21-D-1310

February 15, 2022
JCR Green Finance Frame work Evaluation B y Japan Credit Rating Agenc y, Ltd.
Japan Credit Rating Agency, Ltd. (JCR) announces the following Green Finance Framework Evaluation Results.

JCR Assigned Green 1(F) to the Green Bond Frameworkof Japan Freight Railway Company
Issuer:Japan Freight Railway Company

Subject:

Japan Freight Railway Company Green Bond Framework<Green Finance Framework Evaluation Results>
Overall Evaluation

Green 1(F)Greenness Evaluation(Use of proceeds)
Management, Operation, andTransparency Evaluation

g1(F)
m1(F)

Chapter 1: Overview of Evaluations
Japan Freight Railway Company (JR Freight) is a special company established to centrally manage and operate thefreight railway business which had been handled by Japan National Railway Company (JNR) under the Act on Passenger
Railway Company and Japan Freight Railway Company (JR Company Act). In April 1987, when the JNR was divided
and privatized, it was decided that the freight sector would be separate from the passenger sector and become an
independent entity capable of nationwide unified business operations, in light of the clarification of management
responsibilities based on the assumption of its own solid management of revenues and expenditures, and the facilitationof freight transportation, which tends to be disproportionate between long-haul outward and return route routes. JR
Freight's shares are held entirely by the Japan Railway Construction, Transport and Technology Agency.
JR Freight operates a wide range of businesses nationwide, including the operation and management of complex logistics
facilities on the premises of freight stations, centered on freight railway transportation, and the real estate business,
centered on the leasing of office buildings and commercial facilities. The operating kilometer of freight railtransportation is 7,954Km, and it has an overwhelming domestic transportation network. Of these, the Class I railway
business section in which it owns routes is limited to 35Km, and the remaining section is operated as a Class II railway
operator using routes owned by each JR passenger company and railway by joint public-private sector funding company.
In January 2021, the JR Freight Group established the "JR Freight Group Long-Term Vision 2030" and established apolicy of "contributing to enhancing social value by providing optimal solutions as a comprehensive logistics corporategroup centered on railways." The policy states that the JR Freight Group can contribute to the formation of a sustainable
society by providing society with four values: "improvement of logistics productivity," "safe and secure logistics
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services," "realization of a green society," and "revitalization of local communities." Among them, "realization of agreen society" is described as "contributing to realization of green society including carbon neutral by 2050" byadvancing business management considering the environment, while making use of the excellent environmental
characteristics of freight railway." In addition, under the Long-Term Vision 2030, it specifically promotes the initiatives
related to the above four values and "realization of employee job satisfaction."
In addition, the JR Freight Group has set up a cross-organizational project team headed by the president, the Carbon
Neutral Community Contribution Promotion Project, to contribute to the Japanese government's goal of reducing carbon
neutrality by 2050 and CO2 by 46% by 2030, and to further strengthen the environmental superiority of freight railtransportation and increase corporate value, and has announced that it will promote business operations that take theglobal environment into consideration. JCR has confirmed that, going forward, JR Freight Group is planning to makeefforts to strengthen carbon neutral initiatives, disseminate them to the outside, contribute to railway user companies,and contribute to the community through carbon neutral initiatives, etc.
The scope of this evaluation is the Green Bond Framework (this framework), which designates projects on "cleantransportation" and "green building" as eligible projects among the initiatives contributing to ESG initiatives set by JR
Freight in the targets and business plans under the Group Long-Term Vision 2030.
JCR evaluates that the eligibility criteria set by JR Freight in this framework include projects that contribute to modal
shift efforts being undertaken by JR Freight for "clean transportation" and projects for "green building" that are aimed
at "realization of a green society" as set forth by JR Freight in the Group Long-Term Vision 2030. JCR also values thatthe project selection process, the fund management system, and the post-issuance reporting system have been properly
established and are highly transparent.
As a result, based on JCR Green Finance Evaluation Methodology, JCR assigns "g1 (F)" for "Greenness Evaluation(Use of Proceeds) “and "m1 (F)" for "Management, Operation and Transparency Evaluation." Consequently, JCR
assigns "Green1 (F)" for overall "JCR Green Finance Framework Evaluation" to the Framework.
The Framework meets the standards for the items required in the "Green Bond Principles 1 " and the "Green Bond
Guidelines2" by the Ministry of the Environment.

1

Green Bond Principles 2021
https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-Principles-June-2021-140621.pdf
2
Green Bond Guidelines 2020
https://www.env.go.jp/press/files/jp/113511.pdf(pp.14-47)
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Chapter 2: Current Status of the Project on Each Evaluation Factor and JCR's
Evaluation
Evaluation Phase 1: Greenness Evaluation
Based on the current status described below and JCR's evaluation of the subject, JCR evaluated
100% of the use of proceeds was green project, and assigned "g1 (F)," the highest rank for Phase
1: Greenness Evaluation.

(1) JCR's Key Consideration in This Factor
In this section, JCR first confirms whether the proceeds set out in this framework is used for green projects that havea clear environmental improvement effect. Next, in cases where the use of proceeds is expected to have a negative
impact on the environment, JCR confirms that the impact is examined sufficiently by an internal specialist
department or an external third party and whether necessary measures for avoidance and mitigation have been taken.
Finally, JCR confirms the alignment with the Sustainable Development Goals (SDGs).

(2) Current Situation of Evaluation Targets and JCR’s Evaluation
Outline of Use of Proceedsa.

Environmental Improvement Effects of the Project<Green Bond Framework for Use of Proceeds>
JR Freight has defined the following uses of proceeds related to green bonds in this framework. The proceeds ofthe Green Bond are expected to be used to fund new investments and refinance existing equipment for eligible
projects described below. In the case of refinancing of existing facilities, projects that have started within two
years of the issuance of green bonds or environmental performance has been confirmed are eligible.

(Eligibility Criteria in the JR Freight’s Green Bond Framework)
Eligible
category

Eligible project

Project Examples

Clean

Investment in the construction and- Tokyo Rail Gate EAST and otherTransportationacquisition of facilities contributing tologistics facilities directly connected tothe transportation of freight railways

cargo terminals- Renovation and new construction of
freight stations- Other facilities related to freightrailway transportation

Investment related to update and new- Electric locomotives, freight trains, etc.

production of electric locomotives andfreight trains
Investment in renewal and new- New container rolling stocks, next-

production of freight rolling stocks

generation low-floor container rollingand containers, etc.

stocks, constant-temperature transport
container rolling stocks, etc.

Investment for renewal and new- Replacement of transportation-related

production of transportation-related

equipment such as railroad tie andequipment, etc.

railroad switch

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- Replacement and upgrade of obsolete
equipment- Switch to LED lights on the premisesof freight stations- Development of infrastructure used forswitching work on the premises offreight stations(hybrid diesel locomotives, etc.)- Other facilities that support freight railtransportation
Investment in renewal and new- Renewal of systems related to the

production of operating systems

operation of freight railway
transportation, etc.

Green Building

Investment related to the construction- Real estate, etc., including Tokyo Railand acquisition of green buildings, forGate EAST, for which one of thewhichenvironmental certifications listed on the

one

of

the

following

environmental certifications has beenleft has been acquired or is expected toacquired or is scheduled to be

be acquired

acquired- rank S, rank A, or rank B in
CASBEE certification- 5-stars, 4-stars or 3-stars in DBJ
Green Building certification- 5-stars, 4-stars or 3-stars in BELS
certification<JCR's Evaluation of the Framework>
Eligible Category 1: Clean Transportation
The eligible projects listed in Eligible Category 1 are new investments in projects contributing to thepromotion of modal shift being pursued by JR Freight and refinancing of existing facilities, which fallunder the category of "clean transportation," and are expected to have a high environmental improvement
effect.
Regarding "clean transportation", JR Freight aims at modal shift of means of transportation to railways by
utilizing features of railways such as massiveness, punctuality, and environmental-friendliness. “Modal Shift”
refers to the conversion of freight transportation by trucks and other vehicles to the use of railways and vessels
with minimal environmental load, as defined by the Ministry of Land, Infrastructure, Transport and Tourism.
In the report of the Transportation Policy Council in 1981 after the Second Oil Crisis, the Japanese Government
used the term "Modal Shift" to curb petroleum consumption. Beginning with this term, the Japanese Government
presented numerical targets for the modal shift rate up to 2010 in the Joint Council on Domestic Measures toAddress Global Warming in 1997 and the Comprehensive Logistics Policy Outline in 2001. Under the revisionof the Act on Comprehensive Logistics Efficiency in 2016, the government is supporting the promotion of modal
shift, including the provision of support for projects that contribute to the reduction of environmental load and

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labor saving by integrating and streamlining distribution operations in cooperation with two or more logistics
companies.
(Chart 1: About Modal Shift)
BeforeDelivery Destination

Modal Shift

Factory, etc.

After

Factory, etc.

H

H

u

u

b

b

Delivery Destination(Source: MLIT web page, (JCR translation))

As mentioned above, it is possible to transport large volumes of freight in medium and long distance at once
(massiveness) in freight railway transportation. JR Freight can operate freight trains towing up to 26 cars, which
are equivalent to 65 10-ton truck cars. In addition to realizing mass transportation of cargo in this way, it is also
possible to contribute to solving the lack of long-distance truck drivers, which has become a problem in recent
years.
(Chart 2: Comparison of Freight Train and Truck Transportation Volumes)
65 Trucks (10 ton carriage)

Freight Train towing 26 rolling stocks

Freight Train can deliver up to 650 tonnage (65 trucks with 10 ton carriage equivalent), which can reduce
fuel consumption from Truck and contribute to energy efficiency. Moreover, it will be able to adapt driver
shortage of Truck which is predicted to occur in the near future.
(Source: JR Freight Webpage (JCR translation))

In addition, in terms of punctuality, which is a characteristic of railways, the on-time performance rate exceeds
90% on average annually. For railways, there is a risk that railway lines will be damaged and infrastructure
disrupted due to the severity of disasters. However, JR Freight launched a Disaster Risk Study Group in 2018 tosimulate the operation of truck and ship substitutes and detour trains on the assumption that major trunk lines
would be disrupted, which proved effective during Typhoon Hagibis which occurred in 2019.

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(Chart 3: On-time Performance Rate for the Last Five Years)(On-time(Unit ;%)Performance Rate)(Unit; %)(Fiscal Year, Average (%))

(Source: JR Freight Webpage, (JCR translation))

In terms of environmental-friendliness, CO2 emissions per unit of transportation in fiscal 2019 were the smallest
for railroads, less than one-thirteenth of those for commercial freight vehicles (trucks, etc.). JR Freight has
estimated CO2 savings of about 4,080,000 t-CO2 per year in its group report. As a specific model case, when 10
tons of cargo are transported from Fukuoka to Tokyo, JR Freight calculated that CO2 emissions can be reduced
to about one-tenth in the case where truck transportation is used only from the receiving site to the Fukuoka cargoterminal station and from the Tokyo cargo terminal station to the delivery site, and railroad containertransportation is used between the cargo terminal stations, compared to the case where cargo is transported fully
by truck from the receiving site in Fukuoka to the delivery site in Tokyo. Therefore, it says that it can achieve
high CO2 emission reduction effects by using its own freight rail transportation.
(Chart 4: CO2 Emissions per Shipping Volume)(CO2 Emission per Shipping Volume (FY 2019, cargo)

Private Car
Business Truck
Ships
Trains(g-CO2 / Ton Kilometer)(Source: MLIT web page (JCR translation))In this way, JR Freight has promoted a shift from freight transport using trucks, etc. to freight rail transport,
mainly for medium-and long-distance transport. On the other hand, trucks were the main players in domestic
freight transportation, and the role of railways remained small. In recent years, however, demand for largevolume and medium-and long-distance freight transportation by railroads has been increasing from the viewpointof the lack of long-distance truck drivers due to the aging of society and the tightening of regulations on working
hours toward fiscal 2024. In 2004, JR Freight began working with logistics companies to lease out more thanhalf of its transportation capacity and provide customers with round-trip freight transportation capacity, which iscalled block train. In light of the above issues, JR Freight has been expanding its provision to logistics companies
in recent years. In addition, it is working to expand freight rail transport by constructing a multi-tenant largescale logistics facility called a "rail gate" in the freight station to serve as a base for modal shift.
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JCR evaluates that the "investments related to the construction and acquisition of facilities contributing to thetransportation of freight railways," "investments related to the renewal and new manufacturing of electric
locomotives and freight trains," "investments related to the renewal and new manufacturing of freight rollingstocks and containers," "investments related to the renewal and new manufacturing of transportation-related
facilities, etc." and "investments related to the renewal and new manufacturing of operation systems," all of which
are cited as eligible projects in the JR Freight Framework, fall under the category of "clean transportation"
because they can be expected to strengthen the freight railway transportation system, which is a clean means oftransportation, and further promote modal shift.

Eligible Category 2: Green Building
Eligible Category 2 is a new investment or refinancing for the acquisition of buildings (green buildings)
that have already or are scheduled to acquire regional, national or internationally recognized certifications
at the certification level up to the top three categories, and is expected to have a high environmental
improvement effect.
1. Green Buildingi. CASBEE (Comprehensive Assessment System for Building Environmental Efficiency)
CASBEE is an acronym for Comprehensive Assessment System for Built Environment Efficiency, which is abuilding environmental comprehensive performance assessment system. It is a method for evaluating andrating the environmental performance of buildings. In April 2001, with the support of the Housing Bureau of
the Ministry of Land, Infrastructure, Transport and Tourism, the Comprehensive Environmental Evaluation
Research Committee for Buildings was established as a joint project between industry, government, andacademia, and since then development and maintenance have been continuously conducted. Evaluation tools
include CASBEE for Buildings and CASBEE for Urban Development, as well as CASBEE for Real Estatesdeveloped with the purpose of showing environmental performance in an easy-to-understand manner for thereal estate market.
CASBEE is evaluated by the value of BEE (Built Environment Efficiency) with L as the denominator and Q
as the numerator, reconfiguring from the viewpoint of environmental quality of buildings (Q = Quality) andenvironmental load of buildings (L = Load) on the evaluation items in the four fields: energy efficiency,
resource efficiency, local environment, and indoor environment. The assessment results are divided into fivegrades: rank S rank (excellent), rank A (very good), rank B+ (good), rank B- (slightly poor), and rank C (poor).
CASBEE for Real Estate is classified into four grades: rank S (excellent), rank A (very good), rank B+ (good),
and rank B (satisfying mandatory items). In order to obtain a high evaluation, in addition to environmental
considerations such as energy saving and the use of materials and equipment with low environmental load,indoor comfort and consideration of landscape, etc. are also required, and the overall quality of buildings isrequired.
Buildings with rank B+ or above, which JR Freight has recently defined as eligibility criteria, have BEE of atleast 1.0 for CASBEE for Buildings and environmental quality is clearly superior in terms of environmental
load. In CASBEE for Real Estate, although the criteria for measurement are not BEE, they are equivalent torank B+ in conventional CASBEE for Buildings, JCR has evaluated them as having environmental
improvement effects.

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ii. DBJ Green Building certification
This is a certification system provided by DBJ (Development Bank of Japan) to evaluate real estate withenvironmental and social considerations. The evaluation results are expressed as the number of stars, and theevaluation axis is "buildings with consideration for the environment and society." It evaluates three major
categories: "Ecology (environmental)," "Amenity (comfort)," "Risk Management (crime prevention anddisaster prevention)," "Community (regional and landscape)" and "Partnership (stakeholder collaboration)."Each is represented by five stars (one of the highest domestic excellence), four stars (extremely excellent),
three stars (very excellent), two stars (excellent), and one star (sufficient). Although this is not an evaluation
specializing in environmental performance, it is highly recognized in Japan, and it also has certain evaluation
items regarding environmental performance. As a result, JCR also evaluates this certification as equivalent to"standards and certifications recognized regionally, nationally or internationally" in the green projectclassification defined in the Green Bond Principles. However, since the certification is not limited to theenvironmental performance, it is considered desirable to confirm the evaluation for the environmental
performance individually.
DBJ Green Building certification is based not only on the environmental performance of the property being
evaluated, but also on a comprehensive assessment that includes the comfort of tenant users, risk management
such as disaster prevention and crime prevention, consideration for the surrounding environment andcommunity, and cooperation with stakeholders. The scoring design is based on the aggregation of specific"excellent initiatives" for the environment and society, and there are many properties in the real estate market
that do not reach the target of evaluation. In order to be highly evaluated, it is necessary to be a building that is
appropriately considered not only for the environment, but also for all stakeholders related to the building.
The level of DBJ Green Building certification is assumed to be approximately the top 20% of all domestic
income-producing properties in "Environmental and Social Considerations.3" In addition, each evaluation up
to three stars covers an aggregate of the top 10% (five stars), the top 30% (four stars) and the top 60% (threestars) of properties that exceed the certification level. Therefore, JCR evaluates that the use of proceeds for JR
Freight is narrowed down to properties with high environmental performance among buildings aiming toacquire certification.
iii. BELS (Energy Saving Performance Indication System for Buildings)
BELS is an acronym for Building-housing Energy-efficiency Labeling System, which is the building energy
saving performance labeling system. It is a system in which energy saving performance is evaluated andcertified by a third-party evaluation organization for new and existing buildings. Building insulation
performance and primary energy consumption are subject to evaluation, and for high evaluation, it is required
to have excellent energy-saving performance. The rating is expressed as the number of stars and ranked from
one to five according to BEIs (Building Energy Index). BEI is a measure of energy saving performance relative
to the standard value, with the design primary energy consumption as the numerator and the standard primaryenergy consumption as the denominator. One star satisfies the existing energy saving standards, two stars
satisfy the energy saving standards, and three stars satisfy the guidance standards.
JCR believes that buildings with three stars or more in BELS eligible for JR Freight will have energy-saving
performance (non-residential: BEI value 0.8 or less) above the guidance standard, which is appropriate for theuse of funds.

3

Revision and Release of DBJ Green Building Certification Assessment Items (February 2019 DBJ Green Building Certification Website)
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Based on the above, JCR evaluates that the use of funds specified by JR Freight falls under "cleantransportation" and "green building” in the Green Bond Principles, and "Projects to enhance the efficiency oflogistics systems by the systematic installation of logistics bases, aggregation of transportation networks, modal
shift, and coordinated transportation and delivery" in the "Projects for clean transportation" and "projects
concerning green building" in the use of proceeds shown in the Ministry of the Environment's Green Bond
Guidelines. In addition, regarding "clean transportation," JCR evaluates that it is an initiative that contributes
to the modal shift efforts being promoted by the Japanese government.
b. Negative impact on the environment
In implementing the projects described in this framework, JR Freight has identified the following factors that could
have a negative impact on the environment:- JR Freight conducts environmental surveys on soil contamination, water pollution, and the use of asbestos andother hazardous substances in buildings when developing its own sites and acquiring real estate.
- In accordance with the Building Standards Act and the Air Pollution Control Act, asbestos is removed or certain
other measures are taken for demolition, repair, etc. of existing buildings.
- Although railroads are more energy efficient and environmentally friendly than other transport facilities, they
consume a large amount of energy, including electricity, in their business operations. Therefore, it aims at further
energy saving including rolling stock.
Measures to avoid or mitigate negative impacts on these environmental issues are identified as follows.
- Compliance with environment-related laws and regulations required by the national government and local
governments where the project is implemented, and environmental load surveys are conducted as necessary.
- Adequate explanations to local residents are provided in the implementation of businesses.
- Implementation of assurance of transportation safety based on the JR Freight Safety Management System is being
carried out.
- The JR Freight Group carries out material procurement, prevention of environmental pollution, and consideration
for the working environment and human rights in accordance with the basic philosophy and policy of the JR FreightGroup for global environmental conservation activities and the basic policy of procurement, etc.
JCR evaluates that the identification of negative environmental impacts of JR Freight mentioned above, and the
avoidance and mitigation measures against them, are appropriate.
c. Consistency with SDGs
JCR evaluated that the projects to be realized through this framework will contribute to the following SDGs goals
and targets, referring to ICMA's SDGs mapping.
Goal 7: Ensure access to affordable, reliable, sustainable, and modern energy for all
Target 7.3. Double global energy efficiency improvement by 2030

Goal 9: Build resilient infrastructure,industrialization and foster innovation

promoteinclusiveandsustainable

Target 9.4. Improve sustainability by improving infrastructure and industry throughimproved resource use efficiency and expanded introduction of clean technologies and

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environmentally conscious technologies and industrial processes by 2030. All countries
will take measures tailored to their respective capacities
Goal 11: Make town and human settlements inclusive, safe, resilient and sustainable
Target 11.3. By 2030, enhance inclusive and sustainable urbanization and capacity forparticipatory, integrated and sustainable human settlement planning and management
in all countries.
Target 11.6. By 2030, reduce the adverse per capita environmental impact of cities,
including by paying special attention to air quality and municipal and other waste
management
Goal 13: Take urgent action to combat climate change and its impacts
Target 13.3: Improve education, awareness, human capacity, and institutional functions
related to climate change mitigation, adaptive, impact mitigation, and early warning

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Evaluation Phase 2: Management, Operations and Transparency Evaluation
Based on the current situation described in detail below and JCR's evaluation of it, JCR evaluatedthat the management and operational system had been well developed, that transparency was very
high, and that it was fully expected that the project would be implemented as planned and that theproceeds would be adequately allocated. Phase 2: JCR evaluated management, operation andtransparency as the highest level "m1 (F)."

1. Appropriateness and Transparency Concerning Selection Standard and Processesof Use of Proceeds(1) JCR's Key Consideration in This Factor
In this section, JCR confirms the objectives to be achieved through green financing, the appropriateness of green
project selection standards and processes, and whether or not a series of processes are properly disclosed to investors
and others.

(2) Current Status of Evaluation Targets and JCR's Evaluation
a.

Goal

<This Framework on the Significance of the Issuance of Green Bonds>(Significance of Issuance of Green Bonds in the JR Freight Green Bond Framework)
The JR Freight Group is actively promoting growth and strategic investments that will lead to the future, such as
improving logistics productivity, in order to strengthen the trunk logistics railway network linking the entire country
and improve the logistics nodal functions of freight stations. By strengthening our business infrastructure throughthese investments, we intend to maximize our environmental strengths in freight rail transportation and contributeto the realization of a green society, including carbon neutrality by 2050 through the promotion of modal shift.
Funds raised through the issuance of Green Bonds will be used for highly effective environmental improvement
projects in accordance with the Green Bond Principles, among the initiatives of the JR Freight Group to promote
modal shift. Through this issuance, the JR Freight Group aims to further promote its comprehensive environmentallyfriendly logistics business and deepen stakeholders' understanding of the environmental advantages of railtransportation.

<JCR's Evaluation of the Framework>
In January 2021, the JR Freight Group established the "JR Freight Group Long-Term Vision 2030" and establisheda policy of "contributing to enhancing social value by providing optimal solutions as a comprehensive logistics
corporate group centered on railways." One of the values that the JR Freight Group provides to society is "realizationof a green society." Among these, an item "contributing to the realization of a green society including carbon
neutrality by 2050 by promoting environmentally conscious business operations while making use of the superior
environmental characteristics of freight railways" is listed.
The content of the significance of the issuance of green bonds described in this framework is in accordance with thepolicies and specific initiatives described in the JR Freight Group Long-Term Vision 2030.
In addition, under the basic policy for business operations in JR Freight's FY2021 Business Plan, there is a description
about ESG management as follows:

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Contribute to solving social issues such as SDGs through the freight railway business, and contribute to the realizationof a green society and a sustainable society by implementing ESG management on its own. We will contribute to
reducing CO2 emissions by promoting a modal shift to energy-efficient freight railways, and will also promote
activities to disseminate and enlighten the Eco-Rail Mark in cooperation with the Railway Freight Association toraise the awareness of freight railways. In addition, we will strive to reduce energy consumption in our own businessactivities by increasing the number of locomotives dedicated to hybrid-type replacement and by improving the energy
conservation of lighting. In addition, we will also actively engage in activities for global environmental conservation,such as donations to green charity funds and participation in forest volunteers by working with Group companies.
Taking into account the impact of logistics stagnation on society and the economy, we will continue fulfilling its
responsibilities as a social infrastructure by strengthening its efforts to continue transportation, such as early recovery
in the event of a large-scale disaster and expansion of alternative transportation methods, and by developing a systemthat can promptly and smoothly transport emergency goods and daily necessities.
(Source: JR Freight FY2021 Business Plan)

For "clean transportation" described as an eligibility criterion, JCR evaluates that it covers projects that contribute to
the initiatives of modal shift being undertaken by JR Freight described in the above business plan. For "green
building," it covers projects aimed at "realizing a green society" as set out in the Group Long-Term Vision 2030.
Based on the above, JCR has assessed that the businesses covered by this framework are consistent with the JR
Freight Group Long-Term Vision 2030.
b.

Selection Standards

The standards for selecting the use of funds in JR Freight are as described in Phase 1 of the Evaluation. With regard
to the aforementioned selection standards, JCR evaluates that projects that contribute to the promotion of modal shift
and projects that target buildings with high environmental performance are the targets of eligible projects, andprojects that contribute to the achievement of the JR Freight Group Long-Term Vision 2030.
c.

Process<This Framework for the Selection Process>
The Finance Department and the Corporate Planning Department select candidates for eligibility criteria for use ofGreen Bond funds, which are finalized by the financial officer after consultation with related departments. Whenevaluating the eligibility of each project, we take into consideration potentially negative environmental and social
impacts. We confirm the appropriateness of the subject equipment, the acquisition of equipment certifications andlicenses required by the countries, regions, and local governments, and the implementation of environmental
assessment procedures and sufficient explanations to local residents.
<JCR's Evaluation of the Framework>
At JR Freight, the Finance Department and the Corporate Planning Department select eligible projects for the use ofGreen Bond funds, and the financial officer makes the final decision on the eligible criteria. The financial officer also
makes a final decision on the framework and reports it to the Executive Committee and other bodies.
With respect to individual bonds, after the Finance Department formulates a fund plan, the Finance Department andthe Corporate Planning Department confirm the capital investment plans formulated by each department, selectcandidates based on eligibility criteria and the content of reporting, and after consultation with each department, asubstantive final decision is made by the financial officer. JR Freight is owned by the Japan Railway Construction,
Transport and Technology Agency, and the issuance of corporate bonds is subject to approval by the Ministry ofLand, Infrastructure, Transport and Tourism. Therefore, after the decision by the finance officer mentioned above,
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an application for approval is submitted to the Ministry of Land, Infrastructure, Transport and Tourism following a
resolution by the Board of Directors of JR Freight, and approval is subsequently granted by the Ministry of Land,
Infrastructure, Transport and Tourism. The above selection process is evaluated by JCR as appropriate.
Accordingly, the project selection standards and processes set out in this framework of JR freight are properly
established. In addition, at the time of issuance of the Green Bonds under this framework, JR Freight will disclose
this framework and the use of proceeds through statutory disclosure documents such as securities registration
statements, and will provide explanations to investors in debt IR prior to the bond issuance. Accordingly, JCR
evaluates that transparency is ensured.

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2 . Appropriateness and Transparency of Management of the Proceeds(1) JCR's Key Consideration in This Factor
It is usually assumed that the methods of managing the procurement funds are diverse depending on the issuer. JCR
confirms that the funds procured by issuing green bonds are appropriated to the Green Projects and that a mechanism
and an internal system are in place so that the appropriated status can be easily tracked and managed.
JCR also emphasizes whether funds procured through green bonds are scheduled to be appropriated for green projects
at an early stage, and the evaluation of methods for managing and operating unused funds.

(2) Current Situation of Evaluation Targets and Evaluation of JCR<This Framework on Cash Management>
The proceeds from the Green Bond issuance will be used by the Finance Department to prepare a dedicatedbook and to manage the appropriation of the proceeds on a quarterly basis until the full amount is appropriatedfor eligible projects.
We will also manage any unused funds until the proceeds from the Green Bond issuance are available for
eligible projects in cash or cash equivalents.
<JCR's Evaluation of the Framework>
JCR confirmed that JR Freight would appropriate the bond proceed under the Framework by the end of the current
fiscal year, in principle, no later than the next fiscal year. Unappropriated funds, if any, will be managed in cash or
cash equivalents.
With regard to cash management, as stated in the framework, the Finance Department will prepare a dedicated bookand manage it quarterly so that the amount of Green Bonds issued does not exceed the total project expenditures forwhich the funds will be used. In addition, a system is planned to be established to receive confirmation and approval
from the General Manager of the Finance Department on the basis of internal dissemination of this dedicated book.
Furthermore, with regard to the above-mentioned fund management, it is planned that it will be subject to internal
audits by the Audit Department and external audits, and it is confirmed that necessary responses and reports will bemade whenever audits are conducted. In addition, a system has been put in place to preserve forms, etc. related tothe management of funds for green bonds over the period up to the redemption of green bonds.
Based on the above, JCR evaluates the appropriateness and transparency of JR Freight's fund management are high.

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3 . Reporting System(1) JCR's Key Consideration in This Factor
In this section, JCR evaluates whether the disclosure system for investors before and after the issuance of green
bonds, which is implemented with reference to the framework, is planned in detail and in an effective manner.

(2) Current Status of Evaluation Targets and JCR's Evaluation<Reporting Framework>
JR Freight discloses its funding appropriations and impact reporting on its website or in the JR Freight Group
report on an annual basis. The first disclosure is scheduled within one year after the issuance of the Green Bond.
i. Reporting the status of appropriation of funds
We will disclose on an annual basis the following items regarding the appropriation of funds until all proceeds
have been appropriated for eligible projects.
- Amount appropriated- Balance and method of investment of unappropriated funds- Approximate amount or percentage of the portion of the proceeds used for refinancing
In addition, we plan to disclose any material changes in funded status during the redemption period.
Impact reporting
We will disclose annually, to the extent practicable, the following indicators for the period from issuance of theGreen Bonds to the completion of their appropriations:
Eligible project

Reporting Items (Example)

Investment in the construction- Project Overview

and- Reduced CO2 of freight rail transportationacquisition offacilities

contributing to the transportation(figure comparing all annual ton-kilometers handled by freight railof freight railways

transportation with operating trucks)

Investment related to update andnewproductionofelectric

locomotives and freight trains
Investment in renewal and new
production of freight rollingstocks and containers, etc.
Investment for renewal and new
productionoftransportation-

related equipment, etc.
Investment in renewal and new
production of operating systems
Investment for the construction- Overview of the property

and- Status of Environmental Certificationacquisition

of

green

buildings

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<JCR's Evaluation of the Framework>a.

Reporting on the status of appropriation of funds
JR Freight plans to disclose annually on its website or in the JR Freight Group Report the content contained inthis Framework on the appropriation of funds procured from the Green Bond. It also plans to disclose any
material changes in funding status until redemption.
Accordingly, JCR assesses that reporting on the appropriateness of funds is appropriate.

b. Reporting on the Effectiveness of Environmental Improvements
JR Freight plans to disclose the contents of this framework annually on the website or in the JR Freight Group
Report as a reporting item for the effects of environmental improvement. Reporting content includes anappropriate description of the environmental improvement effects of each eligible project.
JCR evaluates that the disclosure items and the frequency of disclosures specified in the Reporting Plan areappropriate because indicators of the effectiveness of environmental improvement are fully disclosed.

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4 . Organizational Environmental Initiatives(1) JCR's Key Consideration in This Factor
In this section, JCR evaluates whether the management of the issuer regards environmental issues as a high priority
issue for management, and whether the green finance policy, process, and selection criteria for green projects areclearly positioned through the establishment of a department specializing in environmental issues or collaboration
with external organizations.

(2) Current Status of Evaluation Targets and JCR's Evaluation
The JR Freight Group established the "JR Freight Group Long-Term Vision 2030" in January 2021. In this long-term
vision, JR Freight has set forth its commitment to ESG management and the SDGs more than ever, and states that
the JR Freight Group will be able to contribute to the formation of a sustainable society by providing four values tosociety: "improvement of logistics productivity," "safe and secure logistics services," "realization of a green society,"and "revitalization of local communities" by offering optimal solutions as a comprehensive logistics corporate groupbased on railways.
JR Freight Group Long-Term Vision 2030
As a Comprehensive Logistics Corporate Group Based on Railways
Contributing to Enhancing Social Value by Providing Optimal Solutions<Basic Policies>-

As the only railway company in Japan to provide the nationwide network of freight rail transportation services,
we will build a solid business foundation by strengthening our railway network, with safety as the foundationof all, in order to assume the trunk transportation of logistics, which is a social infrastructure, as in the past.

-

We will develop a real estate business that maximizes the potential of our assets by developing diverse realestate, including not only logistics facilities but also office buildings and commercial facilities.

-

Leveraging our expertise in the real estate business based on our nationwide railway network, we will provide
optimal solutions by adding services such as storage and distribution processing to freight stations as logistics
nodal points, thereby contributing to the improvement of logistics productivity as a comprehensive logistics
corporate group based on railways.

- Through these efforts, we will contribute to the realization of a green society and the formation of a sustainable
society, while supporting people's lives and industries and achieving full privatization.
In addition, the Company has also set forth a policy for its Long-Term Vision 2030, which consists of the above four
values and "realization of employee job satisfaction," and is promoting specific initiatives for each of these fivevalues.
Policy for Initiatives

Contents of Initiatives
Promotion of comprehensive logistics business

Improvement of logistics
productivity

Nationwide deployment of rail gates and transshipment stations, constructionof new block trains, etc.
Realization of Smart Cargo Terminals
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Establishment of safety
Safe and secure logistics services
Reliable logistics services
Promotion of carbon neutrality
Realization of a green society

Promotion of modal shift
Contributions to the Circular Economy
Contributions to Regional Revitalization through the Real Estate Business

Revitalization of local

Contributing to Regional Revitalization through Railway Business

communities

Challenge to new businesses
Enhancement of ease of working
Realization of employee job
satisfaction,
Governance Supporting Value
Creation

Human Resource Development Initiatives
Corporate GovernanceCompliance and Risk management

In carrying out the above initiatives, JR Freight is formulating SDGs initiatives and environmental measures for theentire JR Freight Group in the Corporate Planning Department. CO2 emissions are calculated and reported by the
Corporate Planning Department. JCR believes that it is desirable to verify its own environmental policies andinitiatives through cooperation not only within the company but also with external environmental experts.
In order to contribute to the Japanese government's goal of carbon neutrality by 2050 and the 46% reduction in CO2
in 2030, and to further strengthen the environmental superiority of freight rail transportation and increase corporate
value, the JR Freight Group has established a cross-organizational project team headed by the president, the Carbon
Neutral Local Community Contribution Promotion Project, and has announced that it will promote business
operations that take the global environment into consideration. JCR has confirmed that going forward, JR FreightGroup plans to strengthen its carbon neutral efforts, disseminate them externally, contribute to corporations using
railways, and contribute to the local communities through carbon neutral initiatives, etc.
Based on the above, JCR has evaluated environmental issues as a high priority issue for management at JR Freight.

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■Result of evaluation
Based on the JCR Green Finance Evaluation Methodology, JCR assigns "g1 (F)" for the "Greenness Evaluation (Usesof Proceeds)" and "m1 (F)" for the "Management, Operation, and Transparency Evaluation." As a result, JCR assigns"Green 1 (F)" for the "JCR Green Finance Framework Evaluation" to the Framework. The framework meets thestandards for the items required in the Green Bond Principles, the Green Bond Guidelines.

[JCR Green Finance Framework Evaluation Matrix]
Management, Operation, and Transparency Evaluation

Greenness Evaluation

m1(F)

m2(F)

m3(F)

m4(F)

m5(F)

g1(F)

Green 1(F)Green 2(F)Green 3(F)Green 4(F)Green 5(F)g2(F)

Green 2(F)Green 2(F)Green 3(F)Green 4(F)Green 5(F)g3(F)

Green 3(F)Green 3(F)Green 4(F)Green 5(F)Not qualified

g4(F)Green 4(F)Green 4(F)Green 5(F)Not qualified

Not qualified

g5(F)Green 5(F)Green 5(F)Not qualified

Not qualified

Not qualified(Responsible analysts for this evaluation) Atsuko Kajiwara and Kosuke Kajiwara

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Important explanation regarding the evaluation of the Green Finance Framework
1. Assumptions, Significance, and Limitations of JCR Green Finance Framework Evaluation
JCR Green Finance Framework evaluation, which is granted and provided by Japan Credit Rating Agency, Ltd. (JCR), covers thepolicies set out in the Green Finance Framework, and expresses the overall opinion of JCR at this time regarding the appropriatenessof the Green Project as defined by JCR and the extent of management, operation and transparency initiatives related to the use offunds and other matters. Therefore, it is not intended to evaluate the effects of specific environmental improvements, management
and operation systems, and transparency of individual bonds and borrowings, etc. to be implemented based on these policies. In
the event that an individual bond or individual borrowing based on this framework is subject to a green finance evaluation, it isnecessary to conduct a separate evaluation. In addition, the JCR Green Finance Framework evaluation does not demonstrate theenvironmental improvement effects of individual bonds or borrows implemented under this framework, and does not assume
responsibility for environmental improvement effects. In principle, JCR does not directly measure the environmental improvement
effects of funds procured under the Green Finance Framework, although JCR confirms the quantitative and qualitative measuresby the issuer or a third party requested by the issuer.
2. Method used to perform this evaluation
The methodologies used in this assessment are described in "JCR Green Finance Evaluation" on the "Sustainable Finance ESG"
section of the JCR website (https://www.jcr.co.jp/en).
3. Relationship with Acts Concerning Credit Rating Business
The act of granting and providing an evaluation of JCR Green Finance Framework is conducted by JCR as a related business anddiffers from the act related to the credit rating business.
4. Relationship with Credit Ratings
The Evaluation is different from the Credit Rating and does not commit to provide or make available for inspection a pre-determined
credit rating.
5. Third-Party Evaluation of JCR Green Finance Framework Evaluation
There are no capital or personnel relationships that may result in a conflict of interest between the evaluation parties and JCR.

■ Matters of Attention

The information contained in this document was obtained by JCR from the issuer and from accurate and reliable sources. However, such information may be mistaken
for human, mechanical or other reasons. Therefore, JCR makes no representation or warranty, express or implied, as to the accuracy, results, accuracy, timeliness,completeness, marketability or fitness for any particular purpose of such information, and JCR assumes no responsibility for any errors, omissions or consequences ofusing such information. JCR shall not be liable for any loss of opportunity, extraordinary, indirect, incidental or consequential damages of any kind, including any lossof money, which may result from any use of such information under any circumstances, whether contractual liability, tort liability, negligence or other cause of liability,
and whether such damage is unforeseeable or unforeseeable. JCR Green Finance Evaluation does not express any opinion on the various risks (credit risk, pricefluctuation risk, market liquidity risk, price fluctuation risk, etc.) related to green finance, which is the target of the evaluation. In addition, JCR Green Finance Evaluation
is a comprehensive opinion of JCR at the present time and does not represent facts, nor does it make any recommendation regarding risk assessment or decisions on thepurchase, sale or holding of individual bonds, commercial paper, etc. JCR Green Finance Evaluation may be modified, suspended or withdrawn due to changes in
information, lack of information or other reasons. All rights pertaining to this document, including data from JCR Green Finance Evaluation, are held by JCR. All orpart of this document, including data from JCR Green Finance Evaluation, is prohibited from being reproduced, modified or otherwise altered without the permissionof JCR.

■ Glossary

JCR Green Finance Framework Evaluation: The extent to which the funds procured through green finance are appropriated for green projects as defined by JCR, andthe degree to which the management, operation, and transparency of the green finance are managed. Evaluations are performed on a 5-point scale, from the top to the
top using the Green1 (F), Green2 (F), Green3 (F), Green4 (F), and Green5 (F) symbols.

■ Status of Registration as an External Evaluator of Green Finance・ Registered as an External Reviewer of Green Bonds by the Ministry of the Environment
・ ICMA (registration as an observer with the Institute of International Capital Markets)■ Other status of registration as a credit rating agency, etc.
・ Credit Rating Agency Commissioner (Rating) No. 1
・ EU Certified Credit Rating Agency
・ NRSRO: JCR is registered in the following 4 classes of 5 credit rating classes (as defined by the NRSRO(Nationally Recognized Statistical Rating Organization of the
U.S. Securities and Exchange Commission): (1) Financial institutions, broker-dealers, (2) insurance companies, (3) general business corporations, and (4) governments
and municipalities. If we are subject to disclosures under Rule 17g-7(a) of the U.S. Securities and Exchange Commission, such disclosures are attached to news releases
appearing on the JCR website (https://www.jcr.co.jp/en/).

■For further information, contact

Information Service Dept. TEL: 03-3544-7013 FAX: 03-3544-7026

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

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