POST ISSUANCE REVIEW 1
OF THE MANAGEMENT OF JFM’S GREEN BOND ISSUED IN FEBRUARY 2020
November 2020

SCOPE
In January 2020, Vigeo Eiris was commissioned to provide an independent opinion (thereafter “Second Party
Opinion” or “SPO”) on the sustainability credentials and management of the Green Bond2 (the “Bond”) proposed to
be issued by Japan Financing Organization For Municipalities’ (the “JFM” or the “Issuer”). We issued our SPO on
January 13th, 2020.
As of today, Vigeo Eiris has been commissioned by JFM to provide an independent opinion (or “Review”) on the
management of the 2020 Green Bond.
Our opinion is established according to our Environmental, Social and Governance (“ESG”) exclusive assessment
methodology and to the latest version of the International Capital Market Association’s Green Bond Principles(“GBP”) voluntary guidelines edited in June 2018.
Our opinion is built on the review of the coherence between the Issuer’s initial commitments and the Green Bond
Principles with the following elements:
1.

Bond processes implemented

2.

Allocation process and results obtained from the use of Bond proceeds financing Eligible Projects

3.

Reporting on the environmental benefits of the Eligible Projects

Our sources of information are multichanneled, combining data from (i) public information gathered from public
sources, press content providers and stakeholders, (ii) information from Vigeo Eiris’ exclusive ESG rating database,and (iii) information provided by the Issuer through documents.
We carried out our due diligence assessment from October 13th to October 26st, 2020. We consider that we were
provided with access to all the appropriate documents we solicited. We consider that the information made available
enables us to establish our opinion with a reasonable level of assurance on its completeness, precision andreliability.

VIGEO EIRIS’ OPINION
Vigeo Eiris is of the opinion that the Green Bond issued in 2020 by JFM remains aligned with the GBP
2018. We maintain a reasonable3 level of assurance on the sustainability of the Bond.
 We express a reasonable assurance on the Issuer’s capacity to use the Bond’s proceeds to finance andrefinance Eligible Projects in line with 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 Issuers’ capacity to manage the proceeds, in line with its
initial commitments.
 We express a reasonable assurance on the Issuer’s capacity to implement the reporting process in linewith its initial commitments:oFirst, we express a reasonable assurance on the Issuer’s capacity to report on the fundallocation, in line with its initial commitments. The indicators used to report on the allocation ofproceeds are complete and relevant, at both category and bond level.

o

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

1 This Review is to be considered as the “Consultant review” described by the International Capital Market Association (www.icmagroup.org).
2

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.
3

Definition of Vigeo Eiris’ scales of assessment (as detailed in the Methodology section):
Level of Evaluation: Advanced, Good, Limited, Weak.
Level of Assurance: Reasonable, Moderate, Weak.

Summary: level of assurance on the Issuer’s/Borrower’s capacity to :Use the proceeds
to finance Eligible
Projects

Allocation of theproceeds

Management ofproceeds

Report on the
allocation ofproceeds

Report on theenvironmental
benefits

Reasonable

Reasonable

Reasonable

Reasonable

Reasonable

Moderate

Moderate

Moderate

Moderate

Moderate

Weak

Weak

Weak

Weak

Weak

This Post-Issuance Review is based on the review of the Bond issued by JFM in January 2020 and of its annual
reporting according to our exclusive assessment methodology and to the GBP voluntary guidelines (June 2018)

Paris, November 5, 2020
Project team
Hiroaki AOKIHead of Japanese Market
Project Manager

Feng HU

For more information, contact:
Adriana Cruz Felix

Sustainable FinanceResearch Manager APAC
Supervisor

Head of Sustainable Finace Research
Supervisor
VESPO@vigeo-eiris.com

Disclaimer
Transparency on the relation between Vigeo Eiris and the Issuer: Vigeo Eiris has executed one missions for JFM until so far (a Second
Party Opinion provided in January 2020). No established relation (financial or commercial) exist between Vigeo Eiris and the Issuer.
This opinion aims at providing a post-issuance independent review on the sustainability credentials and management of the Bond, based on
the information which has been made available to Vigeo Eiris. Vigeo Eiris 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, comprehensivenessand trustworthiness of the information collected are a responsibility of the Issuer. Providing this review does not mean that Vigeo Eiris certifies
the effectiveness, the excellence or the irreversibility of the assets financed by the Bond. The Issuer is fully responsible for attesting thecompliance with its commitments defined in its policies, for their implementation and their monitoring. The opinion delivered by Vigeo Eiris
neither focuses on the financial performance of the Bond, nor on the effective allocation of its proceeds. Vigeo Eiris 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 Vigeo Eiris to the Issuer and can only be used by the Issuer.
The distribution and publication are at the discretion of the Issuer, submitted to Vigeo Eiris approvalDETAILED RESULTS
Use of Proceeds
We express a reasonable assurance on the Issuer’s capacity to use the Bond’s proceeds to finance Eligible
Projects in line with its initial commitments and with GBP 2018 requirements.
According to the information provided by the Issuer, 100% of the net proceeds of the issuance have been used tofinance Eligible Projects for a total amount of EUR 500 million. Vigeo Eiris had access to the list of all projects
financed by the Bond, also publicly available in JFM’s Green Bond Impact Report 20204.
In particular, the Bond’s proceeds have been reported by the Issuer as used to finance Eligible Projects under the
Sustainable Water and Wastewater Management Eligible Category:
Development, construction, maintenance, updates, operation of sewerage related assets, which are in line withsewage drainage standards set by Japanese law including(100% of net proceeds):
o
o
o
o
o
o

Pipes (55% of net proceeds)
Sewerage Management Related Facilities(7% of net proceeds)
Pump Station (5% of net proceeds)
Advanced Treatment Plant (3% of net proceeds)
Purification Center (1% of net proceeds)
Others (29% of net proceeds)

The Issuer reported that the refinancing rate for sewerage projects was 0%.
The Eligible Projects effectively contribute to the environmental objectives initially defined by the Issuer namely:
Pollution Prevention and Control, Water Resource Conservation, and Renewable energy generated from sewage
sludge, sewage sludge recycling (Material Recycling).
The Issuer had initially committed to assess the following environmental benefits of the Eligible projects:
improvement of water quality, efficient use of energy and the recycling of sewage sludge.
We consider the environmental benefits to be clearly assessed, in line with the Issuer’s initial commitment.
We consider that the selected Eligible Projects contributed to the following United Nations’ Sustainable
Development Goal, namely Goal 3. Good Health and Well-being, Goal 6. Water and Sanitation, Goal 11.
Sustainable Cities and Communities, Goal 13. Climate Action, Goal 14. Life Below Water and Goal 15. Life on Land.
Eligible
Category

Sustainable
water andwastewater
management

4

SDG

SDG Targets

SDG 3. Good healthand well-being

3.9. By 2030, substantially Reduce the number ofdeaths and illnesses from hazardous chemicals andair, water and soil pollution and contamination.

SDG 6. Clean
Water and
Sanitization

6.3 By 2030, improve water quality by reducing
pollution, eliminating dumping and minimizing releaseof hazardous chemicals and materials, halving the
proportion of untreated wastewater and substantially
increasing recycling and safe reuse globally.

SDG 11.
Sustainable Cities
and Communities

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 in vulnerable
situations.

http://www.jfm.go.jp/en/pdf/impactreport2020.pdf#page=1

Eligible
Category

SDG

SDG Targets

SDG 13. Climate
ActionThe Assets are likely to contribute to SDG 13 which
consists in adopting urgent measures to combat
climate change and its effects.

SDG 14. Life Below
Water

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

SDG 15. Life onLand

15.1 By 2020, ensure the conservation, restoration andsustainable use of terrestrial and inland freshwater
ecosystems and their services, in particular forests,
wetlands, mountains and drylands, in line withobligations under international agreements.

Process for Project Evaluation and Selection
We express a reasonable assurance on the Issuer’s capacity to implement the evaluation and selection process,in line with its initial commitments and with GBP 2018 requirements.
The evaluation and selection process of the Eligible Projects appears to be efficiently implemented. Vigeo Eiris (VE)
had access to all of the appropriate documents (see below).
•

The process applied appears to be based on relevant expertise internal and external expertise:•

JFM’s Green Bond Working Group consists of members of the corporate planning department, financedepartment and the loan department including members who have experience in local government
projects related to the environment, and 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 confirmed that theborrower has obtained consent or approval on the borrowing, in accordance with the requirements ofJapanese law.

•

Following the extension of loans by JFM to the Eligible Projects, JFM's Green Bond Working Group
conducted surveys with the relevant local governments to gain impact metrics.

•

The net proceeds (or an amount equal to the net proceeds) of the issuance of the Green Bonds wereallocated to Eligible Projects, and a portfolio (the Effective Portfolio) was selected from the Eligible Projects
based on projects run by local governments which returned effective responses to a follow-up survey.

•

Traceability of the selection and evaluation process is ensured through an annual verification/meeting
minutes as well as related documents of the selected assets by the JFM’s Green Bond Working Group.

We maintain our area for improvement which consists in having an external verifierreview the compliance of the selection
process with the Issuer’s commitments.

Management of Proceeds
We express a reasonable level of assurance on the Issuer’s/Borrower’s capacity to implement the allocation
process, in line with its initial commitments and with GBP 2018 requirements.
The allocation process appears to be efficiently implemented. The Issuer declares that the management of proceeds
has been made according to its initial commitment:•

Prior to the allocation to loans for Eligible Projects, an amount equal to the net proceeds of the issuanceof the Green Bonds were invested in JFM’s liquidity portfolio in cash and cash equivalents.

•

The Issuer fully allocated the net proceeds to the Eligible Project by 31 March 2020 after issuance.

•

JFM’s Green Bond Working Group tracked, monitored and accounted for the allocation of the net proceeds(or an amount equal to the net proceeds).

•

JFM conducted inspections and examinations on projects which JFM has funded to ensure allocation of
net proceeds (or an amount equal to the net proceeds) to the Eligible Projects.

We maintain our area for improvement which consists in having an external verifier to review the tracking method
and the allocation of the proceeds.
Reporting
We express a reasonable assurance on the Issuer’s capacity to implement the reporting process, in linewith its initial commitments and with GBP 2018 requirements.
We express a reasonable assurance on the Issuer’s capacity to report on the fund allocation. The indicators
used for the fund allocation reporting are complete and relevant, at both Effective Portfolio and bond level, including:oList of projects financed by the Bond, with related description of each projectoTotal cost of financed Eligible Projects (in JPY)oAmounts allocated to Eligible projects (in JPY) and % of total cost of projects

We express a reasonable assurance on the Issuer’s capacity to report on environmental benefits of thefinanced Eligible Projects in line with its initial commitments.
Both the financial and environmental data have been efficiently monitored and verified

The issuer has committed to report annually until full allocation of the proceeds, and to make publicly accessible its
reports on the Issuer’s official website.
JFM’s reporting is publically available in its Green Bond Impact Report 2020.

The indicators proposed in the reporting to assess the environmental benefits (outputs, outcomes and impacts) arecomplete and relevant:Issuer’s reporting
Eligible subcategories ofProject

New Construction / Update of
Sewerage Management
Related Facilities

New Construction / Update ofFacility/Equipment

New Construction / Update of
Pipes

Output, Outcome and Impact Indicators−

Covered area population (nb. of inhabitants)−

Water Management Capacity (wastewater treated to appropriate
standards in m³ per month/year)−

Water Quality Impact (will confirm the treated water is compliant
with related laws and regulations in Japan)−

Other Positive Environmental Impact (If any)−

Covered area population (nb. of inhabitants)−

Absolute amount of sludges treated and disposed of (in tonnes ofdry solids per month/year) (if any).

−

Other Positive Environmental Impact (If any)−

Newly constructed pipe length (m) and/or Total Pipe length (m)−Covered area population (nb. of inhabitants)−

Other Positive Environmental Impact (If any)

In addition, the Issuer provides 4 cases studies related to 4 of its Eligible Projects.
The methodology calculation and assumptions have been transparently communicated in the Issuer’s reporting.
The reporting complies with the Issuer’s commitment to report in case of ESG controversy and in case of material
development.

We note that the reported results are aligned/above the estimated benefits presented in the initial SPO.
We maintain our areas for improvement to mandate an external verification of the data used to report on the environmental
benefits of the bonds.

METHODOLOGYIn Vigeo Eiris’ 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, Vigeo Eiris writes an opinion on the Issuer’s Corporate Social Responsibility as an organization, andon the Issuance through the objectives, management and reporting of the assets/projects to be (re)financed.
Vigeo Eiris’ methodology for the definition and assessment of the ESG performance is based on criteria alignedwith 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 business 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 andvalidation 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 Vigeo
Eiris’ Scientific Council. All collaborators are signatories of Vigeo Eiris’ Code of Conduct.

Eligible Projects review
The analysis of the conformance with the Issuer’s initial commitments covers both the eligibility criteria (based on
the definition of Eligible Projects 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 theannual reporting made after the issuance by JFM of its Green Bond (2020):-

Fund allocation, reporting on the use of proceeds, considered as a primary component and mandatory toachieve reasonable level of assurance at Bond level; andEnvironmental benefits, reporting on outputs, outcomes and impact indicators, considered as a primary
component and mandatory to achieve reasonable level of assurance at Bond level.

Bond review
The analysis of the implementation of the Bond processes and commitments covers:-

The evaluation and selection process, i.e. assessment of the coherence and efficiency of the implemented
process, and of the exhaustiveness of the ESG issues covered; andThe allocation of proceeds process, based on the rules for management of proceeds defined prior to theissuance of the Bond.

The analysis of the existence and completeness of the reporting, at Bond level, according to the Issuer’s initialcommitments, also covers two components:-

Fund allocation, reporting on the aggregated use of proceeds, considered as a primary component andmandatory to achieve a reasonable level of assurance at Bond level;
Social and environmental benefits, reporting on aggregated output and impact indicators, considered as a
primary component and mandatory to achieve a reasonable level of assurance at Bond level;

Reporting
The reporting indicators in place for the allocation of proceeds and for the sustainable benefits are evaluatedaccording to the quality of the indicators (exhaustiveness and relevance), and considering the reporting nature andmanagement (format, visibility, data collection, etc.).
The evaluation of the projects results is conducted at Bond level, including aggregated reporting, based on
environmental benefits, considered as essential to achieve a good performance.

VIGEO EIRIS’ ASSESSMENT SCALES
Performance evaluation

Level of assurance

Advanced

Advanced commitment; strong evidence ofcommand over the issues dedicated to achieving
the objective of social responsibility. Reasonablelevel of risk management and using innovative
methods to anticipate emerging risks.

Reasonable

Able to convincingly conform to theprescribed principles and objectivesof the evaluation framework

Good

Convincing
commitment;
significant
andconsistent evidence of command over the issues.
Reasonable level of risk management.

Moderate

Compatibility or partial convergencewith the prescribed principles andobjectivesoftheevaluation
framework

LimitedCommitment to the objective of social
responsibility has been initiated or partiallyachieved; fragmentary evidence of commandover the issues. Limited to weak level of risk
management.

Weak

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

Weak

Commitment to social responsibility is nontangible; no evidence of command over theissues. Level of insurance of risk management isweak to very weak.

Vigeo Eiris is an independent international provider of environmental, social andgovernance (ESG) research and services for investors and public & privateorganizations. We undertake risk assessments and evaluate the level of integration ofsustainability factors within the strategy and operations of organizations.
Vigeo Eiris offers a wide range of services: For investors: decision making support covering all sustainable and ethicalinvestment approaches (including ratings, databases, sector analyses, portfolio
analyses, structured products, indices and more).
 For companies & organizations: supporting the integration of ESG criteria
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corporate ratings, CSR evaluations and more).
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Our methodology is reviewed by an independent scientific council and all our
production processes, from information collection to service delivery, are documented
and audited. Vigeo Eiris has chosen to certify all its processes to the latest ISO 9001
standard. Vigeo Eiris is an approved verifier for CBI (Climate Bond Initiative). Vigeo
Eiris’ research is referenced in several international scientific publications.
With a team of more than 240 experts of 28 different nationalities, Vigeo Eiris ispresent in Paris, London, Brussels, Milan, Montreal, Hong Kong, Casablanca, Rabat
and Santiago.
The Vigeo Eiris Global Network, comprising 4 exclusive research partners, is present
in Brazil, Germany, Israel and Japan.

For more information: www.vigeo-eiris.com

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