DEVELOPMENT BANK OF
JAPAN INC.
SUSTAINABILITY BOND
FRAMEWORK OVERVIEW AND SECOND OPINION BY
SUSTAINALYTICS
September 1st, 2017www.sustainalytics.com
www.sustainalytics.com
Trisha Taneja (Toronto)

WakakoMizuta (Tokyo)www.sustainalytics.com

James Hawrylak (Tokyo)

Associate, Advisory Services

Advisor, Advisory Services

Director, Institutional Relations

trisha.taneja@sustainalytics.com

www.sustainalytics.com
wakako.mizuta@sustainalytics.com

james.hawrylak@sustainalytics.com(+1) 647 317 3695(+81) 3 4589 4886(+81) 3 4589 4886

www.sustainalytics.com

Manager,www.sustainalytics.com

Advisory Services (Toronto)© Sustainalytics 2017

TABLE OF CONTENTS
1. Introduction

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2. Overview of Issuer

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3. Framework overview
3.1 Use of Proceeds
3.2 Project Evaluation and Selection Process
3.3 Management of Proceeds
3.4 Reporting

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Sustainalytics’ Opinion
Section 1: Sustainalytics’ Opinion on the DBJ Sustainability Bond Framework
Section 2: Sustainability Performance of the Issuer
Section 3: Impact of Use of Proceeds
Conclusion

APPENDICES
Appendix 1A: Methodological details of Environmentally Rated Loan Programme (ERLP)
Appendix 1B: ERLP Assessment Topics
Appendix 2: Green Building Certification (GBC) ProgrammeAppendix 2B: GBC Assessment Topics
Appendix 3: GRESB ESG rating topics and methodology
Appendix 4: Sustainalytics’ assessment of the ERLP
Appendix 5: Sustainalytics’ Assessment of the GBC
Appendix 6: Green Bond/Green Bond Programme External Review Form

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SUSTAINALYTICS

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1. INTRODUCTION
Development Bank of Japan Inc. (“DBJ”) issued a Green Bond in 2014 and a Sustainability Bond in 2015
and 20161, and has developed an updated sustainability bond framework under which it is planning toissue a sustainability bond (the “DBJ Sustainability Bond”). DBJ has engaged Sustainalytics, subsequent to
the engagement in 2015, to provide a second-party opinion on its framework (the “DBJ Sustainability
Bond Framework”) and the framework’s environmental and, where relevant, social credentials. As partof this engagement, Sustainalytics held conversations with various members of DBJ’s management teamto understand the sustainability impact of their business processes and planned use of proceeds, as wellas management of proceeds and reporting aspects of the DBJ Sustainability Bond Framework.
Sustainalytics also reviewed relevant public documents and non-public information.
This document contains two sections: Framework Overview – summary of DBJ Sustainability Bond
Framework and Sustainalytics’ Opinion – an opinion on the framework.

2. OVERVIEW OF ISSUER
DBJ is a 100% government-owned policy-based financial institution headquartered in Tokyo, Japan. The
bank provides domestic and global financial services to its clients, operating across Japan, the U.S., Europe
and Asia. Throughout its history, DBJ has been devoted to regional development, environmental
conservation, basic social infrastructure, and the creation of technology and industry.
Japan Development Bank, the predecessor of DBJ, was established in 1951 to facilitate the reconstructionof Japan after the Second World War, specifically in relation to securing a sustainable energy industry.
Soon after, its activities expanded to include infrastructure development, both nationally andinternationally. During the 1970s and 1980s, as a result of growing social imbalance and increasing
concerns in relation to the stable supply of energy, Japan Development Bank focused its efforts on
decrease of the gap in standards of living, pollution control, and regional and urban developments. During
the late 80s and 90s Japan Development Bank continued to support improvements to social capital. In
1999, Japan Development Bank and Hokkaido Tohoku Development Finance Public Corporation merged
to form DBJ. DBJ has focused on three areas: community development, environmental conservation andsustainable societies, and the creation of new technologies and industries. In 2008, DBJ was establishedunder the Development Bank of Japan Inc. Act.
According to its business model, DBJ “works to resolve the issues its clients face by providing specialised
financial services involving integrated investments and loans.” It and its affiliates provide and integrate
the following services: Loans: Provision of medium- and long-term financing, as well as project financing and other formsof structured and/or subordinated financing.
 Investment: Provision of mezzanine and equity financing
1

DBJ Sustainability Bond, Development Bank of Japan
http://www.dbj.jp/en/ir/credit/sri/index2.html

3© Sustainalytics 2017Consulting/Advisory services: Arrangement of structured financing, provision of M&A advisory
services, applying DBJ’s industry research function and expertise in environmental and technology
evaluations.
Asset management services: Provision of investment opportunities and supporting services.

Beginning with the anti-pollution measures implemented in the late 1960’s and early 70’s, DBJ has
provided more than 3 trillion yen in investments and loans for environmental measures. Furthermore,
DBJ states that it has advanced its commitment on sustainability by issuing the inaugural green bond as
well as the first and second sustainability bond in 2014, 2015 and 2016, respectively.
According to the fourth medium-term management plan for the year ending 31 March 2018 through theyear ending 31 March 2020, DBJ also states that it plans to continue to issue a DBJ Sustainability Bond,
under the Policy on Sustainability, as it seeks to diversify its investor base, connect dedicated investor
demand with the part of its growing sustainable business, and contribute to the sustainable developmentof Japan and the world.

4© Sustainalytics 2017

3. FRAMEWORK OVERVIEW
For the purpose of issuing the DBJ Sustainability Bond, DBJ has developed the following DBJ Sustainability
Bond Framework, which addresses the four key pillars of the Green Bond Principles (“GBP”) and theSustainability Bond Guidelines: use of proceeds, project evaluation and selection process, managementof proceeds, and reporting.

3.1 Use of Proceeds
The proceeds of the DBJ Sustainability Bond will be allocated towards financing or refinancing projects
or businesses that meet the following eligibility criteria.

Eligibility Criteria
The net proceeds, or an amount equal to the net proceeds, of the issuance of the DBJ Sustainability Bonds
will be allocated, by way of various financial instruments, exclusively to finance or refinance, in whole orin part, existing and/or future projects or businesses which meet the following Eligibility Criteria (the “DBJ
Sustainability Bond Eligibility Criteria” and the financing(s) satisfying the DBJ Sustainability Bond Eligibility
Criteria is(are) defined as the “Eligible Financing(s)”:1. Loans to companies that are rated A, B or C under the DBJ Environmentally Rated Loan
Programme (“ERLP”)2.
2. Funds to finance or refinance buildings that are rated 3, 4 or 5 stars under the DBJ Green
Building Certification Programme (“GBC”)3 .
3. Funds to finance or refinance companies, buildings, real estate properties or REITs that have a‘Green Star’ rating under the Global Real Estate Sustainability Benchmark (GRESB) evaluation
framework.
4. Funds to finance or refinance renewable energy projects:
a. Financing or Refinancing construction and/or operation of solar, wind (onshore andoffshore), biomass, geothermal, run-of-river hydropower, and tidal and wave power
assets5. Funds to finance or refinance clean transportation projects or loans to companies exclusively
for use for clean transportation projects4:
a. Installation and/or maintenance of energy-efficient and/or electric trains2

http://www.dbj.jp/en/service/finance/enviro/index.html

3

http://www.dbj.jp/en/service/finance/g_building/index.html

4

DBJ confirms that in lending to companies, it is able to track use of loans from sustainability bond proceeds to ensure that the loans are directed
towards eligible clean transporation projects. DBJ also confirms that the amount of loans from sustainability bond proceeds will be equal to orless than the amount of CAPEX or OPEX spent by companies on eligible clean transportation projects.

5© Sustainalytics 2017b. (Re)construction, extension, maintenance, and/or upgrade of rail lines
c. (Re)construction, maintenance, operation and/or upgrade of railway systems and assets
d. Infrastructure and components which could help increase the transport capacity andimprove the efficient movement of people and freight
For methodological details of eligibility criteria, please see Appendices 1, 2 and 3.

Exclusionary Criteria
DBJ has developed a list of exclusionary criteria to be applied to the allocation of the proceeds from the
DBJ Sustainability Bond issuance. In this regard, DBJ commits to not knowingly allocating the net proceeds
for the financing of assets/projects/businesses included in the exclusionary criteria.
1. Businesses dedicated to the manufacture or retail sale and distribution of weapons and small
arms; or businesses dedicated to the production of products and services supporting the
manufacture or retail sale of weapons and small arms
2. Extraction, refining, or transportation of coal
3. Ownership or operation of dedicated gambling establishments/activities
4. Biomass plants designed primarily to consume food stocks
5. Large-scale hydropower dams

3.2

Project Evaluation and Selection Process

Application of Eligibility and Exclusionary Criteria in Project Selection
DBJ’s Treasury team is responsible for the selection of financial assets that meet the DBJ Sustainability
Bond Eligibility Criteria and for the allocation of the DBJ Sustainability Bond proceeds to the selectedfinancial assets. All financings and corresponding approved ratings (only applicable to the ERLP and GBC
programmes as well as the GRESB framework) are tracked in an internal management system. This allows
DBJ’s Treasury team to accurately identify and select the financial assets in accordance with the DBJ
Sustainability Bond Eligibility Criteria and allocate the DBJ Sustainability Bond proceeds appropriately.
These eligible assets/projects/businesses and the net proceeds, or an amount equal to the net proceeds,
allocated to them, are recorded and maintained in the internal management systems, which is used for
tracking and reporting purposes and appropriately updated from time to time.

Sustainability Objectives
DBJ has a mission "Applying financial expertise to design the future", and states that it has an aim of
conducting business in a manner which resolves the issues of its clients and the larger society and realizes
the sustainable development of Japan and the world5. In support of its mission, DBJ has developed ‘theLong Term Vision 2030’6 and further sets out the Fourth Medium-Term Management Plan for the three5

Corporate Philosophy, Development Bank of Japan
http://www.dbj.jp/en/co/info/philosophy.html and http://www.dbj.jp/co/info/philosophy.html
6Integrated Report 2017 (Japanese), Development Bank of Japan6

© Sustainalytics 2017

year period from FY 2017 throughout FY 2019, which aims to provide solutions for the issues of client andsociety, and makes efforts towards sustainable growth.
In line with its mission, under the Policy on Sustainability, DBJ pursues and implements sustainability
management.7 DBJ defines sustainability management as management directed at creating a sustainable
society and realizing economic and social value, while consistently improving the process of value creation
through communication with stakeholders. The Sustainability Committee discusses and considers thesustainable management undertaken by DBJ.
With an aim to achieve this sustainability goal, DBJ has aligned with UNEP (United Nations Environment
Programme) since signing up to the UNEP Statement by Financial Institutions on the Environment andSustainable Development in 2001. 8 Following the Policy on Sustainability and Environmental
Management9, DBJ, through its business activities including investment, lending, consulting/advisory andasset management, tackles environmental challenges with the promotion of global warming prevention,a recycling-oriented society and other activities, as well as gives consideration to social challenges suchas human rights, which are both associated with its clients, employees, financial markets, and investors.

Process to Mitigate Environmental and Social Risks
DBJ has the following processes that consider management of environmental and social risks in its
financing process: DBJ periodically monitors if borrowers comply with applicable regulations and laws (including
environmental laws), and if they obtain and maintain governmental permits, approvals, licenses
and authorizations. If a breach is expected to have a materially adverse effect, and not cured
within a grace period, DBJ is entitled to request prepayment subject to contractual
arrangements.
 In respect of asset/structured/project finance, in some cases, DBJ engages an independent
consultant to undertake due diligence on environmental and social aspects. If this is not thecase, DBJ assesses the capability and reliability of the borrower in relation to identifying andmanaging environmental and social risks.
 The Sustainability Committee, responsible for considering the incorporation of sustainability and
ESG insights into the DBJ’s usual business activities, discusses and considers the balance between
economic and social value (i.e. sustainability management), and maintains communications withstakeholders on this topic.

3.3 Management of Proceeds
The net proceeds, or an amount equal to the net proceeds, from the DBJ Sustainability Bond issuance will
be held and tracked in DBJ’s treasury until they are allocated to the eligible projects and/or businesses.
So long as the DBJ Sustainability Bond is outstanding, DBJ aims to allocate the net proceeds, or an amountequal to the net proceeds, of the DBJ Sustainability Bond towards the eligible projects and/or businesses.
http://www.dbj.jp/pdf/CSR_disclo/2017/01.pdf
7Article 2 of the DBJ Policy on Sustainability
8 http://www.dbj.jp/en/co/csr/responsibility/management.html
9

http://www.dbj.jp/en/co/csr/responsibility/management.html

7© Sustainalytics 2017

Unallocated proceeds will be held in cash and/or a money-market portfolio which will be tracked by DBJ
Treasury Department. DBJ has internal management systems to track the amount of funds allocated toeach of the Eligible Financings.

3.4 Reporting
DBJ will report annually on its website the following information until full allocation of the net proceeds,
or an amount equal to the net proceeds, from the DBJ Sustainability Bond issuance:
1. Allocation in aggregate to each eligibility criterion, and number of businesses/assets/projects
funded under each eligibility criterion
2. The estimate share of financing or refinancing
3. The amount of unallocated proceeds and the investments in which these proceeds are held
Furthermore, DBJ has committed to reporting on the following additional information and impact metrics,
where relevant:Type of Eligible Financings
ERLP

GBC

GRESB

Green Projects- Renewable Energy, andClean Transportation

Additional Information to be reported
 Certification vintage
 Distribution by sector
 Subject to confidentiality and clients’ prior consent, select project summaries
and key factors evaluated on specific green projects undertaken or
implemented by the clients
 Certification vintage
 Subject to confidentiality and clients’ prior consent, two or three case studies
of underlying green buildings funded by the relevant Sustainability Bond Certification vintage
 Subject to confidentiality and clients’ prior consent, two or three case studies
of underlying REITs and real estate properties funded with the relevant
Sustainability Bond Distribution by sub-sector and location
 Subject to confidentiality and clients’ prior consent, high-level description of
select projects
 Where feasible, quantitative assessment of expected positive environmental
impacts on an aggregate basis
 KPI: estimated carbon avoidance8© Sustainalytics 2017

4 SUSTAINALYTICS’ OPINION
Section 1: Sustainalytics’ Opinion on the DBJ Sustainability Bond Framework
Overall, Sustainalytics is of the opinion that the DBJ Sustainability Bond Framework creates meaningful
impact, is transparent, and aligns with the Green Bond Principles 2017 and the Sustainability Bond
Guidelines 2017. Some considerations in Sustainalytics’ assessment are listed below:
Renewable Energy and Clean Transportation are recognized by the 2017 Green Bond Principles
as project categories with clear environmental impact.
Sustainalytics has reviewed and provided an assessment of the ERLP, GBC, and GRESB programs,
and considers these ratings and the associated methodologies as a credible and robust
assessment of companies’ sustainability performance.
DBJ’s disclosure and processes with respect to management of proceeds and project selection
process are in line with market practices.
Sustainalytics encourages DBJ where possible to report on quantitative KPIs such as estimatedamount of CO2 avoided.

Alignment with Green Bond Principles 2017/Sustainability Bond Guidelines 2017
Sustainalytics recognizes that the DBJ Sustainability Bond is not exclusively project based, i.e. DBJ may
also allocate the net proceeds to finance lending and investment activities in companies. Sustainalytics
recognizes that (i) the Green Bond Principles and Sustainability Bond Guidelines prefer project based
lending, and that (ii) in general, there is lesser transparency associated with reporting on non-projectbased financing. However, DBJ has confirmed to Sustainalytics a commitment to disclosure andtransparency, and has also made a commitment, where and to the extent possible, to track projects(including without limitation capital expenditure, operation, maintenance and R&D) to which the net
proceeds, or an amount equal to the net proceeds, of the DBJ Sustainability Bond are (deemed to be)allocated, through their corporate lending and investment activities. Sustainalytics also recognizes that
DBJ is subject to confidentiality constraints when reporting on the DBJ Sustainability Bond. Taking into
account this constraint, their commitment and the nature of the relevant eligible projects/businesses,
Sustainalytics is of the opinion that the DBJ Sustainability Bond is transparent.
Based on Sustainalytics’ assessment of the ERLP, GBC, and GRESB programs, Sustainalytics is of theopinion that the DBJ Sustainability Bond creates impact in the context of particularly Japan as well as theworld, and contributes to DBJ’s sustainability strategy and objective.
While the DBJ Sustainability Bond is not exclusively project based, DBJ may allocate the net proceeds tofinance lending and investment activities to companies that meet well established impact criteria.
Sustainalytics considers the DBJ Sustainability Bond to be transparent and to create credible impact. In
this sense, Sustainalytics is of the opinion that the DBJ Sustainability Bond aligns with the Green Bond
Principles 2017, and the Sustainability Bond Guidelines 2017. For details please see Appendix 6.

9© Sustainalytics 2017

Sustainalytics’ Opinion on the strength of the ERLP, GBC, and GRESB programs
Sustainalytics is of the opinion that the ERLP methodology adequately assesses companies on the key
environmental issues and is effective in identifying the environmental leaders. For a detailed assessmentof the ERLP see Appendix 4.
Sustainalytics is of the opinion that by selecting buildings with 5, 4 or 3 stars of the GBC programme, DBJ
is allocating the net proceeds, or an amount equal to the net proceeds of the DBJ Sustainability Bond tothe buildings with top environmental performance in Japan. For a detailed assessment of the GBC see
Appendix 5.
Sustainalytics’ assessment of GRESB
Sustainalytics reviewed the GRESB Framework in detail and compared it with its own ESG rating
methodology to determine if the GRESB adequately evaluates real estate assets on key environmental
and sustainability metrics.
Sustainalytics considers the GRESB rating to be robust for the following reasons:• The methodology that GRESB employs considers issues similar to the Sustainalytics ESG rating
framework and green bond issuer assessment. A strong and typical ratings methodology rates
companies in the areas of commitment, disclosure, and performance. GRESB’s methodology
assesses companies in the abovementioned areas, under the broad themes of management andpolicy, and implementation and measurement.
 GRESB rates REITs, real estate property funds and developers on a score of 0-100. The rated are
divided into 4 rating categories, ‘Green Starter, ‘Green Walk’, ‘Green Talk’, and ‘Green Star’,
where the category of ‘Green Star’ represents the highest scoring (i.e. with a score of a minimumof 50 under the two themes of Management and Policy, and Implementation and Measurement).
 The ‘Green Star’ label not only identifies top performers, but also recognizes the rated entities for
integration of sustainability issues. Sustainalytics is of the opinion that such recognition
encourages further disclosure and improvement around performance of these sustainability
issues.
 This is validated by GRESB, which confirms that the average GRESB Score currently stands at 56,
as compared to 47 in 2014.10 GRESB has collected data to demonstrate that companies, realestate funds and REITs reporting to GRESB improve performance over time. For example, GRESB
states that entities reporting for 7 years outperform the global average by 12 points.
 While nature of data collection and submission is voluntary , GRESB verifies submitted data; GRESB assessment areas include market best practices like LEED certifications; The methodology and indicators are aligned with credible third-party norms like Global
Reporting Initiative (GRI) and PRI;
 GRESB collects and reports on data on key quantitative performance indicators, like total water
saved, and total amount of CO2 emissions mitigated.

10

https://api.gresb.com/results2015/results10© Sustainalytics 2017

Based on the above, Sustainalytics considers the GRESB rating meaningful and credible and that “GreenStar” rating appropriately identifies leaders in green/sustainable building horizon in Japan. By financing
only ‘Green Star’ rated REITs, companies or real estate funds DBJ is aligned with industry best practice.

Section 2: Sustainability Performance of the Issuer
DBJ has set clear sustainability commitments though its policies and management plan. DBJ’s
Sustainability policy emphasizes on:

identifying material sustainability issues in the relevant fields based on trends in government
policy as well as legislation and norms regarding ESG criteria in Japan and throughout the world11;
incorporating the recognition of the necessity for a sustainable society into its investing, lending,asset management and other business activities12; andencouraging and supporting, by way of financing activities (particularly via certification
programs 13 ) and academic research, the sustainable management 14 and the improved ESG
performance of its clients15,

Furthermore, DBJ develops the Fourth Medium-term Management Plan for the three-year period fromFY 2017 throughout FY 2019, which aims to contribute to the creation of a sustainable society. The planlays out the initiatives including the DBJ Environmentally Rated Loan and DBJ Green Building Certification
programmes, as well as the integrated financial services in infrastructure such as energy, transportation
and urban development, to further create both economic and social value.
As reflected above, DBJ has strong sustainability commitments for achieving a sustainable society while
outlining a sustainability strategy through its mission, policies, and management plan. Additionally, thePolicy on Sustainability and the current management plan clearly demonstrate its commitments oncontributing to positive environmental and social impacts into its stakeholders and society through its
financial services such as investment, lending and asset management. Sustainalytics is of opinion that the
DBJ Sustainability Bond Framework is aligned with the DBJ’s mission, the Policy on Sustainability as wellas the Fourth Medium-term Management Plan, and DBJ is well positioned to issue a sustainability bond.
Sustainalytics is of the opinion that the DBJ Sustainability Bond Framework is aligned with DBJ’ corporate
mission and sustainability and management strategies.

11

Policy on Sustainability, Development Bank of Japan
http://www.dbj.jp/en/co/csr/regular/index.html
12

Policy on Sustainability, Development Bank of Japan
http://www.dbj.jp/en/co/csr/regular/index.html
13

Certification Programs, Development Bank of Japan
http://www.dbj.jp/en/service/finance/rating/index.html
14

DBJ's Environmental Management, Develppment Bank of Japan
http://www.dbj.jp/en/co/csr/responsibility/management.html
15Integrated Report 2017 (Japanese), Development Bank of Japan
http://www.dbj.jp/pdf/CSR_disclo/2017/01.pdf

11© Sustainalytics 2017

Well positioned to address common environmental and social risks associated with the projects
DBJ’s management of environmental and social risks in its financing process is described in thisframework. Overall, Sustainalytics does not identify considerable environmental and social risk withrespect to lending to sustainably rated companies through the ERLP, GBC, and GRESB programs. Financing
construction of clean transportation and renewable energy can be associated with certain environmental
and social risks such as loss of biodiversity, pollution, and worker health and safety. Given the use ofproceeds, Sustainalytics is of the opinion that DBJ’s general process to consider environmental and social
factors in its financing process is sufficient.

Section 3: Impact of Use of Proceeds
Importance of green real estate in climate change mitigating in Japan
Japan has developed the Plan of Global Warming Countermeasures that sets the reduction targets ofgreenhouse gas (GHG) emission for medium and long term, in which the country is committed to reducing
26 % GHG emissions from 2013 level by 2030 in line with the Paris Agreement (as a medium term goal)
and further pursing 80% reduction by 2050 (as a long term goal)16. As the main policies and measures, theplan addresses the promotion of compliance of energy saving standards for new buildings, energy saving
renovation of existing buildings, and Zero Energy Buildings, as well as the intensive management of energy
by adopting building energy management system and energy saving diagnostics 17. These government
measures have led to an increases pressure for the buildings to be environmentally sustainable andspecially to contribute to the national anti-global warming plan and GHG reduction targets.
Given this context, Sustainalytics is of the opinion that financing sustainable buildings, real estate
properties and REITs will create meaningful environmental impact in an important area for Japan, and willcontribute to reduction of GHG emission targets in the country.
Alignment with/contribution to SDGs
The Sustainable Development Goals (SDGs) were set in September 2015 and form an agenda for achieving
sustainable development by the year 2030. The DBJ Sustainability Bond advances the following SDG goals
and targets:
Use of Proceeds
SDG
Category
DBJ Environmentally 13. Climate Action
Rated
Loan
Programme (ERLP)SDG target
13.3 Improve education, awareness-raising andhuman and institutional capacity on climatechange mitigation, adaptation, impact reductionand early warning

16

Cabinet Decision on the Plan for Global Warming Countermeasures, Ministry of Environment, Japan
https://www.env.go.jp/en/headline/2238.html
17

Overvoew of the Plan for Global Warming Countermeasures, Ministry of Environment, Japan
https://www.env.go.jp/press/files/en/676.pdf

12© Sustainalytics 2017

DBJ Green
Certification
Programme

Building 13. Climate Action

13.3 Improve education, awareness-raising andhuman and institutional capacity on climatechange mitigation, adaptation, impact reductionand early warning
Global Real Estate 13. Climate Action
13.3 Improve education, awareness-raising andSustainability
human and institutional capacity on climate
Benchmark (GRESB)
change mitigation, adaptation, impact reductionand early warning
Clean Transportation
9. Industry, Innovation 9.1 Develop quality, reliable, sustainable andand Infrastructure
resilient infrastructure, including regional andtransborder infrastructure, to support economic
development and human well-being, with a focus
on affordable and equitable access for all.
Renewable Energy
7. Affordable and Clean 7.2 By 2030, increase substantially the share of
Energyrenewable energy in the global energy mix.

Conclusion
While recognizing that the DBJ Sustainability Bond is not exclusively project based, i.e. DBJ may also
allocate the proceeds to finance lending and investment activities to companies, Sustainalytics considers
the bond to be transparent and to create credible impact. This assessment is based on: (i) DBJ’s statedcommitment to transparency and disclosure given the nature of the relevant eligible projects/businesses,
and its confidentiality constraints (ii) Sustainalytics’ assessment of DBJ’s processes with respect tomanagement of proceeds and project selection process as aligned with market practices, (iii)
Sustainalytics’ assessment of the ERLP, GBC and GRESB programmes as a credible and robust assessmentof companies’ sustainability performance and impact, and (iv) the contribution of the DBJ Sustainability
Bond to the organization’s sustainability strategy and objective. In this sense, Sustainalytics is of theopinion that the DBJ Sustainability Bond aligns with the Green Bond Principles 2017 and the Sustainability
Bond Guidelines 2017.

13© Sustainalytics 2017

APPENDICES
Appendix 1A: Methodological details of Environmentally Rated Loan
Programme (ERLP)The ERLP Rating Process follows three key steps.
Step 1: Preliminary Survey
 Clients are asked to fill in a preliminary survey sheet for negative screening.
Step 2: Full Assessment
 After the preliminary survey, DBJ will conduct its full assessment based on the research of public
information of the company’s environmental efforts (for example a CSR Report).
 DBJ will then interview clients to collect non-public information on their environmental efforts.
Step 3: Rating and Monitoring Ratings will be assigned according to the points scored in the assessment.
 Clients enter into a covenant to maintain the level of environmental effort until redemption of
the loan. If the covenant is breached, DBJ will review the rating.
 If such breach is not cured within a certain period specified in a loan agreement, resulting in the
borrower ceasing to be rated or the applicable rating to meet the Eligibility Criteria, thecorresponding loans will be removed from the allocation and replaced with other Eligible
Financings (not be limited to the ERLP).
The assessment undertaken by DBJ incorporates the following key areas:
1. General Management
2. Business Activities
3. Environmental Performance
The key areas are broken down into sub-sectors which are weighted for importance. DBJ provides loans
to companies rated A, B, C or D and excludes companies rated “None”. In addition, for the companies thatare rated A or B, DBJ provides a discount on loan interest rates (for companies rated C or D loans areoffered at regular rates). An overview of the assessment topics is provided in Appendix 1B.

14© Sustainalytics 201715

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Appendix 1B: ERLP Assessment Topics

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Appendix 2: Green Building Certification (GBC) Programme
As part of its financing activities, DBJ offers “Green Building Certification” (“GBC”), in order to support
its clients who own or operate real estate properties with high standards of environmental and socialfeatures. The certification is available for office buildings, logistics facilities, as well as retail facilities.
Since February 2014, following the partnership development, Japan Real Estate Institute and DBJ havejointly undertaken the certification assessment.
In order for buildings to be certified “green”, they must undergo an assessment by DBJ. This assessment
is intended to ensure that the construction takes into account environmental considerations.
Additionally, it ensures that the buildings take other responsible factors into account, including:• Disaster-prevention and anti-crime measures;• Tenants’ comfort and convenience;• Harmony with the surrounding environment;• Collaboration with stakeholders (including tenants and investors); and• Environmental Investor Relations activities.

Once a property has successfully received the certification, DBJ will support the financial needs for new
developments and refurbishments. Further details about the areas of assessment under GBC areprovided in Appendix 2A.
As a result of the assessment, properties may receive one of the following certifications:17© Sustainalytics 2017

Appendix 2B: GBC Assessment Topics

18© Sustainalytics 2017

Appendix 3: GRESB ESG rating topics and methodology
Global Real Estate Sustainability Benchmark (“GRESB”) is an industry-driven organization that assesses
the environmental, social and governance (ESG) performance of real assets and infrastructure globally.






ESG performance is assessed through a universal GRESB score assigned to all properties,
infrastructure, and funds covered by GRESB.
The GRESB score is based on a voluntary reporting assessment or survey. The content of theassessment is driven by what investors and the industry consider to be material issues in the ESG
performance of real assets.
The overall GRESB Score is assessed on two dimensions: Management & Policy and Implementation& Measurement. The combination of these two dimensions results in a final GRESB score.
The two dimensions are assessed through seven different aspects (see figure below)18
The GRESB rating has four rating categories/labels: Green Starter, Green Walk, Green Talk, and GreenStar. Green Star is the top performing category, and requires a minimum score of 50 for each of thetwo dimensions listed above.

Figure 1: Seven aspects of GRESB under the two dimensions of Management & Policy and Implementation & Measurement18

https://gresb.com/wp-content/uploads/2017/07/2016_Global_Snapshot.pdf

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Appendix 4: Sustainalytics’ assessment of the ERLPThe DBJ Environmentally Rated Loan Programme (“ERLP”): Sustainalytics reviewed the ERLP in detailand compared it with its own ESG rating methodology to determine if the ERLP adequately evaluatescompanies on key environmental aspects.
Sustainalytics reviewed the 15 assessment topics (see appendix 1A), all the indicators within theassessment items, evaluation criteria and the scoring to determine if these cover the wide range of topics
and assessment areas covered by Sustainalytics’ own ratings methodology. Key points from theassessment are below:
 Sustainalytics rates companies on 1) preparedness (commitment), 2) disclosure and 3)
performance (qualitative and quantitative) which are typical areas of assessment in most rating
methodologies. Although the questions in the ERLP framework are not explicitly grouped under
the above mentioned areas, they are adequately captured within each assessment item.
 The Environmental Performance area in the ERLP aims to capture detailed information onquantitative metrics such as energy use, GHG emissions, water, waste, and other resource use.
Sustainalytics views this as an area of strength in the ERLP methodology.
 The ERLP has different screening sheets for different types of companies such as manufacturing
companies, leasing companies, retail trading companies, transportation companies, logistics
companies and so on. This allows DBJ to carry out assessment relevant to a specific company
type.
 Rating companies on commitment, disclosure and performance needs to be complemented byassessing companies on major ESG events or controversies. DBJ, aims to capture major ESG risks
by asking companies to report such events as part of the rating and conducts its own research toidentify companies’ involvement in negative events.
Based on this assessment Sustainalytics is confident that the ERLP methodology adequately assesses
companies on the key environmental issues and is effective in identifying the environmental leaders.
Sustainalytics reviewed several companies that were rated as leaders by DBJ and found that they did nothave any major controversies.
The ERLP incentivizes companies to improve their environmental performance by providing discountedinterest rates for top-rated companies. In addition, companies with ratings lower than D are not eligible
for loans under the ERLP. Furthermore, DBJ updates the assessment criteria annually which could resultin higher thresholds, thereby making it difficult for a company to achieve the same rating without making
reasonable improvements the next time the companies borrow from DBJ. The fact that quite a few
companies that had previously received ratings and loans under the ERLP have returned to apply for loans
under ERLP programme, and qualified under a more stringent assessment indicates the programme has
contributed to improve environmental performance of the company. In this way, DBJ is encouraging its
borrowers to continually improve their environmental performance. In addition, by having a minimum
requirement for loan qualification and providing incentives for high performers, DBJ is providing a clear
signal to the market that environmental impact is a key consideration for its lending products.
Furthermore, the companies that receive high scores benefit from enhanced reputation among theirpeers.

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Appendix 5: Sustainalytics’ Assessment of the GBC
DBJ initiated its Green Building Certification (GBC) programme in 2011 and, as of March 2017, has certified
227 office buildings, 77 logistics facilities, 55 commercial facilities and 35 residential facilities. GBC is acertification that is independent from DBJ’s loan, therefore, the GBC rating does not affect terms of theloan. However, only those loans that receive 3 stars or above will qualify as the Eligible Financings in the
DBJ Sustainability Bond Framework.
In FY 2010, DBJ assessed a sample of Japan’s REIT buildings (about 100 buildings) and the assessment
resulted in about 50% of the stock akin to 2-star GBC-rated buildings and most of the highly rated buildings(as defined by other 3rd party agencies) were similar to 3-star GBC-rated buildings. This indicates thatJapan REIT buildings with 4 or 5 stars under GBC programme have higher environmental performance
than most buildings in Japan that receive top ratings from 3rd party agencies.
Therefore, by selecting buildings with 5, 4 or 3 stars, DBJ is allocating the net proceeds, or an amountequal to the net proceeds of the DBJ Sustainability Bond to the buildings with top environmental
performance in Japan.
With the GBC, DBJ rates buildings based on improvements in energy efficiency, natural resource use,sourcing of renewable energy and third-party certification (LEED, BREEAM etc.), in addition to such otherfactors as amenities, risk management, community and partnership. According to DBJ, the interest in its
GBC has increased over the years as property owners value the GBC as a way to differentiate theirbuildings from other buildings. Given this interest, DBJ has expanded the GBC to cover office buildings,
retail and logistic facilities. Going forward, DBJ aims to foster a correlation between a building’s GBC
ratings and its economic value, creating a market in which green buildings are valued appropriately. In
addition, the GBC scoring sheet/model is revised annually, and in this way, the asset owners willing tomaintain the rating level assigned on their assets are encouraged to increase their environmental efforts
and improve environmental performance.
By selecting A, B or C rated companies under ERLP and buildings that are rated 5, 4 or 3 stars under GBC
programme, DBJ is using allocating the net proceeds, or an amount equal to the net proceeds of the DBJ
Sustainability Bond issuance to fund companies/buildings that provide the highest positive sustainability
impact.

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Appendix 6: Green Bond/Green Bond Programme External Review Form

Green Bond / Green Bond Programme
External Review Form
Section 1. Basic Information
Issuer name: Development Bank of Japan Inc.
Green Bond ISIN or Issuer Green Bond Framework Name, if applicable:
Review provider’s name: Sustainalytics
Completion date of this form: August 29th, 2017
Publication date of review publication:

Section 2. Review overview
SCOPE OF REVIEWThe review assessed the following elements and confirmed their alignment with the GBPs:☒☒

Use of Proceeds
Management of Proceeds

ROLE(S) OF REVIEW PROVIDER☒☒

Process for Project Evaluation and Selection
Reporting☒Consultancy (incl. 2nd opinion)☐

Certification☐

Verification☐

Rating☐Other (please specify):

EXECUTIVE SUMMARY OF REVIEW and/or LINK TO FULL REVIEW (if applicable)
Please refer to DBJ Sustainability Bond Framework and Second Opinion Document above.

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Section 3. Detailed review
1. USE OF PROCEEDS
Overall comment on section (if applicable):
Proceeds will be allocated to finance or refinance projects or businesses that meet the following
eligibility criteria:
1. Loans to companies that are rated A, B or C under the DBJ Environmentally Rated Loan Programme(ERLP).
2. Funds to finance or refinance buildings that are rated 3, 4 or 5 stars under the DBJ Green Building
Certification Programme.
3. Funds to finance or refinance companies, buildings, real estate properties or REITs that have a ‘GreenStar’ rating under the Global Real Estate Sustainability Benchmark (GRESB) evaluation framework.
4. Funds to finance or refinance renewable energy projects:
a. Financing or Refinancing construction and/or operation of solar, wind (onshore and offshore),biomass, geothermal, run-of-river hydropower, and tidal and wave power assets
5. Funds to finance or refinance clean transportation projects or loans to companies exclusively for use
for clean transportation projects:
a. Installation and/or maintenance of energy-efficient and/or electric trainsb. (Re)construction, extension, maintenance, and/or upgrade of rail lines
c. (Re)construction, maintenance, operation and/or upgrade of railway systems and assets
Please see full framework for all details.
Sustainalytics is of the opinion that clean transportation and renewable energy are recognized as clearly
impactful categories by the Green Bond Principles 2017, and that the ERLP, GBC, and GRESB ratings arerobust ratings that create credible impact.

Use of proceeds categories as per GBP:☒

Renewable energy☐

Energy efficiency☐

Pollution prevention and control☐

Sustainable management of living
natural resources☐

Terrestrial and aquatic biodiversity
conservation☒

Clean transportation☐

Sustainable water management☐

Climate change adaptation23© Sustainalytics 2017☐☐☒

Eco-efficient products, production
technologies and processes

Other (please specify): sustainable buildings
and green real estate

Unknown at issuance but currently expected
to conform with GBP categories, or othereligible areas not yet stated in GBPs

If applicable please specify the environmental taxonomy, if other than GBPs:

2. PROCESS FOR PROJECT EVALUATION AND SELECTION
Overall comment on section (if applicable):
DBJ’s Treasury team is responsible for the selection of financial assets that meet the DBJ Sustainability
Bond Eligibility Criteria and for the allocation of the DBJ Sustainability Bond proceeds to the selectedfinancial assets. All financings and corresponding approved ratings (only applicable to the ERLP and GBC
programmes as well as the GRESB framework) are tracked in an internal management system. This is inline with market practice.

Evaluation and selection☒☒

Defined and transparent criteria for
projects eligible for Green Bond
proceeds
Summary criteria for project evaluationand selection publicly available☒

Documented process to determine thatprojects fit within defined categories☐

Other (please specify):

Information on Responsibilities and Accountability☒☐

Evaluation / Selection criteria subject toexternal advice or verification
Other (please specify):☐

In-house assessment

3. MANAGEMENT OF PROCEEDS
Overall comment on section (if applicable):
The net proceeds, or an amount equal to the net proceeds, from the DBJ Sustainability Bond issuance will
be held and tracked in DBJ’s treasury until they are allocated to the eligible projects and/or businesses.
So long as the Sustainability Bond is outstanding, DBJ aims to allocate the net proceeds, or an amountequal to the net proceeds, of the DBJ Sustainability Bond towards the eligible projects and/or businesses.
Unallocated proceeds will be held in cash and/or a money-market portfolio which will be tracked by DBJ
Treasury Department. This process is in line with market practice.

24© Sustainalytics 2017

Tracking of proceeds:☒

Green Bond proceeds segregated or tracked by the issuer in a systematic manner☒Disclosure of intended types of temporary investment instruments for unallocated proceeds☐

Other (please specify):

Additional disclosure:☐

Allocations to future investments only☒☒

Allocation to individual disbursements☒

Allocations to both existing and future
investments
Allocation to a portfolio of disbursements☒

Disclosure of portfolio balance of
unallocated proceeds☐

Other (please specify):

4. REPORTING
Overall comment on section (if applicable):
DBJ will report annually on its website until full allocation of the net proceeds, or an amount equal to
the net proceeds of the DBJ Sustainability Bond issuance:
1. Allocation in aggregate to each eligibility criterion, and number of businesses/assets/projects funded
under each eligibility criterion
2. The estimate share of financing or re-financing
3. The amount of unallocated proceeds and the investments in which these proceeds are held
DBJ has also committed to reporting on impact metrics, a full list of which can be found in theframework. Overall, the reporting is aligned with market practice and ensures transparency, andSustainalytics encourages DBJ to report on quantitative KPIs and metrics wherever possible.

Use of proceeds reporting:☐

Project-by-project☒

On a project portfolio basis☐

Linkage to individual bond(s)☐Other (please specify):☐

GB financed share of total investment☐

Semi-annual

Information reported:☒ Allocated amounts☐ Other (please specify):

Frequency:☒ Annual☐ Other (please specify):25

© Sustainalytics 2017

Impact reporting:☐

Project-by-project☒

On a project portfolio basis☐

Linkage to individual bond(s)☐Other (please specify):☐

Semi-annual☐

Energy Savings☐

Information published in sustainability report

Frequency:☒ Annual☐ Other (please specify):

Information reported (expected or ex-post):☒ GHG Emissions / Savings☐ Other ESG indicators (please specify):

Means of Disclosure☐

Information published in financial report☐☒ Other (please specify): Website
Information published in ad hoc
documents
Reporting reviewed (if yes, please specify which parts of the reporting are subject to external review):☐

Where appropriate, please specify name and date of publication in the useful links section.

USEFUL LINKS (e.g. to review provider methodology or credentials, to issuer’s documentation, etc.)
http://www.dbj.jp/en/
http://www.dbj.jp/en/co/info/outline.html

SPECIFY OTHER EXTERNAL REVIEWS AVAILABLE, IF APPROPRIATE
Type(s) of Review provided:☐

Consultancy (incl. 2nd opinion)☐

Certification☐

Verification / Audit☐

Rating☐Other (please specify):

Review provider(s):Date of publication:26

© Sustainalytics 2017

ABOUT ROLE(S) OF REVIEW PROVIDERS AS DEFINED BY THE GBP(i)
Consultant Review: An issuer can seek advice from consultants and/or institutions with recognizedexpertise in environmental sustainability or other aspects of the issuance of a Green Bond, suchas the establishment/review of an issuer’s Green Bond framework. “Second opinions” may fall
into this category.

(ii)

Verification: An issuer can have its Green Bond, associated Green Bond framework, or underlying
assets independently verified by qualified parties, such as auditors. In contrast to certification,verification may focus on alignment with internal standards or claims made by the issuer.
Evaluation of the environmentally sustainable features of underlying assets may be termed
verification and may reference external criteria.

(iii)

Certification: An issuer can have its Green Bond or associated Green Bond framework or Use ofProceeds certified against an external green assessment standard. An assessment standard
defines criteria, and alignment with such criteria is tested by qualified third parties / certifiers.

(iv)

Rating: An issuer can have its Green Bond or associated Green Bond framework rated by qualified
third parties, such as specialised research providers or rating agencies. Green Bond ratings are
separate from an issuer’s ESG rating as they typically apply to individual securities or Green Bondframeworks / programmes.

Disclaimer
All rights reserved. No part of this second party opinion (the “Opinion”) may be reproduced, transmitted
or published in any form or by any means without the prior written permission of Sustainalytics.
The Opinion was drawn up with the aim to explain why the analyzed bond is considered sustainable andresponsible. Consequently, this Opinion is for information purposes only and Sustainalytics will not
accept any form of liability for the substance of the opinion and/or any liability for damage arising fromthe use of this Opinion and/or the information provided in it.
As the Opinion is based on information made available by the client, Sustainalytics does not warrant thatthe information presented in this Opinion is complete, accurate or up to date.
Nothing contained in this Opinion shall be construed as to make a representation or warranty, express or
implied, regarding the advisability to invest in or include companies in investable universes and/or
portfolios. Furthermore, this Opinion shall in no event be interpreted and construed as an assessment of
the economic performance and credit worthiness of the bond, nor to have focused on the effective
allocation of the funds’ use of proceeds.
The client is fully responsible for certifying and ensuring its commitments` compliance, implementationand monitoring.

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SUSTAINALYTICS
Sustainalytics is an independent ESG and corporate governance research, ratings and analysis firm
supporting investors around the world with the development and implementation of responsible
investment strategies. With 13 offices globally, Sustainalytics partners with institutional investors who
integrate environmental, social and governance information and assessments into their investment
processes. Today, the firm has more than 300 staff members, including 170 analysts with varied
multidisciplinary expertise of more than 40 sectors. Through the IRRI survey, investors selectedSustainalytics as the best independent responsible investment research firm for three consecutive years,
2012 through 2014 and in 2015, Sustainalytics was named among the top three firms for both ESG and
Corporate Governance research. The firm was also named the Best SRI or Green Bond Research Firm by
Global Capital in 2015. For more information, visit www.sustainalytics.com
Sustainalytics
info@sustainalytics.com
www.sustainalytics.com

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