Daio Paper Corporation/ Daio Paper Green Bond 2018

DNV GL GREEN BOND PERIODIC REVIEWOct 2020

DNV GL Business Assurance Japan K.K.

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

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revision history
Issuance history
September 28, 2018

Contents
Green Bond Eligibility Pre-Issuance Assessment Report First Edition

October 24, 2018

Green Bond Eligibility Pre-Issuance Assessment Report Revised edition 1

October 24, 2019

Green Bond periodic review (1st)Green bond periodic review (2nd)-Fund allocation status: Completed allocation of all 22 billion yen raised funds as planned

October 23, 2020

-Project progress: Biomass boiler; completed in July 2020

(This report)

Hard-to-recycle recovered paper; Completed in April 2020
-Environmental improvement effect: Evaluate and report on the amount of difficult-to-processwaste paper reused and CO2 reduction effectObjective and Scope
Daio Paper Co., Ltd. (hereinafter called “Daio Paper” or “Issuer”) has commissioned DNV GL BusinessAssurance Japan Co., Ltd. (hereinafter called “DNV GL”) to conduct periodic review of “Daio Paper Green
Bond 2018”. The objective of DNV GL’s periodic review is to conduct an assessment to confirm that the DaioPaper Green Bond (hereinafter called, “the BOND”) meets the identified criteria of the Green Bond Principles
and the associated technical criteria, as set out below, and to provide the Issuer with independent secondparty opinion on the eligibility of the BOND.
Daio Paper issued the BOND on October 25, 2018, and the amount of the BOND issued was 20.0 billion
Japanese Yen. The review team of DNV GL conducted the first green bond periodic review from Noveber
2019 through September 2020, based on the Green Bond Guidelines 2017, which was formulated by theMinistry of the Environment (Japan) (hereinafter called “GBGLs”), and the Green Bond Principles 2018
(hereinafter called “GBP”).
In this report, no assurance is provided regarding the financial performance of the BOND, the value of any
investments in the BOND, or the long-term environmental benefits of the transaction.

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

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The BOND is intended to finance investments in the specific project categories below:- A project categorized in ‘Pollution prevention and control’- A project categorized in ‘Renewable energy’
In addition, ‘CO2 emission reduction’ is prospected as a secondary benefit.

Total amount of the BOND is JPY 20.0 billion (JPY 15.0 billion of seven-year BOND, and JPY 5.0 billion often-year BOND) and Issuer has fully allocated it to the nominated green projects in February 2020 (theentire amount has been already allocated ). The amount of BOND allocated is reported/disclosed in theIssuer’s Integrated Report and/or its company website annually. There is no plan to refinance a part of theproceeds of the BOND to some existing projects as of today.
The progress of the nominated green projects and assets is summarized in Table-1 below.
Table-1 Progress of the green projects (as of the end of September, 2020) *Please refer to Schedule-1 for details.
Recycling and productive usage ofNew facility of biomass power planthard-to-recycle recovered paper(Project 02)(Project 01)
Location

Mishima Mill, Daio Paper Corporation

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

Completed in April of 2020

Completed in July of 2020

AmountApprox. JPY 9billion/approx. JPY 0

Approx. JPY 11 billion/approx. JPY 0

allocated/unallocated(JPY 9.0 billion, initially scheduled)billionCommercial operation(Year and month)(JPY 11.0 billion, initially scheduled)

From a viewpoint of environmental improvement, Project 01 has achieved waste reduction by reusing hardto-recycle recovered paper of about 180,000 tons/ year based on the input results in FY 2019.. Also, Project02 has achieved the use of waste power generation and the reduction of CO2 emissions indirectly by
construction and operation of about 60MW-scale biomass power generation plant. Therefore, the nominated
two green projects are considered to contribute ‘waste reduction’, ‘power generation from waste’ and‘indirect (Scope 2) GHG emission reductions’. In the meantime, from a viewpoint of environmental risk, it isconfirmed that the Issuer has conducted environmental surveys and evaluations related to the nominatedgreen projects, in order to comply with the relevant laws and regulations, including environmental laws, andmitigate the adverse environmental effects.

Responsibilities of the Management of the Issuer and DNV GL
The management of the Issuer has provided the information and data used by DNV GL during the deliveryof this review. Our statement represents an independent opinion and is intended to inform the Issuer’sPage 4 of 12management and other interested stakeholders in the BOND as to whether the established criteria havebeen met, based on the information provided to us. In our review we have relied on the information and thefacts presented to us by the Issuer. DNV GL is not responsible for any aspect of the nominated assets
referred to in this opinion and cannot be held liable if estimates, findings, opinions, or conclusions areincorrect. Thus, DNV GL shall not be held liable if any of the information or data provided by the Issuer’s
management and used as a basis for this review were not correct or complete.

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

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

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

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

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Figure-1 A whole view of biomass power plant after operation (Project 02)

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

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

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

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

•Field survey and inspection, if required.

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

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

Page 7 of 12Findings
DNV GL’s findings are listed below:

Principle One, Use of Proceed
DNV GL has confirmed that the net proceeds raised by the BOND is planned to be allocated (or has been
already allocated partially) to the nominated two green projects that meet the green bond eligibility criteria
below:- ‘Pollution prevention and control’ (Project 01)- ‘Renewable energy’ (Project 02)
Specifically, all of the net proceeds of the BOND are allocated to the installation cost of facilities and therelevant expenses that falls under representative green bond eligibility criteria shown in Schedule-1, “wastereduction”, “recycling of waste” (GBP and GBGLs), and “biomass power generation” (GBG). As of the end ofFebruary 2020, approximately JPY 9 billion has been allocated to Project 01 (recycling and productive usageof hard-to-recycle recovered paper), and approximately JPY 11 billion has been allocated to Project 02 (newfacility of biomass power plant), and thus a total funding raised of JPY 20 billion has been allocatedaccordingly.

Principle Two, Process for Project Evaluation and Selection

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

Principle Three, Management of Proceeds
DNV GL has reviewed and confirmed evidence showing how the Issuer has traced/managed the proceedsfrom the BOND, from the time of issuance to the time of disbursement. DNV GL has confirmed that thePage 8 of 12Issuer manages the cash or cash equivalents, which equals to fund, until decision of the proceed allocationand the Issuer periodically reviews the outstanding balance of the BOND. As of the end of February 2020,
DNV GL has confirmed that the total funding raised amount of 20billion has been allocated. Note that, 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 long-term environmental benefits of the transaction.

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

Table-2 Progress of environmental improvement effects
Recycling and productive usage

New facility of biomass powerof hard-to-recycle recovered

plant (Project 02)

paper (Project 01)
Amount of waste

FY2019 Actual: 186,088ton/yearn.a.

Amount of CO2

FY2019 Actual *1: 122,116t-CO2

2019 plan: 253,743 t-CO2 / year

emission/ yearreductions(Reuse amount ofhard-to-recycle
recovered paper)

reductions
Electric power

2019 Actual*2: 7,053 MWh /generationyear

2019 plan*3: 428,832 MWh / year

1

* Comparison with 2016 results, *2 Power generation using waste-derived fuel,*3 Biomass power generation using black liquor (assumed from actual measurements measured 2
months after completion (July and August 2020))

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

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DNV GL’s opinion

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

DNV GL Business Assurance Japan K.K.

30th Sep. 2020

Mark Robinson

Naoki Maeda

Manager, Sustainability Services

Managing Director

DNV GL – Business Assurance, AUS

DNV GL – Business Assurance Japan K.K.

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

About DNV GL
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countries, our 16,000 professionals are dedicated to helping customers make the world safer, smarter and greener.

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

Nominated projects andassets

GBP
category

GBP Sub
category

Funded amount(Plan)

Remarks01Recycling and productive

Pollution- Waste prevention

Total JPY

Allocation- Location: Mishima Mill, Daio Paper Corporation

20.0

plan: JPYbillion- Commercial operation: completed in April of 2020

9.0 billion

usage of hard-to-recycle

prevention and- Waste recycling

recovered paper

control- Greenhouse gas-new fabrication, partialcontrol

improvement-(finance and refinance)(redempti*Already in operation(Allocated- Amount of waste reductions: approx. 1.8k ton/yas of Aug.

(waste type: hard-to-recycle recovered paper,

15.0

2019:

(including 20 % waste including metal etc, whichbillion andapprox.

cannot be recycled is considered)

10 yrs.:JPY 5.6- waste recycle product amount : 1.8k ton/y×80%

JPY 5.0billion)- waste re-product type: corrugated paper, etc.

on period
7 yrs.: JPYbillion- CO2 emission reductions by waste recycle,comparing with the conventional manner (wasteburned by incinerator)

02

Biomass power plant facility

Renewable

Production

Allocation- Location: Mishima Mill, Daio Paper Corporation

constructionenergy(Biomass)plan: JPY

- Commercial operation: completed in July of 2020

-new facility construction

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

as of Aug.

- Electricity output: approx.60MW

2019:- CO2 emission reduction (as energy source) byapprox.

(operated)biomass electricity generation.

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Proj
ect

Nominated projects andassets

GBP
category

GBP Sub
category

Funded amount(Plan)

JPY 5.6billion)*1：Categorized by METI/Agency for natural resources and energyRemarks-