Page 1 of 37

Japan Railway Construction, Transport and Technology Agency

JRTT Sustainability Finance

For Sustainability finance eligibility pre-issuance

DNV GL Verification Report

Jan. 2019

DNV GL Business Assurance Japan K.K.

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Executive Summary of Verification and assessment
Japan Railway Construction, Transport and Technology Agency (“JRTT”) intends to issue the JRTT
Sustainability Finance*1 (including Bond and Loan, hereafter “Finance”) and engaged DNV GL asexternal reviewer for Verification and Assessment. The Finance includes eligible projects portfolio andcontribution to SDGs, as below and table;*1:Sutainablity Finance includes both environmental(green) benefit and social benefit, the proceed
instruments both bond and loan.
Eligible projects portfolio:
01 Railway Construction
02 Joint Ownership Shipbuilding
DNV GL has performed the Pre-issuance Verification and Assessment of the Finance. It is DNV GL’s
responsibility to provide an independent verification statement on the compliance of the Finance with
the Climate Bonds Standard and assessment of the Finance which is accordance with Green Bond
Principles (2018), Social Bond Principles (2018), Sustainability Bond Guidelines (2018), Green loan
Principles(2018) and Green Bond Guidelines (MOE, Japan 2017).
Based on the limited assurance procedures conducted, nothing has come to our attention that causes
us to believe that the Finance is not, in all material respects, in accordance with the requirements
described above.
This verification and assessment report summarize the project portfolio and its general information
against relevant criteria of the Finance which will be continuously issued in the future (as CBIProgrammatic certification). All project in this report is not be included the subsequent Finance. DNV
GL has confirmed that each project in this verification conform the criteria and eligibility (e.g.
technical sector criteria, rail distance, numbers of passenger). Necessary and sufficient information
about each Finance will be provided publicly by JRTT before issuance.
Project
portfolio
No.01
Railway
Construction

Green (Environmental)
benefit
Eligible category : Clean
Transportation-Mitigation ofenvironmental load(Green
house gas emission
reduction, e.g. CO2)

No.02
Joint
Ownership
Shipbuilding

Eligible category :Clean Transportation,
Pollution Prevention andControl-Mitigation ofenvironmental load(Green
house gas emission
reduction, e.g. CO2)
-Marine environment
conservation

Social benefit
Eligible category :-Essential andimperativetransportation
infrastructure-Low cost and easy
access for various
customers
Eligible category :-Essential andimperativetransportation
infrastructure andvarious userconvenience-Efficient
distribution-Operation ofroutes to remoteislandLinkage/Contribution to SDGs
-Goal 9 : Industry innovation and infrastructure-Goal 11 : Sustainable cities and communities-Goal 13 : Climate action-Goal 8 : Decent work and economic growth-Goal 9 : Industry innovation and infrastructure-Goal 11 : Sustainable cities and communities-Goal 13 : Climate action-Goal 14 : Life below water

Page 3 of 37

Contents
I Introduction (About issuer and Sustainability Finance)

4

Ⅱ

Scope and Objectives

8

Ⅲ

Responsibilities of the Directors of Issuer(JRTT) and the assurance providers, DNV GL

10

Ⅳ

Basis of DNV GL’s opinion

11

Ⅴ

Work undertaken

12

Ⅵ

Findings and DNV GL’s opinion

13

1.

Schedule-1 Nominated assets & Sustainability Finance project outline

27

2.

Schedule-2 CBS v2.1 Verification criteria

29

3.

Schedule-3 Sustainability Finance Eligibility Assessment Protocol

31

Checklist Sustainability Finance Guideline (SBG) Eligibility checklist

31

(1)

SBG-1 Use of proceeds

31

(2)

SBG-2 Process for Project Selection and Evaluation

34

(3)

SBG-3 Management of proceeds

36

(4)

SBG-4 Reporting37

Page 4 of 37

I

Introduction (About issuer and Sustainability Finance)(1) About JRTT
Japan Railway Construction, Transport and Technology Agency (hereafter JRTT) is
an independent administrative organization and fully invested by government.
JRTT is only one independent administrative organization who develops andsupport transportation network through railway and ship assets. Its organization isdivided into the following 5 accounts. Construction Account, Maritime Account,
Special Operation Account, Local public transportation Account, and Subsidy Account.

1.

Construction Account :Railway construction including projected Shinkansen lines

2.

Maritime Account :Joint ownership shipbuilding

3.

Special Operation Account :Disposition of past national railway asset and payment of pensions

4.

Local public transportation Account :Investments in Local Public Transportation

5.

Subsidy Account :Railway Development Supports

Page 5 of 37(2) JRTT Corporate Principle
JRTT determined principle ‘We contribute to build safe, secure, eco-friendly
transportation networks.’ for social contribution.
JRTT employees recognize the objectives stipulated by its regulation. JRTT
established Basic Philosophy to achieve its objectives as one under the sameunderstanding.

【JRTT’s Basic Philosophy】
Contribute to Build Tomorrow's Transportation Networks.
We contribute to build safe, secure, eco-friendly transportation networks
Our transportation network building helps improve people’s lives and further
develop economies and societies
In the course of building transportation networks, we use our reliable technicalcapacity, abundant experience, and advanced expertise to the fullest

JRTT has also established ‘Basic Environmental Policy’ and ‘Environmental action
plan’ as environmental consideration policy to implement its business. JRTT
publishes an ‘Environmental report’ merging above policies in accordance to therequirements by Article 9 ‘law of Promoting the environmental consideration
business activities by supporting to provide environmental information (Law no.77,
2004).

Page 6 of 37(3) JRTT Basic Environmental Policy and Action Plan
【Basic Environmental Policy】
JRTT’s mission is to provide smooth land and maritime transport, thereby
contributing to the healthy development of the national economy and improving
the lifestyles of Japanese people. To fulfill this mission, JRTT strives to contributeto society by proactively engaging in efforts to conserve the global environmentand creating a transportation network for the future that seamlessly coexists withthe abundant and beautiful natural environment.
1.

2.
3.

We strive to reduce the environmental burden created in all areas of ourbusiness activity, including railway construction, assistance for promoting theimprovement of transportation infrastructure by railway companies, maritime
transport companies and others, along with other support.
We observe laws and regulations regarding environmental conservation as well
as self-imposed standards.
We contribute to regional communities by actively participating in local
environmental conservation activities.

JRTT has established their environmental policy as ‘Basic Environmental Policy’.
They also set ‘Environmental Action Plan’ as concrete actions in order to mitigate
environmental load.
JRTT published annual report according to the regulation ‘Law of Promotion ofenvironmentally-friendly business activities by specified business operators bypromoting provision of environmental information (law No. 77, article 9, 2004).

【Environmental Action Plan】 Summary, established 8th April 2014
Through engagement in better railway construction, subsidies for railway
construction, joint ownership shipbuilding, and disposition of land inheritedfrom the national railway system, JRTT contributes to an environmental
transportation networks.
JRTT also works to reduce its CO2 emission through efficient office activities
and the recycling of construction waste. The organization advocates for coexistence with the local societies through its involvement in regional
environment conservation activities

Page 7 of 37(4) JRTT Sustainability Finance
JRTT intends to issue the sustainability finance (bond and loan)*1 which contributes
environmental benefit, social benefit, and SDGs.
Table-1 shows benefit and contribution of the JRTT sustainability Finance.
Schedule-1 shows lists of sustainability projects and assets as Project 01(R1-R4) and02(S-1).
*1:sustainability finance means JRTT’s general proceeds instruments including bothbond and loan. Hereafter ‘bond’ also suggests both bond and loan.
Table-1 Benefit of the JRTT sustainability(green+social) finance and Linkage with SDGs
Project

Green (Environmental)

portfolio

benefitSocial benefit

Linkage/Contribution to SDGs

No.01

Eligible category : Clean

Eligible category :-Goal 9 : Industry innovation andRailway

Transportation- Essential andinfrastructure

Construction- Mitigation ofimperative-Goal 11 : Sustainable cities and communities

environmental load(Greentransportation-Goal 13 : Climate action

house gas emission

infrastructure

reduction, e.g. CO2)

- Low cost and easy
access for various
customers

No.02

Eligible category :Eligible category :-Goal 8 : Decent work and economic growth

Joint

Clean Transportation,- Essential and-Goal 9 : Industry innovation andOwnership

Pollution Prevention andimperative

infrastructure

Shipbuilding

Controltransportation-Goal 11 : Sustainable cities and communities- Mitigation of

infrastructure and-Goal 13 : Climate action

environmental load(Greenvarious user

-Goal 14 : Life below water

house gas emission

convenience

reduction, e.g. CO2)

- Efficient- Marine environment

distributionconservation- Operation of routes
to remote island

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Ⅱ

Scope and Objectives

As per the description above “DNV GL verification report”, DNV GL Business Assurance
Japan K.K. (henceforth referred to as “DNV GL”, “us”, “our” and “we”) has beencommissioned by JRTT, to provide the Pre Issuance verification of the Finance as anindependent and approved verifier under the CBS 2.1. DNV GL’s criteria and information
covered to achieve this is described under ‘Work Undertaken’ below. DNV GL understandthat this Pre Issuance Verification is proposed by JRTT to trigger the start of ProgrammaticIssuance under the CBS v2.1. DNV GL is also engaged to assess the Finance to conform the
GBP2018, SBP2018 as Sustainability Bonds Guideline 2018 (SBG2018), GLP2018 and
GBG2017.
In this paper, no assurance is provided regarding the financial performance of the Finance,
the value of any investments and loan in the Finance, or the long term environmental
benefits of the transaction. Our objective has been to provide an assessment as to whether
the Finance has met the criteria set out in the CBS v2.1 and the associated Sector Technical
Criteria on the basis set out below,
The scope of this DNV GL verification statement is limited to the CBS v2.1 and thefollowing associated Sector Technical Criteria* :• Low Carbon Land Transport and the Climate Bonds Standard (Version 1.0)

In addition to and separate from DNV GL performing a Pre-Issuance Verification on thecompliance of the Finance with the CBS v2.1 and the associated Sector Technical Criteria,
DNV GL has conducted a qualitative review of the of the Finance eligibility to consider theiralignment with GBP2018, SBP2018, GLP2018, and GBG2017.

DNV GL acknowledges that Marine Transport (Water-borne) criteria is not yet available forverification under the Climate Bonds Standard. When the Marine Transport (Water-borne)
criteria becomes available the Issuer and DNV GL will consider this for application to the
Joint Ownership Shipbuilding projects and assets for certification additionally.

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

JRTT intends to distribute any unallocated proceeds in line with the Use of Proceeds
and Management of Proceeds sections set out in the JRTT Sustainability Finance
Framework.
DNV GL has been commissioned by JRTT to provide a JRTT Sustainability Financepre-issue verification against CBS v2.1 and assessment opinion related criteria. Our
methodology to achieve this is described under ‘Ⅴ. Work Undertaken’ below. We
were not commissioned to provide independent assurance or other audit activities.
In this paper, no assurance is provided regarding the financial performance of the
Finance, the value of any investments and loan in the Finance, or the long term
environmental benefits of the transaction. Our objective has been to provide averification and assessment that the Finance has met the criteria established on thebasis set out below.
The scope of this DNV GL opinion is limited to the CBS v2.1, GBP2018(GLP2018, aswell) and SBP2018 as SBG2018. DNV GL also considered the requirements of the
GBG2017 (MOE, Japan 2017) during its verification and assessment, however at thetime of review, Technical Criteria for - ‘Low Carbon Land Transport and the Climate
Bonds Standard (version 1.0)’ (e.g. Public rail infrastructure) are available for Issueruse.
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 the
Climate Bonds Standard would be at the discretion of the Issuer, JRTT.

Page 10 of 37

Ⅲ

Responsibilities of the Directors of Issuer(JRTT) and the assurance

providers, DNV GL
The management of JRTT has provided the information and data used by DNV GL
during the delivery of this review. DNV GL’s statement represents an independent
opinion and is intended to inform JRTT management and other interested stakeholders
in the Finance as to whether the established criteria have been met, based on theinformation provided to us. In our work we have relied on the information and the facts
presented to us by JRTT.
DNV GL is not responsible for any aspect of the nominated assets referred to in thisopinion 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 JRTT’s management and used as a basis for this assessment were notcorrect or complete.

Page 11 of 37

Ⅳ

Basis of DNV GL’s opinion
DNV GL has conducted the verification against the CBS v2.1 and associated Sector
Technical Criteria through the creation and execution of a verification protocol
addressing each requirements of the CBS v2.1*1 and the associated Sector Technical
Criteria. The detail of areas covered in the DNV GL verification is summarized in
Schedule 2 below.
As per DNV GL’s Protocol for assessment, in addition to the CBS v2.1 above, DNV
GL also considers the criteria against which the Finance has been reviewed aregrouped under the four Principles (GBP2018*2, SBP2018*3, SBG2018*4,GLP2018*5,
and GBG2017*6) as follows:•

Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirement that
an issuer of a sustainability finance 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 sustainability finance should

outline the process it follows when determining eligibility of an investment using sustainability
finance 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 sustainability finance 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 at least
Sustainability Reporting to the finance stakeholders should be made of the use of finance proceeds
and that quantitative and/or qualitative performance indicators should be used, where feasible.

*1: Climate Bonds Standard | version 2.1 (Climate Bonds Initiative)*2: Green Bond Principles (June 2018, International Capital Market Association)*3: Social Bond Principles (June 2018, International Capital Market Association)*4: Sustainability Bond Guidelines (June 2018, International Capital Market Association)*5: Green Loan Principles (2018, Loan Market Association, Asia Pacific LMA and LOANSYNDICATION AND TRADING ASSOCIATION*6: Green Bond Guidelines, 2017 (March 2017, Ministry of the Environment, Japan)

Page 12 of 37

ⅤWork undertaken
Our work constituted a high level review of the available information, based on theunderstanding that this information was provided to us by JRTT in good faith. We havenot performed an audit or other tests to check the veracity of the information provided
to us. The work undertaken to form our opinion included:

Pre-Issue Verification against CBS v2.1•

Creation and execution of a Climate Bonds Standard Protocol, to include therelevant Sector Technical Criteria for the nominated projects and assets, as
described above and in Schedule 2 to this Assessment;•

Assessment of documentary evidence provided by JRTT on the Finance andsupplemented by a high-level desktop research, an onsite visit for
documentation review and interview with key personnel from JRTT.

•

Discussions with JRTT management, and review of relevant documentation;•

Documentation of findings against each element of the criteria. Our opinion
as detailed below is a summary of these findings.

Also, consideration will be held regarding the alignment with relevant criteria GBP2018,
SBP2018, SBG2018, GLP2018, and GBG2017 as described above, and contribution
towards United Nations Sustainable Development Goals in this Finance.

Assessment for alignment with relevant criteria GBP2018, SBP2018, SBG2018,
GLP2018 and GBG2017•

Principle One: Use of Proceeds•

Principle Two: Process for Project Evaluation and Selection•

Principle Three : Management of Proceeds•

Principle Four

: Reporting

Consideration of the Use of Proceeds against the 17 UN SDGs;•

SDGs Goal 8: Good job and Economic growth•

SDGs Goal 9: Innovation and Infrastructure•

SDGs Goal 11 : Sustainable city and communities•

SDGS Goal 13 : Climate action•

SDGs Goal 14 : Life below waterhttps://www.mofa.go.jp/mofaj/gaiko/oda/sdgs/about/index.html

Page 13 of 37

Ⅵ

Findings and DNV GL’s opinion
DNV GL has performed a Pre Issuance Verification of the Finance. It is DNV GL’s
responsibility to provide an independent verification statement on the compliance of the
Finance with the CBS v2.1.
DNV GL conducted the verification in accordance with the CBS v2.1 and with
International Standard on Assurance Engagements 3000 Assurance Engagements otherthan Audits or Reviews of Historical Information. The verification included i) checking
whether the provisions of the CBS v2.1 were consistently and appropriately applied andii) the collection of evidence supporting the verification.
DNV GL’s verification approach draws on an understanding of the risks associated with
conforming to the CBS v2.1 and the controls in place to mitigate these. DNV GL plannedand performed the verification by obtaining evidence and other information andexplanations that DNV GL considers necessary to give limited assurance that the Financemeet the requirements of the CBS v2.1. As relevant criteria GBP2018, SBP2018,
SBG2018, GLP2018 and GBG2017 assessment based on the each criteria can beconsolidated to evaluate with CBS v2.1, verification and assessment result are describedas one in latter contents.
Based on the limited assurance procedures conducted, nothing has come to ourattention that causes us to believe that the Finance is not, in all material respects, incompliance with the requirements of the CBS v2.1 and associated Sector Technical
Criteria.

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1. Principle One, Use of Proceed
DNV GL has confirmed that the proceeds from the finance issued by JRTT will beallocated to the two businesses [including 5 projects] which meet the green and social
bond as sustainability bond criteria below;

Eligible projects portfolio:
01 Railway Construction-

Clean Transportation-

Essential and imperative transportation infrastructure-

Low cost and easy access for various customers

02 Joint Ownership Shipbuilding-

Essential and imperative transportation infrastructure and various
user convenience-

Efficient distribution-

Operation of routes to remote island-

Clean Transportation and Pollution prevention and control

Schedule-1 shows lists of sustainability projects 01(R1-R4) and 02(S-1)
All the proceeds will be financed and/or refinanced to the sustainability projects. As
for the finance, it will be allocated to new shipbuilding
Detail information about sustainability projects are followings

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Project 01 R-1 : Public railway ; Railway Project under the Urban Railway
Convenience Improvement Law
Fig.-1 shows a representative project of R-1 “Public railway ; Railway Project under the
Urban Railway Convenience Improvement Law”, Eastern Kanagawa Lines. These new
projects are implemented under the Act on Enhancement of Convenience of Urban Railways,
etc., which was enacted in 2005. Under these projects, JRTT builds new through lines while
effectively using existing railway infrastructure to eliminate the need for transfers andimprove promptness, thereby improving convenience for passengers. The national
government, local governments and JRTT each provide 1/3 of the financing for these
improvements. After lines open, JRTT retains ownership of the infrastructure and leases it to
the entity of operation, which then remits rail access charges to JRTT.

Fig-1 Project 01 R-1[Eastern Kanagawa Lines (The Through Lines between Sotetsu and JR/Sotetsu and Tokyu)]

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Project 01 R-2 : Public railway ; Leased railway
R-3 : Public railway ; Assigned railway
R-4 : Public railway ; Railway Project under the Act on Special Measuresconcerning Integrated Promotion of Residential Land Development
and Railway Construction in Major Urban Areas
Fig.-2 shows a representative project from R-2 to R-4.
JRTT’s engagement contributes to the achievement of the national policy, by establishingnational land transportation system, maintaining the urban function, strengthening the
economic foundation, and mitigating regional inequalities in rural areas. Sustainability
finance eligible railway construction project includes project R-2 : Public railway ; Leased
railway, R-3 : Public railway ; Assigned railway and R-4 : Public railway ; Railway Project
under the Act on Special Measures concerning Integrated Promotion of Residential Land
Development and Railway Construction in Major Urban Areas which are all public
transportation electrified railway infrastructure.
DNV GL also executed on site visit and local interview (included in R-3 project, on Dec
2018), then confirmed its eligibility as sustainability (green and social) project.

Fig-1 Project 01 from R-2 to R-4 (legend Red line : in operation, blue line : under construction)

Page 17 of 37

Project 02 S-1: Joint Ownership Shipbuilding
Fig-3 and Fig-4 show representative Joint Ownership Shipbuilding project.
JRTT supports financial (low interest and long term lending) and technical aspect of
shipbuilding of domestic passenger and freight ship. According to the policy‘Reorganization and Rationalization Plan for government-backed corporation’ (Dec.
2001), JRTT has focused on the shipbuilding project which really political policy needs.
(1) Distribution system improvement :Shipbuilding for large scale ship or freight and operation efficiency.
(2) Environmental Conservation :Shipbuilding for modal shift (transferring from track to ship and railway) which
promote environmental conservation avoiding traffic jam and CO2 emission
reduction.
(3) Countermeasure for declining birthrate and aging population :Shipbuilding for barrier free ship addressing the society of aging population(4) Ships for route to remote islands :Shipbuilding for remote island citizens to provide the essential service such as
safety and secured transportation.

JRTT continuously has reviewed their actions focusing on the Joint ownershipshipbuilding which contributes further social impact (FY 2005), and overarchingpolicy requirement (FY 2010). JRTT has conducted sustainability action (bothenvironmental and social impact) through Joint ownership shipbuilding on FY 2017
based on the MLIT direction (environmental requirement for domestic marinetransportation) and supporting continuous domestic social and economic growth as
infrastructure provider. These social and environmental activities ensure that Joint
ownership shipbuilding is eligible project as sustainability finance. Detail
information is described in JRTT sustainability finance framework

JRTT will allocate the use of proceeds of finance to this project(finance to new
shipbuilding and refinance) which was determined its eligibility as sustainability
finance
DNV GL acknowledges that Marine Transport (Water-borne) criteria is not yet
available for verification under the Climate Bonds Standard. Instead the Issuer’s
exposure to electrified rail transport and associated infrastructure is relied upon
and the focus of this verification. When the Marine Transport (Water-borne) criteria
becomes available the Issuer and DNV GL will consider this for application to the
Joint Ownership Shipbuilding projects and assets for certification additionally.

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Fig-3 Joint Ownership Shipbuilding(Cargo Ships) example

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Fig-3 Joint Ownership Shipbuilding(Passenger Ships) example

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2. Principle Two, Process for Project Evaluation and Selection
DNV GL has confirmed that the sustainability projects of both two businesses,
including 5 projects described in the Schedule-1, were evaluated and selected
through the appropriate process by the relevant department of JRTT, based on its
corporate philosophy and basic environmental policy.
JRTT determines that implementation of these projects have environment benefits(low CO2 emission compared with alternative category) based on the direction of
MLIT. MLIT : Ministry of Land, Infrastructure, Transport and Tourism, Japan

Table-2CO2 emission per unit(passenger and freight)（2016）reference︓MLIT
category
passenger︓
freight︓
g-CO2/p-km
g-CO2/t-km
Private light vehicle
141
1,159
Airplane

98

Bus

67

Ship
Railway

-

240
39

20

21

As for the negative impact caused by these projects, appropriate countermeasuresand practical action plans which comply with relevant regulations and laws have beentaken and will be taken after the evaluation. DNV GL confirmed that JRTT resulted
that its effect is limited and appropriate action will be executed if required.

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3. Principle Three, Management of Proceeds
DNV GL has reviewed and confirmed JRTT’s plans to trace/manage the proceedsfrom the Finance, 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 the proceeds.
JRTT will manage the cash or cash equivalents which equals to fund, until decision of
the proceed allocation. DNV GL has confirmed that JRTT will periodically (at least
annually) review the outstanding balance of the Finance.
Details are as below.
JRTT can track how the proceed is allocated to the project by using a specificformat which can trace details. The balance of the allocated fund andunallocated fund is also controlled by specific format which can display each
Debt and Bond.
JRTT accounting must be inspected by accountant’s inspection as well as auditor
secretary according to the ‘Act on General Rules for Incorporated Administrative
Agencies’. Internal process for accounting segment of the proceeds and its
adequacy also is constantly checked by operating audit.
The settlement of accounts of JRTT must be authorized annually by MLIT,
competent authority. Above process of the settlement of accounts authorizationis one of the internal management process.
The corporate report including each project disbursement and if there are notedchanges, the report is also disclosed after the evaluation by the businessevaluation monitoring committee, which consists of external experts.
JRTT must manage its unallocated proceeds according to the requirement of ‘Act
on General Rules for Incorporated Administrative Agencies’ with safe, secured
and high liquidity method such as bank deposit such as national bond, municipal
bond, government guaranteed bonds and valuable securities.

As stated above, DNV GL provides no assurance regarding the financial performanceof the Finance, the value of any investments and loan in the Finance, or the effects ofthe transaction.

Page 22 of 37

4. Principle Four, ReportingDNV GL has confirmed that JRTT has plans to report/disclose the specific information
required by the Climate Bonds Standard(version2.1) and relevant criteria, on JRTT’s
homepage annually. These will include descriptions of the project lists, progress ofrefinance (amount or share), and management of the proceeds invested, as well as
the associated qualitative or quantitative environmental impacts if possible.
As for the environmental benefit, DNV GL has confirmed that JRTT plans to report asrequested by criteria. DNV GL will conduct periodic ongoing reviews and state about
their report periodically.
Details are as below.
JRTT will publish IR information (http://www.jrtt.go.jp/05Ir/ir-index.html) about
JRTT’s project and financial outline (double entry accounting). As for thissustainability finance, fund allocation after the issuance will be disclosed/revisedin JRTT’s homepage based on the framework until all the fund is allocated.
- Environmental report- Annual business report- Annual financial report- Annual financial statement- project report- Bond information report

JRTT will disclose environmental and social benefit and management proceeds
through following report.
- CO2 emission per transportation unit
- Information about shipbuilding which conform government direction- Numbers of passenger of eligible railway project (main line)- Project progress- Fund amount of allocation and outstanding- Refinance share

Page 23 of 37

Considering all of the above assessments, DNV GL has confirmed that the nominatedsustainability projects of JRTT are designed and are planned to be executed inaccordance with related criteria (Climate Bonds Standard, Green Bond Principles 2018,
Green Loan Principle 2018 and Green Bond Guidelines, 2017 by Ministry of theEnvironment, Japan).

Page 24 of 37

Consideration of the Use of Proceeds against the 17 UN SDGs;
In addition to the Pre Issuance verification against the requirements of the CBS v2.1
and associated criteria, DNV GL has confirmed the Use of Proceeds and nominatedprojects & assets associated with the Finance for alignment with, and contribution
towards, the UN SDGs*1 in the following table.
SDGs (goals and target)

JRTT sustainability finance contribution

8.9︓By 2030, devise andimplement policies to promotesustainable tourism that creates
jobs and promotes local culture
and products

・JointOwnershipshipbuilding

9.1︓Develop quality, reliable,
sustainable and resilient
infrastructure, including regional
and transborder infrastructure, tosupport economic development
and human well-being, with afocus on affordable and equitable
access for all
9.4︓By 2030, upgrade
infrastructure and retrofit
industries to make themsustainable, with increased
resource-use efficiency andgreater adoption of clean andenvironmentally soundtechnologies and industrial
processes, with all countries
taking action in accordance with
their respective capabilities
11.2︓By 2030, provide access tosafe, affordable, accessible andsustainable transport systems for
all, improving road safety,
notably by expanding public
transport, with special attention
to the needs of those invulnerable situations, women,children, persons with disabilities
and older persons

・RailwayConstruction
・JointOwnershipshipbuilding

・RailwayConstruction
・JointOwnershipshipbuilding

・Domestic cruise ship
alternative shipbuilding
considering tourism vision
based on tourism visionaccording to the government
direction・Contribution to MLIT*2 plan‘Social capital development
plan’, strengthen international
competition in metropolis andacceleration of global warming
countermeasure.

・Providing safe andcomfortable service to aged
and disabilities people(barrier
free transportation law)・Promoting smooth andconvenient mobilization ofinter-region, according to landtransportation plan by MLIT*2*1 Green and social bonds : A high-level mapping to the sustainable development goals (Jun, 2018 edition)*2 MLIT : Ministry of Land, Infrastructure, Transport and Tourism, Japan

Page 25 of 37

SDGs (goals and target)

JRTT sustainability finance contribution

13.2︓Integrate climate change
measures into national policies,
strategies and planning
13.3︓Improve education,awareness-raising and humanand institutional capacity on
climate change mitigation,
adaptation, impact reduction andearly warning

・RailwayConstruction
・JointOwnershipshipbuilding

14.1︓By 2025, prevent andsignificantly reduce marine
pollution of all kinds, in particularfrom land-based activities,
including marine debris andnutrient pollution

・JointOwnershipshipbuilding

・Improvement of theefficiency of transportation bymodal connection based on
the integrated logistics
framework by MLIT*2.
・Contribution to MLIT
environmental action plan
‘Promotion of modal shift’ and‘Promotion to R&D andapplication for marine segment(including integrated
countermeasure for mitigating
the pollution substance suchas Sox)’・Marine pollution prevention
shipbuilding to mitigate theenvironment load.

Page 26 of 37

DNV GL Business Assurance Japan K.K.

31st . Jan. 2019Mark Robinson

Naoki Maeda

Manager, Sustainability Services

Managing Director

DNV GL – Business Assurance, Australia

DNV GL – Business Assurance Japan K.K.

Masato Kanedome
Project Leader
DNV 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 advance thesafety and sustainability of their business. Combining leading technical and operational expertise, risk methodology andin-depth industry knowledge, we empower our customers’ decisions and actions with trust and confidence. We
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1. Schedule-1 Nominated assets & Sustainability Finance project outline
The Project portfolio described in table-1 are information at the pre-issuance stage(Jan. 2019, Project︓18 lines、Railway distance(length) ︓231.6km)
and may be possibility changed.
Table will be revised if important change is encountered, based on the CBI requirement of criteria and discussion with JRTT and DNV GL.

Table(1/2) JRTT Sustainability Finance Project portfolio (Project No. 01)
Project No.

01

Nominated

Sustainability Project

Sustainability Project

Project/Asset Portfolio

Category

Sub-Category

R-1

Public railway ; Railway Project
under the Urban Railway
Convenience Improvement Law

R-2

Public railway ; Leased railway

R-3

Public railway ; Assigned railway

R-4

Public railway ; Railway Project
under the Act on Special Measuresconcerning Integrated Promotionof Residential Land Development
and Railway Construction in Major
Urban Areas

・Clean transportation

・rail (electric)・Affordable basic infrastructure・transportation(public)

・Clean transportation

・rail (electric)・Affordable basic infrastructure・transportation(public)

・Clean transportation

・rail (electric)・Affordable basic infrastructure・transportation(public)

・Clean transportation
・Affordable basic infrastructure・rail (electric)・transportation(public)

Remarks

Railway Construction(Construction Account）︓Nominated Project・Eastern Kanagawa Lines・etc
Railway Construction(Construction Account）︓Nominated Project・Keiyo line ・Musashino line・etc
Railway Construction(Construction Account）︓Nominated Project・Tobu Isezaki line ・Minatomirai 21 line
・Odakyu Odawara line・etc
Railway Construction(Construction Account）︓Nominated Project・Joban new line (TX line)

Total exposure :1,842,598,910,755 JPY as installment amounts (FY2017)

Bond proceeds ;114,000, 000,000 JPY(FY2019 government budget plan)

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Table(2/2) JRTT Sustainability Finance Project portfolio (Project No. 02)
Project No.

02

S-1

Nominated

Sustainability Project

Sustainability Project

Project/Asset Portfolio

Category

Sub-Category

Joint ownershipshipbuilding (freight andpassenger ship)・Clean transportation
・Affordable basic
infrastructure・transportation(public)
・Modal sift

Remarks

Joint Ownership Shipbuilding (Maritime Account)︓
・Passenger ferry : 1,020 ships (1,032k-ton)
・Freight ferry : 2,999 ships (3,551k-ton)(31st Mar. 2016)

Total exposure : The share of Finance allocation against Total exposure is determined by JRTT regulation between 70-90%.
Every Finance amounts is confirmed to be less than total exposure
Bond proceeds : 3,000,000,000JPY(FY 2019 government budget plan)

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2. Schedule-2 CBS v2.1 Verification criteria
Summary criteria for assertions of compliance with the CBS v2.1
The criteria against which the relevant projects and assets have been reviewed prior to their inclusion in the portfolio of eligible projects and assets for the
Finance are grouped under the requirements as detailed within the CBS v2.1 and associated Sector Technical Criteria. DNV GL has verified that JRTT
conforms with all requirements here based on the evidences provided JRTT’s relevant documents and interview through verification. Hereafter ‘bond’ alsosuggests finance, both bond and loan. These requirements broadly include:

Part A: General Requirements
Area

Requirement

Nominated Projects & Assets

A decision-making process shall be maintained to determine the continuing eligibility of the nominatedprojects and assets.
Net proceeds of the bond must be allocated to nominated projects and assets.

Use of Proceeds
Non-Contamination of Proceeds
Confidentiality

Reporting

The net proceeds of the bond shall be credited to a sub-account, moved to a sub-portfolio or otherwise
identified in an appropriate manner, and documented.
Information about the nominated projects and assets shall be provided to the Verifier and to the Climate
Bonds Standard Board to support the assessment of conformance with the Climate Bonds Standard. The
information disclosed to the Verifier and the Climate Bond Standard Board may be subject to confidentiality
arrangements.
There are specific requirements in respect of reporting on use of proceeds and nominated projects and assets.

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Part B: Low Carbon Contribution - Eligible projects and physical assets
Nominated projects and assets include financing of, or investments in, projects and assets which enable the mitigation of greenhouse gases, as detailed in
Schedule 1.
Area

Requirement

Low Carbon Transport

All infrastructure, infrastructure upgrades, rolling stock and vehicles for electrified public transport pass thiscriterion, including electrified rail, trams, trolleybuses and cable cars

Part C: Bond structures
Area

Requirement

Project Holding

The issuer of a climate bond shall continue to hold nominated projects and assets which have a value at least
equal to the original principal amount of the bond at the time of issuance or the amount outstanding as thecase may be.
The Issuer of the bond shall maintain the earmarking process to manage and account for funding to thenominated projects and assets.

Earmarking

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3. Schedule-3 Sustainability Finance Eligibility Assessment Protocol

Checklist Sustainability Finance Guideline (SBG) Eligibility checklist
Sustainability finance means JRTT’s general proceeds instruments including both bond and loan. Hereafter ‘bond’ also suggests both bond and loan, official
bond statement and loan dcument. JRTT Sustainability Finance Framework, official bond statement and loan document, etc. will be published for
explanation to investor.

Following (1)〜(4) are based on Sustainability Bond Guideline (ICMA, 2018) “SBG” referring to Green Bond Principle (ICMA, 2018), Social Bond Principle(ICMA, 2018). DNV GL established checklist according to the above guideline and principles. DNV GL describes our findings in the checklists based on theevidences provided JRTT’s relevant documents and interview through verification.

(1)

SBG-1 Use of proceeds

Ref.

Criteria

Requirements

DNV GL Findings

1aType ofbond

The bond must fall in one of the following
categories, as defined by the Sustainability (Greenand Social) Bond Principles:•
Sustainability Use of Proceeds Bond•
Sustainability Use of Proceeds Revenue Bond•
Sustainability Project Bond•
Sustainability Securitized BondThe reviewed evidence confirms that the BOND falls in the category:

Project

The cornerstone of a Sustainability Bond is the

As identified by the purpose of the BOND is to use the proceeds to finance and1b

Green/Social(Sustainability) Use of Proceeds Bond.

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Ref.

Criteria

Requirements

DNV GL Findings

Categories

utilization of the proceeds of the bond which should
be appropriately described in the legal
documentation for the security.

refinance for projects falling under the following categories ;<Railway Construction>- Public railway ; Railway Project under the Urban Railway Convenience
Improvement Law- Public railway ; Leased railway- Public railway ; Assigned railway- Public railway ; Railway Project under the Act on Special Measures concerning
Integrated Promotion of Residential Land Development and Railway Construction in
Major Urban Areas<Joint Ownership shipbuilding>- Joint ownership shipbuilding (freight and passenger ship)
DNV GL’s assessment concluded that these asset and project would present eligible
project against green and social bond principles (as sustainability bond) and green
loan principles. Above information is included in official bond statements such as
bond document issued by JRTT. DNV GL concluded that 1b requirement is satisfied.
In case that new project is nominated, JRTT will evaluate and its eligibility anddisclose it as official document.

1cEnvironment
al and Social
benefits

All designated Sustainability Project categories
should provide clear environmentally sustainable
benefits, which, where feasible, will be quantified orassessed by the issuer.

DNV GL, as CBI verifier, assessed and verified eligibility of Railway construction
project portfolio through relevant criteria such as Low carbon land transportation as
well as CBS. Railway construction project portfolio also has social benefit. Joint
ownership shipbuilding project portfolio aligns with mainly social benefit and also
have environmental secondary benefit (CO2 emission reduction and prevent marine
pollution).
DNV GL confirmed that JRTT evaluate its benefit qualitatively and quantitively as
much. DNV GL also confirmed that JRTT determines the relationship between thosePage 33 of 37

Ref.

Criteria

Requirements

DNV GL Findings
projects and SDGs mapping based on the MLIT policy and ICMA document/17/.
DNV GL reviewed JRTT provided document and explanation that JRTT alreadyidentified the environmental risk and addressed appropriate countermeasures. DNV
GL concluded that 1c requirement is satisfied.

1d

Refinancing
share

In the event that a proportion of the proceeds may
be used for refinancing, it is recommended thatissuers provide an estimate of the share of financing
vs. re-financing, and where appropriate, also clarify
which investments or project portfolios may be
refinanced.

The proceeds of the BOND, in their entirety (not fixed yet, will be allocated tosustainability project described schedule-1. Refinance plan is as follows-Refinance to Railway construction project portfolio (all)-Refinance to Joint ownership shipbuilding (partially)
Finance and Refinance share will be disclosed to investor in official bond statement
before issuance.

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SBG-2 Process for Project Selection and Evaluation

Ref.

Criteria

Requirements

DNV GL Findings

2aInvestmentdecision
process

The issuer of a Sustainability Bond should outline
the decision-making process it follows todetermine the eligibility of projects using
Sustainability Bond proceeds. This includes,
without limitation:• A process to determine how the projects fit
within the eligible Sustainability Projects
categories identified in the Green Bond Principles
and Social bond principle;• The criteria making the projects eligible forusing the Sustainability Bond proceeds; and• The environmental and social sustainability
objectives

As per the JRTT sustainability bond framework, the issuer has set out the following
criteria for project selection. Eligible project (portfolio) means alignment with theircorporate philosophy and basic environmental policy. In this sustainability bond, JRTT
has decided eligible project portfolio overarching it and considering the compliance with
relevant external criteria such as Climate bonds standards v2.1 (including sector
criteria), listed below.
<reference criteria>
1. Climate Bonds Standard | version 2.1 (Climate Bonds Initiative) and technicalcriteria (Low carbon land transportation)
2. Green Bond Principles (June 2018, International Capital Market Association)
3. Social Bond Principles (June 2018, International Capital Market Association)
4. Sustainability Bond Guidelines (June 2018, International Capital Market Association)
5. Green Loan Principles (2018, Loan Market Association, Asia Pacific LMA and LOANSYNDICATION AND TRADING ASSOCIATION
6. Green Bond Guidelines, 2017 (March 2017, Ministry of the Environment, Japan)<eligible project portfolio>
Railway Construction- Clean Transportation- Essential and imperative transportation infrastructure- Low cost and easy access for various customers
Joint Ownership Shipbuilding- Essential and imperative transportation infrastructure and various user convenience- Efficient distribution- Operation of routes to remote island- Clean Transportation and Pollution prevention and control
Those nominated project portfolio is discussed with JRTT’s related department andPage 35 of 37

Ref.

Criteria

Requirements

DNV GL Findings
responsibilities (JRTT boards). DNV GL also confirmed that JRTT determines therelationship between those projects and SDGs mapping based on the MLIT policy and
ICMA document/17/.
DNV GL concluded that 2a requirement is satisfied through interview and document
review.

2b

Issuer’s
environmen
tal andsocial andgovernanceframework

In addition to information disclosed by an issuer
on its Sustainability Bond process, criteria andassurances, Sustainability Bond investors may
also take into consideration the quality of theissuer’s overall framework and performance
regarding environmental sustainability.

As per the interview and review documents provided by JRTT, DNV GL confirmed that
JRTT has addressed to achieve both sustainable green and social activities according toenvironmental action(https://www.jrtt.go.jp/01Organization/Csr/csr-kankyo.html) anddomestic marine route for future creative plan published by
MLIT(http://www.mlit.go.jp/common/001190904.pdf).
DNV GL also confirmed that JRTT will issue the bond continuously based on theirframework which aligns with CBS requirement and CBI certification (programmatic
certification)
https://www.climatebonds.net/certification/get-certified
https://www.climatebonds.net/programmatic-certification.
DNV GL concluded that 2b requirement is satisfied

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SBG-3 Management of proceeds

Ref.

Criteria

Requirements

DNV GL Findings

3aTracking
procedure-1

The net proceeds of Sustainability Bonds shouldbe credited to a sub-account, moved to a subportfolio or otherwise tracked by the issuer in an
appropriate manner and attested to by a formalinternal process that will be linked to the issuer’s
lending and investment operations for
Sustainability Projects.

It is confirmed that each proceeds expense of JRTT is required to submit each use ofproceeds and be approved by minister of MLIT according to the relevant laws. Deposit
accounts of the proceeds are strictly managed by each project portfolio. The balance ofthe proceeds is also managed with subaccount spread sheet (divided each project unit).
DNV GL concluded that 3a requirement is satisfied

3b

Tracking
procedure-2

So long as the Sustainability Bonds areoutstanding, the balance of the tracked proceeds
should be periodically reduced by amounts
matching eligible sustainability investments orloan disbursements made during that period.

It is confirmed balance of the bond and loan tracked proceeds (allocated andunallocated amount) has been managed at least annually during bond reimbursement
or loan disbursement period. DNV GL concluded that 3b requirement is satisfied

3c

Temporaryholdings

Pending such investments or disbursements toeligible Sustainability Projects, the issuer shouldmake known to investors the intended types of
temporary investment instruments for thebalance of unallocated proceeds.

According to the Japanese incorporated administrative agency general law, temporary
investment instrument is limited to avoid risks. It is clearly described some options of
the balance of the bond proceed will be managed safely instrument in framework. DNV
GL concluded that 4a requirement is satisfied

一時的な運用方法

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SBG-4 Reporting

Ref.

Criteria

Requirements

DNV GL Findings

4aPeriodical
reportingIn addition to reporting on the use of proceeds and thetemporary investment of unallocated proceeds, issuers should
provide at least annually a list of projects to which Sustainability
Bond proceeds have been allocated including- when possible with regards to confidentiality and/or
competitive considerations- a brief description of the projects and the amounts disbursed,
as well as the expected environmentally and social sustainable
impact.

JRTT will publish the annual report including a dedicated section on thesustainability bond in JRTT website. This will include description of the
project and value of the proceeds invested, as well as the associatedenvironmental impact. DNV GL reviewed that JRTT has already reported
such information and will utilize it. DNV GL confirmed it as per interview
and framework document review, then concluded that 4a requirement issatisfied