JCR Sustainability Finance Evaluation
June 7, 2019

Preface
Sustainability finance is a bond or a loan, etc. with all of their proceeds being used for new investments orrefinance for both green projects and social projects. Sustainability bonds are bonds which are conform to 4
key components that are common to both Green Bond Principles (“GBP”) and Social Bond Principles(“SBP”). Out of the use of proceeds, it is necessary to check eligibility for GBP for the green projects andthat for SBP for social projects. An issuer should decide by taking into account its most important objective
whether its finance is placed as green finance, social finance, or sustainability finance.
JCR implements JCR Sustainability Finance Evaluation in accordance with the Sustainability Bond
Guideline (“SBG”) defined by ICMA. Therefore, even if a project is evaluated as Sustainable by otherconcepts, in cases where conformity to GBP and SBP cannot be confirmed, the project may not be evaluatedby this evaluation method and may be subject to different evaluation systems or third party opinions, etc.
JCR describes JCR Sustainability Finance Evaluation as below.

I

Subject of evaluation
JCR Sustainability Finance Evaluation is applicable to various financing tools such as bonds, loans, etc. withthe use of proceeds being green projects illustrated by GBP and social projects illustrated by SBP. The
following are industries and business areas of issuers, etc.
(1) Nonfinancial corporations, Financial institutions, Governments, Local public bodies, International
financial institutions, Government agencies(2) Project finance(3) Investment corporations(4) Asset securitization products

II

Basic framework of JCR Sustainability Finance Evaluation
JCR implements the following 3 steps to evaluate sustainability finance.
In Evaluation Phase 1, JCR evaluates “greenness and social beneficial impacts” of the bonds, etc. First, JCR
assesses whether the projects are applicable to the green projects or social projects. If it is judged as a green
project or a social project, JCR assesses it focusing on the use of the proceeds (proportion of the proceeds
applied to the green projects or social projects).

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In Evaluation Phase 2, JCR evaluates “Management, Operation and Transparency.” JCR evaluates theissuers’ management and operation systems and transparency. JCR believes if the management and operation
system is well developed, it will improve the certainty of implementing the planned use of proceeds and thegreen projects or social projects. In addition, JCR evaluates the degree of disclosures related to the use ofproceeds, management of proceeds, selection policy, criteria and processes. (JCR call this as “certainty ofrealizing the greenness and social beneficial impacts evaluation”).
In “Evaluation Phase 3,” JCR determines the total evaluation results by comprehensively considering“Greenness and Social Beneficial Impacts Evaluation” results and “Management, Operation andTransparency Evaluation” results.
JCR Sustainability Finance Evaluation flow:

Phase 1:
Greenness
Evaluation
Phase 2:
Management,
Operation andTransparency
Phase 1:Social Impact
Evaluation

Phase 3:Overall Sustainability FinanceEvaluation

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III

Evaluation framework by each evaluation phase

1. Evaluation Phase 1: Greenness and Social Beneficial Impacts Evaluation
In this evaluation phase, JCR assesses how much the use of proceeds is allocated to green projects or social
projects, if the projects are considered as green projects or social projects. Evaluation results shall beclassified into 5 grades from “gs1” to “gs5” as follows.
Greenness and Social Beneficial Impacts Evaluation(how much the use of proceeds is allocated to green projects or social projects)

Evaluation grade

100% to 90% (Almost all the proceeds are allocated to green projects or social
projects)

gs1

89% to 70% (Most of the proceeds are allocated to green projects or social
projects)

gs2

69% to 50% (More than half of the proceeds are allocated to green projects orsocial projects)

gs3

49% to 30% (Less than half of the proceeds are allocated to green projects orsocial projects)

gs4

29% to 10% (Very low amount of the proceeds are allocated to green projects
or social projects)

gs5

Below 10％

Not qualified

2. Evaluation Phase 2：Management, Operation and Transparency Evaluation
In this phase, JCR evaluates the issuers’ management and operation systems and the degree of transparency
based on the 4 evaluation items, which follows the GBP and SBP. The evaluation results are classified into 5
grades from “m1” to “m5.”Evaluation scores by grade

Evaluation grade

100 to 80 (AM system is well developed and the degree of transparency is veryhigh. The project implementation and allocation of the proceeds are highly
likely to be made as were planned.)

m1

79 to 60 (AM system is developed and the degree of transparency is high. The
project implementation and allocation of proceeds are expected to be made as
were planned.)m2

59 to 40 (AM system and the degree of transparency have some problems andthere is a little concern that the plan and the fund allocation will not beprocessed as were planned.)m3

39 to 20 (AM system and the degree of transparency have problem and there
is a concern that the plan and the fund allocation will not be processed as wereplanned.)m4

Below 20 (AM system and the degree of transparency have serious problems
and it is difficult to expect the plan and the fund allocation will be processed aswere planned.)m5

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3. Evaluation Phase 3: Overall Evaluation
In phase 3, JCR determines an overall evaluation from SU 1 to SU 5, based on greenness and social
beneficial impacts evaluation (gs1 to gs5), adding up the management, operation and transparency evaluation(m1 to m5).
JCR uses JCR Sustainability Finance Evaluation Matrix for determining the overall evaluation as shown
below:SU 1 is the highest sustainability finance evaluation in JCR Sustainability Finance. This is assigned to thosewhich get the highest evaluation in both “greenness and social beneficial impacts evaluation and“management, operation and transparency evaluation”.

<JCR Sustainability Finance Evaluation Matrix>
Management, Operation & Transparency

Greenness & Social Beneficial
Impact

m1

m2

m3

m4

m5

gs1

SU 1

SU 2

SU 3

SU 4

SU 5

gs2

SU 2

SU 2

SU 3

SU 4

SU 5

gs3

SU 3

SU 3

SU 4

SU 5

Not qualified

gs4

SU 4

SU 4

SU 5

Not qualified

Not qualified

gs5

SU 5

SU 5

Not qualified

Not qualified

Not qualified

4. Evaluation symbols
JCR Sustainability Finance Evaluation symbols are expressed by the combination of “Greenness and Social
Beneficial Impacts Evaluation,” “Management, operation & Transparency Evaluation (m1 to m5)” and“Overall Evaluation (SU 1 to SU 5).”

<JCR Sustainability Finance Evaluation Results>

Overall Evaluation
Greenness and Social
Impacts Evaluation(Use of Proceeds)

SU 1 ~ SU 5

Beneficial

gs1 ~ gs5

Management, operation andTransparency Evaluation

m1 ~ m5

IV Evaluation methodology (Evaluation factors and scoring)
When evaluating greenness and social beneficial impacts, JCR checks, evaluate and scores in compliancewith “JCR Green Finance Evaluation” and “JCR Social Finance Evaluation.”

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V

Assumptions and limit of this evaluation
JCR Sustainability Finance Evaluation is to affirm that the positive impacts on environment or social benefits
at the time of planning the financing or the time of financing are appropriately calculated quantitatively or
qualitatively by the issuers or the third parties. This evaluation will not guarantee such impacts will continue
in the future.
Positive and negative impacts of green projects or social projects on environment or social benefits arecalculated internally or by external institution by the request of issuers. JCR evaluates the impacts based on
this calculated results and it will not calculate the impacts by itself.

VI Evaluating Sustainability Finance Framework
At the request of the issuers, JCR may conduct a Sustainability Finance Framework Evaluation of theirsustainability finance policy to confirm compliance with the GBP, SBP, SBG, etc.
In such a case, this evaluation method shall apply, but the evaluation symbol shall be indicated by (F) at theend of the evaluation symbol.
Evaluation of the Sustainability Finance Framework involves evaluation of the Sustainability Finance
Framework of the issuers, and does not include greenness and social impacts evaluation, and management,
operation and transparency evaluation of the individual uses of proceeds implemented based on thesustainability finance framework.

VII Periodical review
JCR may implement periodical review, if the issuers find the necessity to follow up the unallocated funds andplanned reporting after conducting sustainability finance.
■Disclaimers

The information contained in this document has been obtained by JCR from the Borrower and from accurate and reliable sources. Provided, however, that suchinformation may be erroneous due to human, mechanical or other reasons. Accordingly, JCR makes no representation or warranty, express or implied, as to theaccuracy, results, accuracy, timeliness, completeness, marketability, or fitness for a particular purpose of such information, and JCR assumes no responsibility for any
error, omission, or result of using such information. In no event shall JCR be liable for any special, indirect, incidental or consequential damages of any kind, including
opportunity loss, monetary loss, which may arise from any use of such information, whether contractual, tort, negligence or other cause of liability, and whether or not
such damages are foreseeable or unforeseeable. JCR Social Bond Assessment does not express any opinion on the various risks (credit risk, price fluctuation risk,
market liquidity risk, price fluctuation risk, etc.) related to social bonds subject to evaluation. JCR Social Bond Evaluation is a comprehensive statement of opinion at
the present time of JCR and is not a statement of fact and does not make any recommendations regarding risk judgment or the decision to purchase, sell or holdindividual bonds, commercial paper, etc. JCR Social Bond Evaluations may be changed, suspended, or withdrawn due to changes in information, lack of information,or other reasons. All rights to this document, including data from JCR Social Bond Evaluation, are held by JCR. Reproduction, adaptation, modification or alteration ofthis document, in whole or in part, including data from JCR Social Bond Evaluation, without the permission of JCR is prohibited.

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

Copyright © Japan Credit Rating Agency, Ltd. All rights reserved.

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<Attachment>

Green Project listed in Green Bond Principle by ICMA andGreen Bond Guidelines 2017 by Ministry of Environment
ICMA GBP

MOE Guidelines

Renewable energy (including production,transmission, appliances and products);

Renewable energy (including production, transmission,
appliances and products)‧ Renewable energy power generation projects, including
solar power, wind power, mid and small sized water power,
biomass, geothermal power.
‧ Projects to install transmission or energy storage battery, tomaintain, coordinate the demand and supply and store theenergy which are generated by renewable energy‧ Projects to produce appliances and products such as solar
panels, transmission wires, energy storage batteries, which
are used for the above projects‧ Projects which use renewable energy power such as solar,
geothermal power, etc.

Energy efficiency (such as in new andrefurbished buildings, energy storage,
district heating, smart grids, appliances andproducts);
Green buildings which meet regional,
national or internationally recognized
standards or certifications.

Energy efficiency (including construction and of energy
efficiency buildings, renovations to energy efficient buildings,
air conditioning of the energy storage area, smart grid andappliances)‧ Net Zero Energy House (ZEH), Net Zero Energy Building(ZEB) and other construction of energy efficiency buildings‧ Renovating the existing buildings such as office, factories
and houses to acquire the environment authenticationsuch as LEED CASBEE BELS
‧ Projects to install appliances or facilities which are energy
efficient to office, factories, houses, etc.
‧ Development and installation of smart grid related
appliances

Pollution prevention and control (including
reduction of air emissions, greenhouse gas
control, soil remediation, waste prevention,
waste reduction, waste recycling andenergy/emission-efficient waste to energy)

Pollution prevention and management(including waste water treatment, reduction of greenhousegas control, soil remediation, waste recycling and associatedenvironmental monitoring)‧ Projects to realize circular economy (Designing andproducing energy efficient and long-life products, inverse,
manufacturing and advanced waste treatment (including
recycling and energy collection)‧ Projects to control the emission of hazardous chemical by
preventing leakage, volatilization and penetration.
‧ Projects to install facilities of advanced treatment andreuse of waste water from factories.
‧ Projects to treat soil contamination

Environmentally sustainable management ofliving natural resources and land use(including environmentally sustainableagriculture; environmentally sustainable
animal husbandry; climate smart farm inputs
such as biological crop protection or
drip-irrigation; environmentally sustainablefishery and aquaculture; environmentally sustainable forestry, including afforestation
or reforestation, and preservation or
restoration of natural landscapes);

Environmentally sustainable management of living natural
resources and land use (including environmentally sustainableagriculture, fisheries and aqua culture, forestry; IPM(Integrated Pest Management) of pests, drip irrigation)‧ Projects to acquire the certifications for sustainability suchas MSC, ASC for fisheries and aquaculture.
‧ Projects to acquire the certification for sustainability suchas FSC for forestry.
‧ Afforestation projects

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MOE Guidelines

Terrestrial and aquatic biodiversity
conservation (including the protection ofcoastal, marine and watershedenvironments);

Terrestrial and aquatic biodiversity conservation (including theprotection of coastal, marine and watershed environments)‧ Projects to conserve wetland and coral leaf.
‧ Projects to preserve and redevelop village-vicinity
mountain and ocean‧ Projects to regenerate river protected shore tonear-natural.

Clean transportation (such as electric,
hybrid, public, rail, non- motorized,
multi-modal transportation, infrastructure
for clean energy vehicles and reduction ofharmful emissions);

Clean transportation(low pollution emission cars such as electric, hybrid cars,
public transportation, railways, bicycles, multi-modaltransportation, infrastructure for clean energy vehicles andreduction of harmful emissions)‧ Projects to develop and produce pollution emission carssuch as electric, hybrid cars and to develop its
infrastructure‧ Projects to improve efficiency in development of planned
physical distribution base, intensive transportation
network, modal shift, co-sharing of transportation anddistribution‧ Projects to introduce equipment to support eco-driving(digital type operation recorders)‧ Projects for developing facilities of park and ride and car
sharing

Sustainable water and wastewater
management (including sustainableinfrastructure for clean and/or drinking
water, wastewater treatment, sustainableurban drainage systems and river training
and other forms of flooding mitigation);

Sustainable water and wastewater management(including sustainable infrastructure for clean and/or drinking
water, wastewater treatment, sustainable urban drainage
systems and river training and other forms of flooding
mitigation);‧ Projects to preserve hydrologic cycle such as water source
cultivation or soil infiltration of rain water (including
developing green infrastructure)‧ Projects to develop facilities for flood mitigations‧ Desalination projects

Climate change adaptation (including
information support systems, such as
climate observation and early warning
systems);

Climate change adaptation (including information support
systems, such as climate observation and early warning
systems);‧ Projects to strengthen disaster prevention of distribution,
railways, harbor, airport, road and water related
infrastructure, waste treatment facilities and traffic safety
devicesEco-efficient and/or circular economy
adapted products, production technologies
and processes (such as development andintroduction of environmentally friendlier
products, with an eco-label orenvironmental certification,
resource-efficient packaging anddistribution);

Eco-efficient and/or circular economy adapted products,
production technologies and processes (such as development
and introduction of environmentally friendlier products, withan eco-label or environmental certification, resource-efficient
packaging and distribution);‧ Projects to produce the production which could acquire
environmental certifications‧ Projects to implement R&D and introduction of greenhouseemission reduction technologies and products.

(Source)
ICMA website：https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-social-and-sustainability-bonds/green-bond-principles-gbp/
Ministry of Environment website：https://www.env.go.jp/press/files/jp/105353.pdf

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