Japan Railway Construction, Transport and Technology Agency

JRTT Sustainability Finance

DNV GL Post Issuance verification and periodical review

Oct. 2019
DNV GL Business Assurance Japan K.K.

DNV GL Business Assurance Japan K.K.

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Scope and Objectives
The scope of this report includes both Post Issuance Verification Statement and Periodical review of JRTT
Sustainability Finance*1 Issuances as Climate Finance(bond and loan) currently outstanding in FY 2018.
On Mar 27, 2019, Japan Railway Construction, Transport and Technology Agency (hereinafter “JRTT” or“Issuer”) issued JRTT Sustainability Finance (hereinafter “Finance”). The issuance value for the Finance is55.3 billion JPY. JRTT has secured certification of the Finance from the Climate Bonds Initiative against the
Climate Bonds Standard. DNV GL Business Assurance Japan Co., Ltd. (hereinafter referred to as “DNV GL”)
conducted post issuance verification against Climate Bond Standards version2.1 (hereinafter “CBS v2.1”)
and periodical review of the Finance eligibility assessment by using the Sustainability Bond Guidelines 2018
(ICMA, hereinafter “SBG”) and the Green Bond Guidelines (the Ministry of the Environment, Japan 2017,
hereinafter “GBGLs”].
JRTT determined principle ‘We contribute to build safe, secure, eco-friendly transportation networks.’ forsocial contribution. Under its principle, JRTT executes various business includes sustainability eligible project
portfolio “Railway Construction” and “Joint Ownership Shipbuilding”. JRTT defines its sustainable social
contribution through its business associating its Finance eligible project with SDGs.
JRTT has used the proceeds of the Finance to refinance the nominated projects and assets falling under
the following categories, as scheduled:“Project 01, Railway Construction”- No. R-2, Public railway ; Leased railway [Arterial railway(Main line and Interurban line)] *refinance- No. R-3, Public railway ; Assigned railway [Public railway operated by Private sector] *refinance
Please refer to the schedule-1 for details.

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DNV GL has been commissioned by JRTT to provide the initial(pre-issuance) and periodic(post-issuance)
verification and review of the JRTT’s eligibility of the Finance against the CBS v2.1 determined Climate
Bonds Initiative (hereinafter “CBI”), as well as SBG and GBGLs. Pre-issuance verification which was
conducted in January 2019 concluded the eligibility of railway construction against CBS v2.1 and related
technical sector criteria. Our criteria and information covered to achieve this is described under ‘Work
Undertaken’ shown below. The periodic review was based on information and documents provided by JRTT
as of 19 Sep 2019. Finance has received the CBI certification and been certified as programmatic
certification who issues repeated and multiple finance which contribute environmentally sustainability.
No assurance is provided regarding the financial performance of the Finance, the value of any investmentsin the Finance, or the long term environmental benefits arising from the nominated projects. Our objectiveof these reviews has been to provide an assessment that the usage of the proceeds of the Finance has met
the criteria established on the basis set out below.
The scope of this DNV GL opinion is included to the Climate Bonds Standard Version 2.1 (“CBS v2.1”) andthe following associated Sector Technical Criteria:•

Low Carbon Transport[Low Carbon Land Transport and the Climate Bonds Standard (Version 1.0)]

Also, DNV GL includes other related criteria described in the section “Basis of DNV GL’s opinion” for annual
report review.

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Responsibilities of the Management of JRTT and DNV GL
The management of JRTT has provided the information and data used by DNV GL during the delivery ofthis verification and review. Our 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 the information provided to us. In our work we have relied on the information andthe facts presented to us by JRTT. 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 JRTT used as abasis for this assessment were not correct or complete.

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Basis of DNV GL’s opinion
DNV GL has conducted the verification against the CBS v2.1*1 and associated Sector Technical Criteria
through the creation and execution of a verification protocol addressing each requirement of those standard
and criteria. The detail of areas covered in the DNV GL verification is summarized in Schedule 2 below.
Our Protocol includes a set of suitable criteria that can be used to underpin DNV GL’s opinion. The
overarching principle behind the criteria is that a Finance should “enable capital-raising and investment for
new and existing projects with environmental and social benefits”.
As per DNV GL’s Protocol for assessment, in addition to the CBS v2.1 above, DNV GL also considers thecriteria against which the Finance has been reviewed are grouped under the four Principles (GBP*2, SBP*3,
SBG*4, GLP*5, and GBGLs*6) as follows:•

Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirement that anissuer of a Finance must use the funds raised to finance eligible activities. The eligible activities should
produce clear environmental and/or social 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 Finance should outline the process it
follows when determining eligibility of an investment using 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 Finance should be tracked within the issuing organization, that separate
portfolios should be created when necessary and 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 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)

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Work undertaken
Our work constituted a high level review of the available information, based on the understanding that thisinformation was provided to us by JRTT in good faith. We have not performed an audit or other tests tocheck the veracity of the information provided to us. The work undertaken to form our opinion includes :Pre Issuance (Initial) Verification/assessment (completed previously):•

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

Assessment of documentary supporting documents provided by JRTT on the Finance andsupplemented assessment by a high-level desktop research. These checks refer to current
assessment best practices and standards methodology;•

Discussions with JRTT, and review of relevant documentation;•

Documentation of findings against each element of the criteria.

•

Field survey and inspection against the projects and assets;

Post Issuance (Periodic) Verification and Assessment:•

Evaluation of the supporting documents provided by JRTT and related to the Finance issuance,high level desktop research, document reviews, and interviews with key personnel of the Issuer.
These checks refer to best practices in current assessment and standard methodologies;•

Discussions with JRTT management and review of relevant documentation;•

Field survey and inspection against the projects and assets, if required;•

Review of the nominated projects and assets as described in Schedule 2;•Documentation of findings in detail.

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

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Findings and DNV GL’s opinion
DNV GL has performed the Post Issuance Verification of the Finance (loan) issued 27th March 2019 by JRTT.
It is DNV GL’s responsibility to provide an independent verification statement on the compliance of the JRTT
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 other than Audits or Reviews of Historical
Information. The verification included i) checking whether the provisions of the CBS v2.1 were consistently
and appropriately applied and ii) 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 planned and performed the verification byobtaining evidence and other information and explanations that DNV GL considers necessary to give limited
assurance that the Finance continues to meet the requirements of the CBS v2.1.
Based on the limited assurance procedures conducted, nothing has come to our attention that causes us tobelieve that the Finances are not, in all material respects, in accordance with the requirements of the CBS
v2.1 and Associated Low Carbon Transport Technical Criteria. Furthermore, nothing has come to ourattention that causes us to believe that the reported impacts associated with the nominated projects andassets are inaccurate.
DNV GL also conducted periodical review, other than post issuance verification against CBSv2.1, of the
JRTT’s annual report against to the criteria of GBP2018, SBP2018, SBG2018, GLP2018, and GBGLs2017
accordingly.

DNV GL’s findings are listed below:

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Principle One, Use of Proceed
JRTT has reported usage of the proceeds (total finance proceeds : 55.3 billion JPY) as refinance into
following two projects under the eligible projects on its website.
Fig-1 shows the funded project in FY 2018 (except for R-4)
(1) Eligibility Criteria of Finance (refinanced):
Railway Construction (Project 01 R-2 and R-3)
Project 01 R-2 : Public railway ; Leased railway [Arterial railway(Main line andinterurban line)]
Sub Total: 33.2 billion JPY

Project 01 R-3 : Public railway ; Assigned railway (Public railway operated by
Private sector)
Sub Total: 22.1 billion JPY

Total: 55.3 billion JPY

Schedule-1 shows lists and details of sustainability projects
DNV GL reviewed the eligibility of the funded projects and assets to meet the criteria for the project
categories above.

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Fig-1 Project 01 representative railway construction(legend Red line : in operation, blue line : under construction)

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Principle Two, Process for Project Evaluation and Selection
The Finance’s proceeds have been allocated solely to refinance the projects and assets as defined in
Schedule 1. As for the negative impact caused by these projects, appropriate countermeasures andpractical action plans which comply with relevant regulations and laws have been taken and will betaken after the evaluation by JRTT. DNV GL confirmed that JRTT resulted that its effect is limited andappropriate action will be executed if required.

Principle Three, Management of Proceeds
DNV GL has reviewed evidence showing how JRTT traced the proceeds from the Finance (loan orBond, from the time of issuance to the time of disbursement). The full amount of the proceeds fundhas been allocated promptly. The details of the disbursement value are tracked using JRTT’s internal
protocol. At the end of each financial period (fiscal year), JRTT manages the outstanding balance of
the Finance.
DNV GL confirmed with the evidences showing by JRTT that full 55.3 billion JPY has been allocatedat the end of the FY 2018 (Mar. 2019) as refinance, as scheduled.
As stated above, DNV GL provides no assurance regarding the financial performance of the Finance,
the value of any investments in the Finance, or the effects of the transaction.

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Principle Four, Reporting
JRTT has confirmed that annual report includes and maintain a dedicated section on the Finance inits website. This includes the project and value of the proceeds invested, as well as the associatedqualitative and quantitative environmental impacts based on the MLIT data. Since annual reportprovided representative information and data which can be officially available, it may not align with
FY 2018 activities. JRTT will update those information and data when it is available in timely manner.
JRTT disclosed environmental and social benefit and management proceeds on its web site.
https://www.jrtt.go.jp/05Ir/ir-sustainabilityfinance.html (Reporting)- CO2 emission per transportation unit (FY 2017)- Numbers of passenger of eligible railway project (representative line) (FY 2016)- FY 2018 Fund amount of allocation and outstanding- FY 2018 Refinance share- FY 2018 Project progress (funded amount)
Project progress has been published in the followings in its web site
- Environmental report 2019
- FY 2018 Annual business report- FY 2018 Annual financial report- FY 2018Annual financial statement- FY 2018 project report- Finance information report
Project progress information above includes other than project funded FY 2018

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Table-1 shows the qualitative and quantitative environmental impacts by JRTT sustainability financeproject, Railway Construction, published by MLIT. CO2 emission per unit(passenger and freight) is
comparably lower enough than other transportation categories.
MLIT : Ministry of Land, Infrastructure, Transport and Tourism, Japan

Table-1 CO2 emission per unit(passenger and freight)（2017）reference︓MLIT
category

passenger︓

freight︓

g-CO2/p-km
Private light vehicle

g-CO2/t-km
137

1,177

-

232

Airplane

96

-

Bus

56

-

Ship

-

38

19

20

Cargo vehicle

Railway

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DNV GL Business Assurance Japan K.K.
30th. Oct. 2019Mark 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
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
continuously invest in research and collaborative innovation to provide customers and society with operational andtechnological foresight. With our origins stretching back to 1864, our reach today is global. Operating in more than 100
countries, our 16,000 professionals are dedicated to helping customers make the world safer, smarter and greener.

1. Schedule-1 JRTT Sustainability finance nominated project/asset portfolio *1
Table JRTT Sustainability Finance Project/Asset Portfolio (Project No. 01)
Project
No.

R-1

R-2
01
R-3

R-4

Nominated

Sustainability Project

Sustainability Project

Project/Asset Portfolio

Category

Sub-Category

Public railway ; Railway Project
under the Urban Railway
Convenience Improvement Law(Projects to Enhancement theconvenience of urban railways)
Public railway ; Leased railway(Arterial railway(Main line andInterurban line)
Public railway ; Assigned railway(Public railway operated by
Private sector)
Public railway ; Railway Project
under the Act on Special Measuresconcerning Integrated Promotion of
Residential Land Development and
Railway Construction in Major Urban
Areas (Urban railway)

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

・transportation(public)

Total exposure :Fund amount;

DNV GL Business Assurance Japan K.K.

Remarks

in FY 2018

・rail (electric)・rail (electric)

Fundedamount-Railway Construction(Construction Account）︓
Nominated Project・Eastern Kanagawa Lines・etc

33.2 billion JPY

Railway Construction(Construction Account）︓
・Keiyo line ・Musashino line・etc

22.1 billion JPY

Railway Construction(Construction Account）︓
・Minatomirai 21 line・Odakyu
Odawara line・etc-

Railway Construction(Construction Account）︓
Nominated Project・Joban new line (TX line)

1,791,662,509,171 JPY as installment amounts (FY 2018)55,300,000,000 JPY(FY 2018)

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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 throughverification. Hereafter ‘bond’ also suggests 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.

Use of Proceeds

Net proceeds of the bond must be allocated to nominated projects and assets.

Non-Contamination of Proceeds

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.

Confidentiality

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.

Reporting

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.

Earmarking

The Issuer of the bond shall maintain the earmarking process to manage and account for funding to thenominated projects and assets.

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3. Schedule-3 Sustainability Finance Eligibility Assessment Protocol

Checklist-1 Sustainability Finance Guideline (SBG) Eligibility checklist
Finance means JRTT’s general proceeds instruments including both bond and loan. Hereafter ‘bond/BOND’ also suggests both bond and loan, official
bond statement and loan document. JRTT Sustainability Finance Framework, official bond statement and loan document, etc. will be published for
explanation to investor on JRTT’s website as follows;
https://www.jrtt.go.jp/05Ir/ir-sustainabilityfinance.html
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
Categories

The cornerstone of a Sustainability Bond is theutilization of the proceeds of the bond whichshould be appropriately described in the legal

As identified by the purpose of the loan is to use the proceeds to finance andrefinance for projects falling under the following categories ;1bGreen/Social(Sustainability) Use of Proceeds Bond.

FY 2018, proceeds 55.3 billion JPY has been allocated to the Gothic, Italic andPage 18 of 21

Ref.

Criteria

Requirements

DNV GL Findings

documentation for the security.

underscored projects<Railway Construction>--

Public railway ; Railway Project under the Urban Railway Convenience
Improvement Law (Projects to Enhancement the convenience of urban
railways)
Public railway ; Leased railway (Arterial railway(Main line andInterurban line)
Public railway ; Assigned railway (Public railway operated by
Private sector)
Public railway ; Railway Project under the Act on Special Measuresconcerning Integrated Promotion of Residential Land Development and
Railway Construction in Major Urban Areas (Urban railway)<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 was included in official loan
document issued by JRTT. DNV GL concluded that 1b requirement is satisfied. Incase 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
or assessed 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

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Ref.

Criteria

Requirements

DNV GL Findings
those 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

(2)

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

The proceeds of the BOND, in their entirety has been allocated to sustainability
project described schedule-1 as refinance, project 01 in FY 2018. Refinance was
as follows-Refinance to Railway construction project portfolio (all for refinance)
Identification of finance or refinance has been disclosed to investor in official
document.

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 forAs per the JRTT sustainability finance 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)

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Ref.

Criteria

Requirements
using the Sustainability Bond proceeds; and• The environmental and social sustainability
objectives•

DNV GL Findings
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 userconvenience- Efficient distribution- Operation of routes to remote island- Clean Transportation and Pollution prevention and control

2bIssuer’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.

Those nominated project portfolio is discussed with JRTT’s related department andresponsibilities (JRTT boards). DNV GL also confirmed that JRTT determines therelationship between those projects and SDGs mapping based on the MLIT policy and
ICMA document.
DNV GL concluded that 2a requirement is satisfied through interview and document
review.
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).

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Ref.

Criteria

Requirements

DNV GL Findings
DNV GL also confirmed that JRTT has issued and intends to issue the loan and bonds
continuously based on their framework which aligns with CBS requirement and CBIcertification (programmatic certification)
https://www.climatebonds.net/certification/get-certified
https://www.climatebonds.net/programmatic-certification.
DNV GL concluded that 2b requirement is satisfied