January 2022

INDEPENDENT REVIEWof the management of JFM’s Green Bond issued in 2021
V.E is of the opinion that the Green Bond issued in 2021 by Japan Finance Organization for Municipalities (“JFM”)
remains aligned with the four core components of the Green Bond Principles 2021 (“GBP”)

Key Findings1
 We express a reasonable2 assurance on the Issuer’s capacity to use the Bond’s proceeds to finance Eligible Projects, in linewith its initial commitments.
 We express a reasonable assurance on the Issuer’s capacity to implement the evaluation and selection process, in line with
its initial commitments.
 We express a reasonable assurance on the Issuer’s capacity to implement the allocation process, in line with its initialcommitments.
 We express a reasonable assurance on the Issuer’s capacity to implement the reporting process, in line with its initialcommitments:-

First, we express a reasonable assurance on the Issuer’s capacity to report on the fund allocation, in line with its initialcommitments. The indicators used for the allocation reporting are complete and relevant, at project level.

-

We express a reasonable assurance on the Issuer’s capacity to report on environmental benefits of the financed Eligible
Projects, in line with its initial commitments. The indicators used for the environmental benefits reporting (outputs,
outcomes and impacts) are relevant and in line with market standards.

SUMMARY: LEVEL OF ASSURANCE OF THE ISSUER’S CAPACITY TO
REMAIN ALIGNED WITH THE GBP 2021
USE OF PROCEEDS

ALLOCATION OF
PROCEEDSMANAGEMENT OF
PROCEEDSREPORT ON THE
ALLOCATION OF
PROCEEDSREPORT ON THE
ENVIRONMENTAL
AND SOCIAL
BENEFITS

Reasonable

Reasonable

Reasonable

Reasonable

Reasonable

Moderate

Moderate

Moderate

Moderate

Moderate

Weak

Weak

Weak

Weak

Weak

1 This Review is to be considered as the “Consultant review” described by the International Capital Market Association (www.icmagroup.org).
2 The detailed definition of V.E’ scales of assessment can be found in the Methodology section.

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January 2022

SCOPE
In 2020, V.E was commissioned to provide an independent opinion (thereafter “Second Party Opinion” or “SPO”) on thesustainability credentials and management of the Green Bond Framework3 (“the Framework”) created by JFM (the “Issuer”).
We issued our SPO on January 13, 2020.
V.E has been commissioned by JFM to provide an independent opinion (or “Review”) on the management of its 2021 Green
Bond issuance, based on the review of its JFM Green Bond Impact Report 2021.
Our opinion is established according to V.E’s Environmental, Social and Governance (“ESG”) exclusive assessment
methodology and to the ICMA’s Green Bond Principles (“GBP”) voluntary guidelines edited in June 2021.
Our opinion is built on the review of following components:••

Eligible Projects: evaluation of the Issuer’s capacity to use the Bond’s proceeds to finance Projects withsustainability benefits, and to report on the Projects outputs and impacts, in line with its initial commitments.
Bond: evaluation of the Issuer’s capacity to implement the Bond’s processes, (evaluation and selection, andmanagement of proceeds) and to report on the allocation of the Bond’s proceeds, in line with its initialcommitments.

Our sources of information are multichannel, combining data (i) gathered from public sources, press content providers andstakeholders, (ii) from V.E’s exclusive ESG rating database, and (iii) information provided from the Issuer, through documents
and interviews conducted with the Issuer’s managers and stakeholders involved in the Bonds issuance, held via atelecommunications system.
We carried out our due diligence assessment from November 29th to December 24 2021. We consider that we were provided
with access to all the appropriate documents and interviewees we solicited. To this purpose we used our reasonable efforts
to verify such data accuracy.

Contact
Sustainable Finance Team | VEsustainablefinance@vigeo-eiris.com

3 The “Green Bond” is to be considered as the bond issued, subject to the discretion of the Issuer. The name “Green Bond” has been decided by the Issuer: it

does not imply any opinion from Vigeo Eiris.

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January 2022

DETAILED RESULTS
Use of Proceeds
We express a reasonable assurance on the Issuer’s capacity to use the Bond’s proceeds to finance the Eligible Projects, in line with its
initial commitments.

According to the information provided by the Issuer, 100% of the net proceeds of the issuance have been used to finance
Eligible Projects for a total amount of approximately JPY 80 billion (EUR 600 million). V.E had access to the last updated version
of JFM’s Green Bond Impact Report 2021. The report was made publicly available on the Issuer’s website on December 20214.
In particular, the Bond’s proceeds have been reported by the Issuer as used to finance one Eligible Category of Eligible Projects:
Sustainable Water and Wastewater Management
 Pipes (New and Renewals)▪
Pipes covered the largest portion with 64% of loan amounts allocated through the Green Bond
74 projects were funded representing a total loan amount of JPY 50,366.0 million
Construction of new, extension, flood control measure, wastewater pipes, etc
 Sewerage Management Related Facilities (New and Renewals)▪
Sewerage treatment plants covered 12% of loan amounts allocated through the Green Bond
41 projects were funded representing a total loan amount of JPY 9,577.6 million
Rainwater pool, water intakes, purification tanks, mechanical electrical equipment
 Facility/Equipment (New and Renewals)▪
Advanced treatment plants covered 1% of loan amounts allocation through the Green Bond
3 projects were funded representing a total loan amount of JPY 1,010.9 million
Replacement of aging facilities, upgrade of blowers▪
Purification centres covered 3% of loan amounts allocated through the Green Bond
8 projects were funded representing a total loan amount of JPY 1,968.2 million
Sludge incinerator, mechanical equipment replacement, sludge circulating pump, dewatering▪
Pump stations covered 5% of loan amounts allocated through the Green Bond
25 projects were funded representing a total loan amount of JPY 3,555.8 million▪
Other categories covered 15% of loan amounts allocated through the Green Bond
21 projects were funded representing a total loan amount of JPY 11,758.6 million
These projects include watershed, sewage duct, toilets, rainwater treatment facilities

The reported financed Eligible Projects appear to be in line with the Eligible Category initially defined by the Issuer in its
Framework, namely: Sustainable Water and Waste Management which represents 100% of the total proceeds of the Bonds.
The Eligible Projects financed effectively contribute to the three environmental objectives initially identified by the Issuer,
namely: Pollution prevention and control, water resource conservation, and efficient energy use of sewage sludge, sewage
sludge recycle.
The Issuer had initially committed to assess the environmental benefits of the Bonds. We consider the environmental benefits
to be clearly assessed.
The Issuer has reported that there was no refinancing.

4 https://www.jfm.go.jp/en/investors/green_bond2.html

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We consider that the selected Eligible Projects are likely to contribute to six United Nations’ Sustainable Development Goals(SDGs), namely: SDG 3: Good Health and Well-being, SDG 6: Water and Sanitation, SDG 11: Sustainable Cities andCommunities, SDG 13: Climate Action, SDG 14: Life Below Water and SDG 15: Life on Land.
ELIGIBLE CATEGORIESUN SDGS IDENTIFIEDUN SGD TARGETS

3.9 By 2030, substantially reduce the number ofdeaths and illnesses from hazardous chemicals andair, water and soil pollution and contamination
6.3 By 2030, improve water quality by reducing
pollution, eliminating dumping and minimizing
release of hazardous chemicals and materials,
halving the proportion of untreated wastewater andsubstantially increasing recycling and safe reuse
globally

Sustainable Water andWastewater Management

11.5 By 2030, significantly reduce the number ofdeaths and the number of people affected andsubstantially decrease the direct economic losses
relative to global gross domestic product caused bydisasters, including water-related disasters, with afocus on protecting the poor and people invulnerable situations

13.1 Strengthen resilience and adaptive capacity to
climate-related hazards and natural disasters in all
countries

14.1 By 2025, prevent and significantly reduce
marine pollution of all kinds, in particular from landbased activities, including marine debris and nutrient
pollution

15.1 By 2020, ensure the conservation, restorationand sustainable use of terrestrial and inland
freshwater ecosystems and their services, inparticular forests, wetlands, mountains anddrylands, in line with obligations under international
agreements

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January 2022

Evaluation and Selection of Eligible Projects
We express a reasonable assurance on the Issuer’s capacity to implement the evaluation and selection process, inline with its initial commitments.

The evaluation and selection process of the Eligible Projects appears to be efficiently implemented. V.E had access to all theappropriate documents (see below).

- The evaluation and selection of Eligible Projects are based on relevant internal expertise, with well-defined roles andresponsibilities:
-

-

-

-

-

Each local government has consulted with either the national government or prefecture as appropriate toreceive consent or approval for the borrowing and formulated sewerage business plan regulated under the laws
(Sewerage Law, Purification Layer Law and Water Pollution Control Law) and acts (Sewerage Act, Septic Tank
Act, Water Pollution Control Act) of Japan. Penal regulations will be applied for non-compliance.
Once the local governments have received consent or approval, they may apply for JFM for funding and will be
evaluated and selected by the JFM Green Bond Working Group.
Following the extension of loans by JFM to the Eligible Projects, JFM's Green Bond Working Group conductedsurveys with the relevant local governments to gain impact metrics.
The Green Bond Working Group has selected 63 local governments which JFM financed for sewerage projects
between 4 February 2021 and 30 March 2021 and of which the loan amount for the project was JPY 300 million
or higher in principle and conducted a survey. The Green Bond Working Group obtained effective responses
from 55 local governments representing a total of approximately JPY 80 billion in loan amounts.
JFM’s Green Bond Working Group was responsible for ensuring that the allocation of the net proceeds (or an
amount equal to the net proceeds) of the issuance of the Green Bonds was in alignment with the eligibility
criteria set forth in its Green Bond Framework. The loan department also confirm that the borrower has
obtained consent or approval on the borrowing, in accordance with the requirements of Japanese law.
JFM identified the main ESG risks of the eligible projects including, but not limited to, Biodiversity/Pollution
prevention and control (for both accidental and chronical contamination), Waste management (of sludges andby-products), User/neighbours safety, Health and safety for workers and Integration of E&S in supply chain (forconstruction and operation). Penal regulations will be applied for non-compliance and the national andprefectural governments provide advice and demand corrective actions.
If JFM determines that it is not suitable for the loan, JFM demands reimbursement based on the provisions tothe borrower.

An area of improvement would be to have an external verifier to review the compliance of the selection process with theIssuer’s commitments.

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January 2022

Management of Proceeds
We express a reasonable assurance on the Issuer’s capacity to implement the allocation process, in line with its
initial commitments.
The allocation process appears to be implemented, however VE did not have access to a financial audit. The Issuer states thatthe management of the proceeds has been made according to its initial commitment:-

Prior to the allocation of loans to Eligible Projects, an amount equal to the net proceeds of the issuance of the Green
Bonds has been invested in JFM’s liquidity portfolio in cash and cash equivalent-

JFM issued its second green bonds in February 2021 to finance the Japanese local governments’ sewerage projects andfully allocated the net proceeds by 30 March 2021 after issuance-JFM clearly presents the breakdown of Green Bond effective portfolio by type of project, loan amount and share of new
and renewal projects-

JFM’s Green Bond Working Group has tracked, monitored and accounted for the allocation of the net proceeds of theissuance of the Green Bonds

Additionally, JFM has conducted inspections and examinations on projects which JFM has funded to make sure that the net
proceeds of the issuance were allocated to the Eligible Projects.

Monitoring & Reporting
We express a reasonable assurance on the Issuer’s capacity to implement the reporting process, in line with its
initial commitments.
The Issuer reports annually on the Bonds, in line with its initial commitment.
JFM's Green Bond Working Group conducted a survey of its local government borrowers in respect of the environmental
impact of their sewage projects and the amounts of loans made by JFM allocated to the projects.
First, we express a reasonable assurance on the Issuer’s capacity to report on the fund allocation, in line with its initialcommitments. The indicators used for the allocation reporting are complete and relevant including:-

The amount of net proceeds (or amount equal to the net proceeds) allocated to Eligible Projects in the Effective
Portfolio-

A list of projects (Project-by-project reporting on Effective Portfolio)-

A breakdown of the Effective Portfolio by project type-

Refinancing rate (in % of the total amount of proceeds)

Secondly, we express a reasonable assurance on the Issuer’s capacity to report on the environmental benefits of the financed
Eligible Projects, in line with its initial commitments. The indicators used for the environmental benefits reporting (outputs,
outcome and impact indicators) are relevant and in line with market standards.

ELIGIBLE
CATEGORY

ENVIRONMENTAL AND SOCIAL BENEFITS INDICATORS
V.E’S OPINIONOUTPUTS, OUTCOME AND IMPACT INDICATORS

Pipes (New andRenewals)-

Newly constructed pipe length (m)-Covered area population

The selected indicators are-

Amount of treated water (actual, annual total, before and after
renewal) (m³)

relevant and in line with the-

Other positive environmental impact (if any)

Issuer’s initial commitment.

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January 2022

Sewerage
Management
Related Facilities(New and
Renewals)

Facility/Equipment(New and
Renewals)-

Covered area population-

Water management capacity (m³)-

BOD Planned [Year/Period Average] (mg/L)-

BOD Actual [Maximum monthly results] (mg/L) after treatment-

Phosphorous (Year/Period Average) (mg/L)

The selected indicators are-

Phosphorous Actual [Maximum monthly results] (mg/L) after
treatment

relevant and in line with the-Water Quality (BOD) (Year/Period Average) (mg/L)-

Water Quality (phosphorus) (Year/Period Average) (mg/L)-

Electricity consumption (Actual or reduced kWh)-

Other positive environmental impact (if any)-

Covered area population-

Water management capacity (m³)-

BOD Planned [Year/Period Average] (mg/L)-

BOD Actual [Maximum monthly results] (mg/L) after treatment-

Phosphorous (Year/Period Average) (mg/L)-

Phosphorous Actual [Maximum monthly results] (mg/L) after
treatment

The selected indicators are-

Water Quality (BOD) (Year/Period Average) (mg/L)

Issuer’s initial commitment.

-

Water Quality (phosphorus) (Year/Period Average) (mg/L)-

GHG reduction (%)-

Electricity consumption (Actual kWh )-Other positive environmental impact (if any)

Issuer’s initial commitment.

relevant and in line with the

An area of improvement would be to report on the absolute amount of sludges treated and disposed of (in tonnes ofdry solids per month/year).

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January 2022

METHODOLOGY
In V.E’ view, Environmental, Social and Governance (ESG) factors are intertwined and complementary. As such they cannot be separated in
the assessment of ESG management in any organization activity or transaction. In this sense, V.E writes an opinion on the Issuer’s Corporate
Social Responsibility as an organization, and on the Issuances through the objectives, management and reporting of the assets/projects tobe (re)financed.
V.E’ methodology for the definition and assessment of the ESG performance is based on criteria aligned with public international standards,
in compliance with the ISO 26000 guidelines, and organized in 6 domains: Environment, Human Resources, Human Rights, Community
Involvement, Business Behaviour and Corporate Governance. The evaluation framework has been customized regarding material issues,
based on our relevant sector ESG assessment frameworks and on specific issues considering the Issuer’s activity.
Our research and rating procedures are subject to internal quality control at three levels (analysts, heads of cluster sectors, and internal
review by the audit department for second party opinions) complemented by a final review and validation by the Direction of Methods. A
right of complaint and recourse is guaranteed to all companies under our review, including three levels: first, the team linked to the company,
then the Direction of Methods, and finally V.E’ Scientific Council. All collaborators are signatories of V.E’ Code of Ethics.

ELIGIBLE BUSINESSES AND PROJECTS REVIEWThe analysis of the conformance with the Issuer’s initial commitments covers both the eligibility criteria (based on the definition of Eligible
Categories, use of proceeds requirements) and the selection criteria (based on the ESG commitments).
Our review covers both the implementation of the initial commitments made by the Issuer in the SPO, and its 2019 Sustainability Bond
Report:- Fund allocation, reporting on the use of proceeds, considered as a primary component and mandatory to achieve reasonable level ofassurance at Bond portfolio level; and- Social and environmental benefits, reporting on outputs, outcomes and impact indicators, considered as a primary component andmandatory to achieve reasonable level of assurance at Bond portfolio level.

BONDS REVIEWThe analysis of the implementation of the Bonds’ processes and commitments covers:- The evaluation and selection process, i.e. assessment of the coherence and efficiency of the implemented process, and of theexhaustiveness of the ESG issues covered; and- The allocation of proceeds’ process based on the rules for management of proceeds defined prior to the issuance of the Bonds.
The analysis of the existence and completeness of the reporting, at Bond portfolio level, according to the Issuer’s initial commitments, also
covers two components:- Fund allocation, reporting on the aggregated use of proceeds, considered as a primary component and mandatory to achieve a reasonablelevel of assurance at Bond portfolio level.
- Social and environmental benefits, reporting on aggregated output and impact indicators, considered as a primary component andmandatory to achieve a reasonable level of assurance at Bond portfolio level.

REPORTING
The reporting indicators in place for the allocation of proceeds and for the sustainable benefits are evaluated according to the quality of theindicators (exhaustiveness and relevance), and considering the reporting nature and management (format, visibility, data collection, etc.).
The evaluation of the projects results is conducted at Bond portfolio level, including aggregated reporting, based on both social andenvironmental benefits, considered as essential to achieve a good performance.

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January 2022

V.E’S ASSESSMENT SCALES
Performance evaluation

Level of assurance

Advanced

Advanced commitment; strong evidence of commandover the issues dedicated to achieving the objectiveof social responsibility. Reasonable level of risk
management and using innovative methods toanticipate emerging risks.

Reasonable

Able to convincingly conform to theprescribed principles and objectives ofthe evaluation framework

Good

Convincing commitment; significant and consistentevidence of command over the issues. Reasonablelevel of risk management.

Moderate

Compatibility or partial convergencewith the prescribed principles andobjectives of the evaluation framework

LimitedCommitment to the objective of social responsibility
has been initiated or partially achieved; fragmentary
evidence of command over the issues. Limited to
weak level of risk management.

Weak

Lack
or
unawarenessof,orincompatibility with the prescribedprinciples and objectives of theevaluation framework

Weak

Commitment to social responsibility is non-tangible;
no evidence of command over the issues. Level of
insurance of risk management is weak to very weak.

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January 2022

DISCLAIMER
Transparency on the relation between V.E and the Issuer: V.E has executed one audit mission for JFM until so far (one Second Party Opinion in 2020). No
established relation (financial or commercial) exists between V.E and the Issuer. V.E’s conflict of interest policy is covered by its Code of Conduct, which can befound at http://vigeo-eiris.com/wp-content/uploads/2018/07/Code-of-Conduct-Vigeo-Eiris-EN.pdf.
This opinion aims at providing a post-issuance independent review on the sustainability credentials and management of the Bonds based on the information
which has been made available to V.E. V.E has neither interviewed stakeholders out of the Issuer’s employees, nor performed an on-site audit nor other test to
check the accuracy of the information provided by the Issuer. The accuracy, comprehensiveness and trustworthiness of the info rmation collected are a
responsibility of the Issuer. Providing this review does not mean that V.E certifies the effectiveness, the excellence or the irreversibility of the assets financed by
the Bonds. The Issuer is fully responsible for attesting the compliance with its commitments defined in its policies, for their implementation and their monitoring.
The opinion delivered by V.E neither focuses on the financial performance of the Bonds, nor on the effective allocation of its proceeds. V.E is not liable for the
induced consequences when third parties use this opinion either to make investments decisions or to make any kind of business transaction.
Restriction on distribution and use of this opinion: the opinion is provided by V.E to the Issuer and can only be used by the Issuer. The distribution and publication
are at the discretion of the Issuer, submitted to V.E approval.
© 2021 Vigeo SAS and/or its licensors and subsidiaries (collectively, “V.E”). All rights reserved.
V.E’S RESEARCH DOES NOT ADDRESS NON-ESG FACTORS AND/OR RISKS, INCLUDING BUT NOT LIMITED TO: CREDIT RISK, LIQUIDITY RISK, MARKET VALUERISK, OR PRICE VOLATILITY. V.E’S RESEARCH DOES NOT CONSTITUTE STATEMENTS OF CURRENT OR HISTORICAL FACT. V.E’S RESEARCH: (i) DOES NOTCONSTITUTE OR PROVIDE CREDIT RATINGS OR INVESTMENT OR FINANCIAL ADVICE; (ii) IS NOT AND DOES NOT PROVIDE RECOMMENDATIONS TO PURCHASE,
SELL, OR HOLD PARTICULAR SECURITIES; AND (iii) DOES NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. V.E
ISSUES ITS RESEARCH WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATIONOF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
V.E’S RESEARCH IS NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE V.E’S
RESEARCH WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. V.E’S
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HUMAN OR MECHANICAL ERROR AS WELL AS OTHER FACTORS, HOWEVER, ALL INFORMATION CONTAINED HEREIN IS PROVIDED “AS IS” WITHOUT WARRANTY,
EXPRESS OR IMPLIED, OF ANY KIND, INCLUDING AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULARPURPOSE. V.E IS NOT AN AUDITOR AND CANNOT IN EVERY INSTANCE INDEPENDENTLY VERIFY OR VALIDATE INFORMATION IT RECEIVES.
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liability to any person or entity for any (a) indirect, special, consequential, or incidental losses or damages, and (b) direct or compensatory losses or damages
caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or an y other type of liability that, for the
avoidance of doubt, by law cannot be excluded); on the part of, or any contingency within or beyond the control of any V.E Party, arising from or in connection
with the information contained herein or the use of or inability to use any such information.

Additional terms For PRC only: Any Second Party Opinion, Climate Bond Initiative (CBI) Verification Report or other opinion issued by V.E: (1)does not constitute a PRC Green Bond Assessment as defined under any relevant PRC laws or regulations; (2) cannot be included in any
registration statement, offering circular, prospectus or any other documents submitted to the PRC regulatory authorities or otherwise used
to satisfy any PRC regulatory disclosure requirement; and (3) cannot be used within the PRC for any regulatory purpose or for any otherpurpose which is not permitted under relevant PRC laws or regulations. For the purposes of this disclaimer, “PRC” refers to the mainland of
the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.
Additional terms for Hong Kong only: Any Second Party Opinion or other opinion that falls within the definition of “advising on securities”
under the Hong Kong Securities and Futures Ordinance (“SFO”) is issued by Vigeo Eiris Hong Kong Limited, a company licensed by the Hong
Kong Securities and Futures Commission to carry out the regulated activity of advising on securities in Hong Kong. This Second Party Opinion
or other opinion that falls within the definition of “advising on securities” under the SFO is intended for distribution only to “professional
investors” as defined in the SFO and the Hong Kong Securities and Futures (Professional Investors) Rules. This Second Party Opinion or other
opinion must not be distributed to or used by persons who are not professional investors.

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