper,- waste recycle product amount : 140k t/y×80%(finance and refinance)- waste re-product type : corrugated paper, etc.
- CO2

emission

reduction

bywasterecycle(Comparison of waste burning by incinerator)

02

Biomass power plant facility
construction

Renewable energy-Production

more(Biomass)

50% of total-new facility construction(finance and refinance)

thanproceeds- Biomass fuel type : Black liquor by Kraft process.
*1- Electricity output : approx.60MW- CO2 emission reduction (as energy source) bybiomass electricity generation.

*1：Categorized by METI/Agency for natural resources and energy

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