SECOND PARTY OPINIONSUMITOMO MITSUI BANKING CORPORATION
TRANSITION FINANCE PLAYBOOK (UPDATEDON APRIL 2024)
Prepared by: DNV Business Assurance Japan K.K.
Location: Kobe, Japan
Date: 11 April 2024
Ref. Nr.: PRJN- 513786-2023-AST-JPN-01-Rev.1

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Table of Contents
Executive Summary

3

I. Introduction

11

II. Scope and Objectives

17

III. Responsibilities of SMBC and DNV

19IV. Basis of DNV’s Opinion

19

V. Work Undertaken

21

VI. Findings and DNV’s Opinion

22

Schedule-1. Transition Finance Eligibility Assessment Process as the Enabler (Produced based on the
Playbook)

40

Schedule-2. Eligibility Assessment Protocol for Transition Finance in the Format of Use of Proceeds
Instruments as the Enabler

41

Revision History
Revision
Number0

Date of Issue
15 May 2023

Remarks
First Edition
Upon annual revision of the Transition Finance Playbook, reassessed
eligibility against relevant principles, guidelines, etc., mainly with regard

1

11 April 2024

to:- Update (addition) of assessment labels: Clarification of criteria for the“Green” label and addition of the “Bright Yellow” label;- Addition of sectors to be assessed: Steel sector, automotive sector.

Disclaimer
Our assessment relies on the premise that the data and information provided by Fundraiser to us as part of our review procedures have been provided in good faith.
Because of the selected nature (sampling) and other inherent limitation of both procedures and systems of internal control, there remains the unavoidable risk that errors or
irregularities, possibly significant, may not have been detected. Limited depth of evidence gathering including inquiry and analytical procedures and limited sampling at
lower levels in the organization were applied as per scope of work. DNV expressly disclaims any liability or co-responsibility for any decision a person or an entity may makebased on this Statement.

Statement of Competence and Independence
DNV applies its own management standards and compliance policies for quality control, in accordance with ISO/IEC 17021:2011 - Conformity Assessment Requirements forbodies providing audit and certification of management systems, and accordingly maintains a comprehensive system of quality control, including documented policies andprocedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We have complied with the DNV Codeof Conduct1 during the assessment and maintain independence where required by relevant ethical requirements. This engagement work was carried out by an independent
team of sustainability assurance professionals. DNV was not involved in the preparation of statements or data included in the Framework except for this Statement. DNV
maintains complete impartiality toward stakeholders interviewed during the assessment process.

1 DNV Code of Conduct is available from DNV website (www.DNV.com)

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Executive Summary
Sumitomo Mitsui Banking Corporation (hereinafter referred to as “SMBC” or “Enabler1”) is acommercial bank under Sumitomo Mitsui Financial Group Inc. (“SMBC Group”), which
provides financial services in Japan and abroad.
SMBC Group is committed to achieving net zero GHG emissions across its entire investment
and loan portfolio by 2050, in addition to achieving net zero greenhouse gas (GHG) emissions
from its operations by 2030. Specifically, SMBC Group announced the “Roadmap Addressing
Climate Change” and the “Action Plan” in 2021 as action plans to address climate change toachieve carbon neutrality in 2050, and is taking progressive actions towards building adecarbonised society.
In this context, SMBC believes that, in addition to the financing of green activities such as
renewable energy that it has provided to date, it is necessary to support customers' business
transitions and GHG reductions from a financing perspective in order to make the transition
to decarbonization (“transition”). In order to promote transition finance as a financial
institution that provides funds for the transition of others that are contributing to theenvironment through their business (“Enabler”), SMBC has formulated the “Transition
Finance Playbook” in April 2023 as a document equivalent to a framework based oninternational frameworks.
<Revision of Transition Finance Playbook (April 2024)>
In April 2024, SMBC revised the Transition Finance Playbook and related documents to add
and expand the automobile and steel sectors to the existing target sectors (power and oil &gas) and to clarify green criteria in order to further promote transition finance as the Enabler.
(The revised Transition Finance Playbook is hereinafter referred to as the “Playbook.”)
The Playbook is structured as a comprehensive playbook that includes the elements required
for the execution of the following three types of finance by SMBC as the Enabler.
- Project Finance (hereinafter referred to as “PF”)- Finance in the format of General Corporate Purpose instruments (hereinafter referred toas “GCP”) *Finance with no specified use of proceeds- Finance in the format of Use of Proceeds instruments (hereinafter referred to as “UoP”)
DNV Business Assurance Japan K.K. (hereinafter referred to as “DNV”), as an external
reviewer, assessed the eligibility of the Playbook. Specifically, DNV applied and referred toframeworks (principles, guidelines, etc.) including the following and assessed the eligibility of
SMBC's plans and structures to appropriately evaluate and determine as the Enabler if theborrower’s projects and business activities eligible for the Climate Transition Finance(hereinafter referred to as “CTF”) would contribute to the realization of its transition
strategies.
- Climate Transition Finance Handbook (CTFH), International Capital Markets Association(ICMA), 2020.
- Basic Guidelines on Climate Transition Finance (CTFBG), Financial Services Agency, Ministryof Economy, Trade and Industry, Ministry of the Environment, 2021.

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- NZBA Transition Finance Guide (NZBA-TFG), United Nations Environment Programme Finance Initiative, 2022
- Financing Credible Transitions (White Paper) (CTFWP), Climate Bonds Initiative, 2020
- Green Loan Principles (GLP), Loan Market Association (LMA) et al, 2021
- Green Loan Guidelines (GLGLs), Ministry of the Environment, 2022
- Asia Transition Finance Guidelines (ATFG), ATF Study Group, 2022
The following is a summary of the assessment results for each common element set out inthe above frameworks.

Fundraiser(Issuer/Borrower)

Enabler

Creditor(e.g.Investors, Banks)
Loan, Bond(e.g.：Banks, Insurance
institution, Lease)(deposit, insurance)

Loan, Bond,
Lease(Business corporation, SPC)
Implementation of Transition Project*Edited extract from a METI material*1 Enabler: In this report, the Enabler is defined as the transition finance body (the entity that procures the funds,
including investments and loans) underlined below, as described in the relevant questions in the “Climate
Transition Finance Handbook” (ICMA)*1 and the “Basic Guidelines on Climate Transition Finance” (Financial
Services Agency, Ministry of Economy, Trade and Industry, Ministry of the Environment) *2.
"Financial institutions that finance (transition) projects" *1"Entities that plan to take initiatives that enable others to implement transition strategies
through their own products and services. In such cases of financial institutions, a financier
should articulate how the underlying projects or activities themselves fit into the fundraiser’s
strategy"*2
This report is to evaluate the eligibility of financial institutions’ plans and structures as Enablers to evaluatethat targeted transition projects and activities contribute to the realization of appropriate transition strategiesof the fundraiser.

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<Assessment Results of the Enabler’s CTF Eligibility Assessment Process for Borrowers>
Based on the related documents and information provided by SMBC, DNV has confirmed that
SMBC, as Enabler, has established the CTF Eligibility Assessment Process (the “Eligibility
Assessment Process”) as the Playbook for borrowers and that the Playbook is eligible.
The Eligibility Assessment Process based on the Playbook determines the eligibility of theinitiatives of transition finance borrowers according to the level of disclosure and efforts set by
SMBC for each element of the various CTF guidelines, etc. and has been prepared as SMBC’s
internal standard document and as ”Checklists.” It has been developed as an internal process for
SMBC to ultimately determine the eligibility of target project of transition finance. DNV assessedthat the Playbook, which refers to the NZBA-TFG and other globally benchmarked guidelines, iseffective from the perspective of SMBC’s providing transition finance based on a consistentprocess as a global financial institution. The Playbook also stipulates that it should be updated atleast once a year, so it is expected to function as a valid and up-to-date version at all times.
Furthermore, it is a feature of the Playbook that SMBC has developed detailed assessment
procedures and definitions in its “Internal Taxonomy” along with hundreds of categories oftarget assets, such as technology level classification, minimum standards, national and regional
standards, etc. This Internal Taxonomy has been explained in detail to DNV. DNV confirmed that
the Internal Taxonomy reflects the latest technologies and trends and that the assessment
procedures and definitions are appropriate for assessing transition projects.
In addition, the Playbook considers the following four key principles in executing transition
finance:- Do No Significant Harm
- Avoid Carbon Lock-in- Best Available Technology- Just Transition
Enabler CTF-1 to CTF-4 below outline the Eligibility Assessment Process for the four common
elements of the CTFH and CTFBG. Through its assessments for SMBC, DNV confirmed that the
Eligibility Assessment Process (Playbook) is not only aligned with the CTFH and CTFBG but also
refers to the NZBA-TFG, CTFWP and ATFG, and that the assessment procedures cover a wide
range of guidelines, etc. related to transition finance.

Enabler CTF-1. Borrower’s Climate Transition Strategy and Governance:
Climate transition strategy: Through the Playbook, SMBC confirms that the borrower’s
transition strategy is aligned with the goals of the Paris Agreement, taking into account
country/regional/industry specific roadmaps and that the borrower has specific plans which
are transparent with highly reliable and feasible targets. SMBC also considers the nonclimate environmental and social impacts of the borrower's implementation of the transition
strategy, as well as its contribution to the SDGs.
In the Playbook, SMBC assesses the eligibility of assets for various types of transition
finance by labelling them as “Green,” “Bright Yellow,” “Yellow,” “Red,” etc., based on
the Internal Taxonomy. As a result of the evaluation, assets are labelled as low-emission

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finance if they are classified as “Green,” emission reduction finance if they are classified as“Bright Yellow,” and transition finance if they are classified as “Yellow.” For more details,
please refer to the main text of this report.
Table-1: Definition of labels based on Internal Taxonomy
No.

Label

1

Green

2

BrightYellow

3

Yellow

4

Red

Description
Assets with zero or near zero GHG emissions→ Low-emission finance
Assets with zero or near zero GHG emissions attached to O&G upstream
assets→ Emission reduction finance
Assets aligned with 1.5°C target based on the consideration of industry andtimeline→ Transition finance
Assets that are not classified as either of the above Green, Bright Yellow or
Yellow(assets that are not aligned with the goals of the Paris Agreement)

Governance structure for achieving carbon neutrality: SMBC confirms how theborrower’s transition strategy is managed and implemented. If the borrower’s originallyplanned transition strategy is updated, whether due to external or internal factors, SMBC
and the borrower explain the changes and the reasons for them to stakeholders.

Enabler CTF-2. Business Model Environmental Materiality:
Environmental materiality: SMBC confirms that the borrower's climate change initiatives
contribute to the transformation of core business activities that are environmentally material
in terms of business characteristics, now and in the future of the borrower.
Climate change-related scenarios: SMBC confirms which climate change scenario theborrower's transition strategy is based on and, in the case of PF and UoP, confirms that they
are closely linked to the nominated projects and operations.

Enabler CTF-3. Climate Transition Strategy to be “Science-based” including Targets
and Pathways:
Scientific rationale: SMBC confirms that the targets and pathways quantified as absoluteor relative values set by the borrower are set by reference to the scientifically based
trajectories required to achieve the goals of the Paris Agreement. Individual assessments
may be carried out taking into consideration the strategy of the country or region in which
the project is implemented.
Consideration of key emissions scopes: SMBC confirms that the borrower's GHG
emissions reduction targets cover the GHG Protocol and are set by other appropriate
indicators, targets, etc., depending on country and region, business characteristics, andtimelines for technology development and reduction progress.

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Enabler CTF-4. Implementation Transparency:
Investment plan: SMBC confirms the overall investment plan for the realization of theborrower's transition strategy. If the timeline for realising the strategy is long or if theoverall investment plan is difficult to set due to external factors such as common technology
development, SMBC confirms the short-term investment plan, including the said project, tothe extent practicable.
Outcomes and impact: SMBC confirms that the climate-related and other outcomes andimpacts envisaged by the nominated projects for allocation or through the borrower’s entire
business activities are clearly demonstrated by the borrower (whether direct or indirect,
quantitative or qualitative).
Finance execution and management: When providing PF and UoP financing, SMBC
assesses in advance that the borrower has an appropriate process for managing andreporting its plans for allocating proceeds for transition projects and monitoring the postfinancing implementation status (e.g. allocation status and GHG reduction benefits) fromthe time of financing to the completion of allocation. It is also stipulated that SMBC confirms
the status of transition initiatives at least once a year during the loan period. In addition, inthe case of GCP, SMBC monitors the achievement status of the borrower's transition
strategy.

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<Eligibility Assessment Results of Transition Finance in the Format of Use of Proceeds
Instruments>
Based on the related documents and information provided by SMBC, DNV has identified thefollowing: TF-1 to TF-4 below are the findings and opinions of DNV against the four elements(see GLP/GLGLs) required for the management of PF and UoP.

TF-1. Use of Proceeds:
Project finance (PF): SMBC has established a PF decision-making process (evaluationflow) which evaluates the nominated assets for PF and the status of transition initiatives ofthe main sponsor*1 based on the Playbook and Internal Taxonomy.
Finance in the format of General Corporate Purpose instruments (GCP): SMBC hasestablished a GCP decision-making process (evaluation flow) which, based on the Playbook,evaluates the status of the borrower's transition initiatives and then sets one or more KPIs
to measure progress towards zero GHG emissions. The GCP does not require managementof the five elements required for transition-linked finance categorised as the CTF, and no
setting of finance characteristics or verification will be conducted using the trigger event(s)determination based on the setting or achievement of SPTs. The implementation of thetransition strategy based on the borrower’s business activities is considered as a “project”
and the achievement status of targets based on the implementation of the transition
strategy is monitored.
Therefore, while the process for GCP is not the same process for Use of Proceeds
instruments used in standard transition finance, DNV's overall assessment is that there is acertain degree of effectiveness in the way that the GCP supports the progress of theborrower's transition through financing and that it promotes the transition of the borrower
and the society as a whole by targeting a wide range of borrowers and projects.
Finance in the format of Use of Proceeds instruments (UoP): SMBC has established a
UoP decision-making process (evaluation flow), which evaluates the status of the borrower's
transition initiatives based on the Playbook and Internal Taxonomy.
Common: SMBC confirms that the decision-making process of each financing ultimately
complies with the “SMBC Group Environmental and Social Framework.”*2 Furthermore, in
addition to the credit assessment, the application for approval is submitted after a review ofreputation risk, financed emissions, transition risk, etc.
*1

Main Sponsor: It is stipulated in the Playbook that the “main sponsor” refers to the sponsor or group of sponsors,
either individually or collectively, with decision-making authority over the transition strategy, or is defined on a
consultation basis.

*2

SMBC Group Environmental and Social Framework
https://www.smfg.co.jp/english/sustainability/group_sustainability/esframework/

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TF-2. Process for Project Evaluation and Selection:-

SMBC has classified the transition finance to which it provides funds as the Enabler into 3
categories: (i) PF, (ii) GCP and (iii) UoP.

-

SMBC has established a decision-making process (evaluation flow) to ensure that thetarget to be financed meets CTF-1 to 4 and TF-1 to 4, respectively. This decision-making
process consists of three main common processes, and detailed processes are set
individually for each target. An overview of the three common processes is described
below.

-

Each of the three main common processes stipulates the involvement of SMBC's
Sustainability Division and relevant departments to ensure that appropriate decisions andassessment are made.

-In addition, if an eligibility assessment has already been conducted by a third-party
organization, SMBC may, after careful assessment of the third-party assessment, use theresults of such assessment as valid, as long as it does not violate the “SMBC Group
Environmental and Social Framework.”

Process 1: Asset criteria *PF and UoPLabel asset eligibility based on Internal Taxonomy.
”Green,” “Yellow,” “Bright Yellow,” “Red,” etc.
Process 2: Transition strategy criteria * All types of finance including the above and
GCPs

Assess the borrower's transition finance eligibility based on Enabler
CTF-1 to CTF-4. (in addition, “other criteria” are set for each of thefour target categories, which take exceptions into consideration andconduct more detailed process assessment).
Confirm the compliance with the “SMBC Group Environmental andSocial Framework”. *All types of finance
Process 3: Conduct a review of reputation risk, impact onfinanced emissions, credit risk, etc. in addition to
the credit assessment. *All types of financeComplete transition finance eligibility assessment* All types of finance(As necessary, the labelling of Process 1 may be changed or“Other” may be used if it is not included in any of these.)

TF-3. Management of Proceeds:
SMBC confirms through reports from the borrower (either through written submissions orinterviews) prior to the loan that there are procedures in place to ensure that the proceeds

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raised by the borrower through transition finance from SMBC are managed in accordancewith the borrower's internal processes.
For example, systems and forms are used to ensure the total amount of nominatedtransition projects is managed to be not less than the proceeds from transition finance(“allocated amount + cash and cash equivalents” ≧ “loan amount (drawn amount in thecase of a line of credit agreement)”). SMBC ensures that the amount equals to theunallocated proceeds is maintained in cash or cash equivalents until the proceeds havebeen allocated. Both are monitored by SMBC at least once a year until all loan amounts
have been allocated.

TF-4. Reporting:
Allocation status: SMBC requires borrowers to report to SMBC on the allocation statusof the proceeds until the full amount of the transition finance proceeds has been
allocated to the Transition Project. This includes the allocated amount, the balance of theunallocated amount and, if refinanced, the amount allocated for refinancing.
Environmental benefits: SMBC requires borrowers to report quantitatively or
qualitatively to SMBC on the transition project to which allocation has been started,
based on appropriate indicators, on the project’s overview, progress, and environmental
benefits (e.g., GHG emissions reduction benefits). The specific contents of the reporting
will be determined in consultation with the borrower for each individual financing.
Monitoring: During the financing period, SMBC monitors changes in, andimplementation of, the transition strategy of the main sponsor and the borrower may
cancel the status of transition finance (e.g., by removing the display) if necessary. Suchmonitoring is conducted once a year during the loan period and corrective actions may
be considered even after the end of the loan period.
Reporting: SMBC will report annually on the status of sustainable finance includingtransition finance and other initiatives in the TCFD report.

Through the assessment based on the Playbook revised in April 2024 and other related
documents and information provided by SMBC, DNV confirmed that the assessment
procedures refer to the NZBA-TFG, CTFWP and ATFG in addition to the standards required by
the relevant frameworks such as CTFH, CTFBG and GLP and GLGLs, and cover a wide rangeof guidelines related to transition finance, and that the Playbook for SMBC to executetransition finance as the Enabler is eligible.

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I. Introductioni.

About SMBCSMBC is a commercial bank under Sumitomo Mitsui Financial Group, Inc. (hereinafterreferred to as “SMBC Group”), which provides financial services in Japan and abroad.
SMBC conducts its business activities under the corporate philosophy that consists ofMission, Vision and Five Values.

Figure-1: SMBC's Corporate Philosophy (Mission, Vision and Five Values)ii.

SMBC's Sustainability Initiatives
SMBC Group reviewed its priority issues in April 2023 and set 10 goals, which are also
linked to the SDGs, as the direction it aims to take by solving five priority issues:“Environment,” “DE&I/Human rights,” “Poverty & Inequality,” “Declining Birthrate &Aging Population,” and “Japan’s Regrowth.”

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Relevant SDGs items

Figure-2: Relationship between priority issues (materiality) to be addressed by SMBC
Group and relevant SDGs items＊ The relevance to the SDGs is complementary to the execution of transition finance with reference to“Green, Social and Sustainability Bonds: A High-Level Mapping to the Sustainable Development Goals,”published by ICMA which sets out the Green Bond Principles and is not directly related to funding
objectives.

SMBC Group established the Sustainability Committee in July 2021 to strengthen the
Board of Directors’ oversight of sustainability initiatives, including responses to climatechange.
The Playbook newly formulated by SMBC as the Enabler to be used for transition
finance has been reviewed by the Sustainability Committee, an internal committee of
the Board of Directors, and approved by the Group Chief Sustainability Officer (CSuO)
who is responsible for planning and managing sustainability-related measures.

Figure-3.1: SMBC Group's Sustainability Management Structure

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Furthermore, in April 2022, to enhance its initiatives for sustainability, SMBC took thefollowing measures: 1. Organizational change to newly establish the “Sustainability
Division” and the “Environmental and Social Risk Management Department”; 2.
Revisions of rules and policies, 3. Launch of the “Sustainability Investment Fund”; and4. Setting of Scope 1 and 2 reduction targets.
For more information, please see SMBC’s website and news releases.
Enhancement of Initiatives for Sustainability (1 April 2022)
https://www.smbc.co.jp/news_e/pdf/e20220401_01.pdf

Figure-3.2: SMBC Group Enhancement of Initiatives for Sustainability(Example: 1. Organizational Change)

The Playbook is governed by governance processes including those shown above toensure consistency with industry practice and the latest science and technology. In
addition, the Playbook supplements existing lending policies and process. For example,
activities related to the construction of new coal-fired power plants, which SMBC
prohibited itself from financing, are not eligible for financing in all cases, not justtransition finance.

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iii. SMBC's Climate Change Initiatives
SMBC has been endorsing the TCFD since 2017. In the latest SMBC
Group 2022 TCFD report published in August 2022, SMBC clearly
explains SMBC Group’s climate change initiatives such as climatechange policy (including SMBC Group environmental policy),
governance, strategy, risk management, indicators and targets,
etc., and clearly expressed its intention to support customers’ efforts
towards transition and technological innovation in order to make thegreatest possible contribution to the realization of decarbonization.
For more information, please see SMBC’s website and news releases.
Response to climate change (Working on TCFD Recommendations)
https://www.smfg.co.jp/english/sustainability/materiality/environment/climate/2022 TCFD Reporthttps://www.smfg.co.jp/english/sustainability/materiality/environment/climate/pdf/tcfd_report_e_2022.pdf

iv. SMBC's Transition Plan
SMBC Group has developed the transition plan towards achieving net zero emissions.
SMBC Group formulated the “Roadmap Addressing Climate Change” and the “Action
Plan” in 2021 and has been accelerating efforts to secure resilience to climate change
and capture growth opportunities. Furthermore, in August 2022, SMBC Group updated
the “Roadmap Addressing Climate Change” as the “Transition Plan” and systematised aseries of goals and actions for SMBC Group to achieve net zero emissions.
In addition to achieving net zero greenhouse gas (GHG) emissions from SMBC Group’s
operations by 2030, SMBC Group is committed to achieving net zero GHG emissions
for its entire investment and loan portfolio by 2050.
As the Enabler, SMBC will support the business transformation and GHG emission
reductions of its borrowers through initiatives using transition finance, aiming for netzero emissions and encouraging their intentions.

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Figure-4: SMBC Group Transition Planv.

SMBC's Initiatives for SDGs
With the strong commitment of top management, SMBC Group aims to solve social issues
and realize the SDGs through its business operations in order to fulfil its mission as a
global financial group in addressing various social issues around the world.
Examples of SMBC's main ESG/SDG-related products and services are listed below.
-

Green Loan-

Sustainability Loan-

Social Loan-

Housing Loan for Environmentally
Friendly House (ZEH)-

Sustainability Linked Loan-

ESG/SDGs Promotion ＆ Analysis
Loans / Syndicated Loan-

Positive Impact Finance--

Environmental Promotion ＆ Analysis
Loan

Human Capital Management
Promotion ＆ Analysis Loan--

Food & Agriculture Promotion &Analysis Loan

Work Style Reform Promotion ＆Support Finance--

SDGs Promotion & Support Loans /Syndicated Loan

NADESHIKO Promotion & Support
Finance-Business Continuity Promotion &Analysis Loan
*Examples of products and services areexamples at the time of the assessment.

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vi. About the Transition Finance Playbook
SMBC has established the initial “Transition Finance Playbook” (hereinafter referred toas “Playbook”) in April 2023 as a document equivalent to a framework based oninternational frameworks to promote transition finance which enables borrowers tocontribute to the environment through their business activities, and revised in April
2024 to add and expand the automobile and steel sectors to the existing target
sectors (power and oil & gas) and to clarify green criteria in order to further promotetransition finance as the Enabler.
With the introduction of the Playbook, SMBC intends to contribute to the achievementof the following three things.
1. Improve the management of SMBC Financed Emissions*
2. Increase investment in and financing of transition activities
3. Support customer transitions and decarbonization strategies through interaction(engagement) with customers and advisory services
The Playbook is structured as a comprehensive document containing the elements
necessary for SMBC as the Enabler to execute transition finance and accompanied by
the Internal Taxonomy and Checklists as relevant materials.
The frameworks specifically referred to or applied by this Playbook is described in the“Standards/Guidelines to be Applied or Referenced” shown in Section II below.

* Financed Emissions (FE): SMBC recognizes that transition finance and FE are closely related andthat FE is expected to increase as transition finance is promoted. On the other hand, sincetransition finance contributes to GHG reduction in the real economy over the medium to long term,
SMBC believes that it needs to be promoted appropriately and has introduced an evaluation
process using internal taxonomy, including a playbook, as guidance for optimal management of FE
and portfolio.

Name of Enabler: Sumitomo Mitsui Banking Corporation
Name of Framework: SMBC Transition Finance Playbook
Name of External Reviewer: DNV Business Assurance Japan K.K.
Date of Report: 11 April 2024

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II. Scope and Objectives
DNV has been commissioned by SMBC to provide an eligibility assessment on the Playbook.
Our objective has been to implement an assessment on the adequacy of the eligibility
assessment process (decision-making process) with reference to CTFH/CTFBG, CTFWP and
ATFG for borrowers by SMBC as the Enabler and whether it is aligned with the GLP/GLGLs
and other relevant criteria or guidelines (see the table below) necessary for the execution
and management of individual finance, and to provide a second party opinion on theeligibility of the Playbook.
DNV, as an independent external reviewer, has identified no real or perceived conflict ofinterest associated with the delivery of this second party opinion for SMBC.
In this report, no assurance is provided regarding the financial performance of individualtransition finance, the value of any investments and loans, or the long-term environmental
benefits of the transaction.

(1) Scope of Review
The review assessed the following elements and confirmed their alignment with the gist of the four coreelements of GLP/GLGLs☒

Use of Proceeds☒

Process for Project Evaluation and Selection☒

Management of Proceeds☒

Reporting* The scope of review is to be applied as a part of the evaluation of the transition finance with use ofproceeds.
* The adequacy of the Enabler’s eligibility assessment process to assess the borrower’s alignment with
CTFH and CTFBG is included in the scope of review.

(2) Role(s) of Review Provider☒

Second Party Opinion☐

Certification☐

Verification☐

Rating☐Other (please specify):

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(3) Standards/Guidelines to be Applied or Referenced
Applicationlevel*4*5

No.

Standards/guidelines

Scheme owner

1.

Climate Transition FinanceHandbook (CTFH)*1

International Capital Markets Association(ICMA), 2020.

Refer

Basic Guidelines on Climate
Transition Finance (CTFBG)*1

Financial Services Agency, Ministry of
Economy, Trade and Industry, Ministry of
the Environment, 2021

Refer

2.

3.

NZBA Transition Finance Guide(NZBA-TFG)

United Nations Environment ProgrammeFinance Initiative (UNEP-FI), 2022.

Refer

4.

Financing Credible Transitions(White Paper) (CTFWP) *2

Climate Bonds Initiative, 2020.

Refer

5.

Green Loan Principles (GLP) *3

Loan Market Association (LMA) et al., 2021

Apply

6.

Green Loan Guidelines (GLGLs)*3

Ministry of the Environment, 2022

Apply

7.
*1

Asia Transition FinanceRefer
ATF Study Group, 2022
Guidelines (ATFG)
Climate transition: The concept of climate transition focuses principally on the credibility of anissuer(borrower)’s climate change-related commitments and practices. (Quoted from CTFH andCTFBG)*2

An internationally and widely recognised white paper that comprehensively describes several
industry-specific examples and the concept of transition finance at the organizational and projectlevel.

*3

It confirms compliance with the four core elements (use of proceeds, process for project evaluation andselection, management of proceeds, and reporting) that must be met when implementing as abond/loan that meets the four elements of transition and has a specific use of proceeds (Edited quotefrom CTFBG).

*4

Refer: Assessment of whether SMBC, as the Enabler, has an appropriate eligibility assessment process
for some of the applicable requirements of each principle and guideline element necessary whenassessing a borrower's initiatives for transition finance.

*5

Apply: Assessment of whether SMBC, as the Enabler, has eligibility or an eligibility assessment process
for all elements of each principle and guideline necessary when implementing transition finance.

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III. Responsibilities of SMBC and DNVSMBC has provided the information and data used by DNV during the delivery of this review;
DNV’s second party opinion represents an independent opinion and is intended to inform
SMBC and other interested stakeholders in the finance as to whether the established criteria
have been met, based on the information provided to us. In our work we have relied on theinformation and the facts presented to us by SMBC. DNV is not responsible for any aspect of
the nominated assets referred to in this opinion and cannot be held liable if estimates,
findings, opinions, or conclusions are incorrect. Thus, DNV shall not be held liable if any of
the information or data provided by SMBC’s management and used as a basis for thisassessment were not correct or complete.

IV. Basis of DNV’s Opinion
To provide a protocol as flexible as possible for SMBC, the Enabler, DNV has developed the
SMBC Transition Finance Eligibility Assessment Protocol (hereinafter referred to as“Protocol”) which incorporates the requirements of the CTFH/CTFBG and GLP/GLGLs as wellas the concepts presented in CTFWP and ATFG. Please refer to Schedule-2. The Protocol isapplicable to transition finance executed by SMBC as the Enabler based on CTFH/CTFBG and
GLP/GLGLs and with reference to CTFWP and ATFG.
DNV, as an independent external reviewer, provides second party opinion according to theProtocol.
Our Protocol includes a set of suitable criteria that can be used to underpin DNV’s opinion.
The overarching principle of climate transition finance behind the criteria is as follows:“provide investment opportunities necessary for climate transition finance to be executedwith transparency and credibility”
As per our Protocol, the criteria against which the Transition Finance has been reviewed aregrouped into common elements below, represented by CTFH/CTFBG and GLP/GLGLs.

(1) Borrower’s Transition Finance Eligibility Assessment as the Enabler(Four common elements of CTFH and CTFBG)
DNV reviews whether SMBC, as the Enabler, has an appropriate eligibility assessment
process for the following elements when assessing the borrower's transition financeinitiatives.
Principle One: Borrower's Climate Transition Strategy and Governance
The financing purpose should be for enabling a borrower’s climate change strategy.
Principle Two: Business Model Environmental Materiality
The planned climate transition trajectory should be relevant to the environmentallymaterial parts of the borrower’s business model.

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Principle Three: Climate Transition Strategy to be ‘Science-based’ including Targets
and Pathways
Borrower’s climate strategy should reference science-based targets and transition
pathways.
Principle Four: Implementation Transparency
Market communication in connection with the offer of a financing instrument which has
the aim of funding the borrower’s climate transition strategy should also provide
transparency of the underlying investment program.

(2) Eligibility Assessment for Transition Finance in the format of Use of Proceeds
Instrument (Four common elements of GLP and GLGLs)
Principle One: Use of Proceeds
The Use of Proceeds criteria are guided by the requirement that the enabler and/or aborrower should use the proceeds from transition finance in the format of Use ofProceeds instruments to finance eligible projects. The eligible projects are those thatprovide clear environmental benefits.
Principle Two: Process for Project Evaluation and Selection
The Project Evaluation and Selection criteria are guided by the requirements that theenabler and/or a borrower of transition finance should outline the process it follows
when determining eligibility of an investment for which proceeds from transition
finance will be used and outline how it takes into consideration the impact the projectwill make on its objectives.
Principle Three: Management of Proceeds
The Management of Proceeds criteria are guided by the requirements that a transition
finance should be tracked within the Enabler and/or the borrower, that separate
portfolios should be created when necessary and that a declaration of how unallocatedfunds will be handled should be made.
Principle Four: Reporting
The Reporting criteria are guided by the recommendation that the borrower shouldreport to the Enabler at least on how the proceeds have been allocated and provide asustainability report using quantitative or qualitative and appropriate performanceindicators, where feasible.

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V. Work Undertaken
Our work constituted a comprehensive review of the available information, based on theunderstanding that this information was provided to us by SMBC in good faith. We have not
performed an audit or other tests to check the veracity of the information provided to us.
The work undertaken to form our opinion included:i. Transition Finance Pre-funding Assessment•

Creation of the Enabler-specific Protocol, adapted to the purpose of the SMBC
Transition Finance, as described above and in Schedule-2 to this assessment;•

Assessment of documentary evidence provided by SMBC on the transition finance andsupplemental assessment by a comprehensive desktop research. These checks refer
to current assessment best practice and standard methodologies;•

Discussions with SMBC and review of relevant documentation;•

Documentation of findings against each element of the criteria;•

Where necessary, documentation of an eligibility assessment against the assessment
results of the borrower's transition finance executed by SMBC.

ii. Transition Finance Post-funding Assessment (*not included in this report)•

Interviews with SMBC and review of the relevant documentation;•

On-site visits and inspections (if necessary);•

Documentation of post-funding assessment results.

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VI. Findings and DNV’s Opinion
DNV's findings and opinions are as described below.
DNV reviewed whether SMBC, as the Enabler, has an appropriate eligibility assessment
process for the following elements when assessing the borrower's transition financeinitiatives.
The eligibility assessment process is established in the Playbook and is used to determine theeligibility of the initiatives of the transition finance borrower according to the level requiredfor disclosures and initiatives, set by SMBC for each element of various CTF guidelines andother frameworks. This process translates into SMBC’s internal standard documents, the“Checklists,” which are the basis to ultimately determine eligibility for transition finance.
DNV assessed that the Playbook, which refers to the NZBA-TFG and other globally
benchmarked guidelines, is effective from the perspective of SMBC’s making a transition
based on a consistent process as a global financial institution. The Playbook also stipulates
that it should be updated at least once a year, so it is expected to function as a valid and upto-date version at all times.
Furthermore, it is a feature of the Playbook that SMBC has developed detailed assessment
procedures and definitions in its “Internal Taxonomy” along with hundreds of categories oftarget assets, such as technology level classification, minimum standards, national andregional standards, etc.
In addition, the Playbook considers the following four key principles in executing transition
finance:-

Do No Significant Harm
Avoid Carbon Lock-in
Best Available Technology
Just Transition

The Enabler CTF-1 to CTF-4 below outline the Eligibility Assessment Process for the fourcommon elements of the CTFH and CTFBG. The Eligibility Assessment Processincorporates the procedures presented in the NZBA-TFG, CTFWP and ATFG.
Through its assessments for SMBC, DNV confirmed that the Eligibility Assessment Process(Playbook) is not only aligned with the CTFH and CTFBG but also refers to the NZBA-TFG,
CTFWP and ATFG, and that the assessment procedures cover a wide range of guidelines,
etc. related to transition finance.
An overview of the Eligibility Assessment Process for CTF and the transition finance in theformat of Use of Proceeds instruments is provided in TF-2 in VI (2).

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(1) Adequacy of Assessment Process as the Enabler and DNV’s Opinion against Four
Common Elements of CTFH and CTFBG
Enabler CTF-1. Borrower’s Climate Transition Strategy and Governance:-

Climate transition strategy:
Through the Playbook, SMBC confirms that the borrower’s transition strategy isaligned with the goals of the Paris Agreement, taking into account
country/regional/industry specific roadmaps and that the borrower has specificplans which are transparent with highly reliable and feasible targets. SMBC also
considers the non-climate environmental and social impacts of the borrower's
implementation of the transition strategy, as well as its contribution to the SDGs.

-

In the Playbook, SMBC assesses the eligibility of assets for various types oftransition finance by labelling them as “Green,” Yellow,” “Bright Yellow,”“Red,” etc., based on the Internal Taxonomy. As a result of the evaluation, assets
are labelled as low-emission finance if they are classified as “Green,” emission
reduction finance if they are classified as “Bright Yellow,” and transition finance ifthey are classified as “Yellow.” For more details, please refer to the main text of
this report.

-

Governance structure for achieving carbon neutrality: SMBC confirms how theborrower's transition strategy is managed and implemented. If the borrower's
originally planned transition strategy is updated, whether due to external orinternal factors, SMBC and the borrower will explain the changes and the reasonsfor them to stakeholders.

Table-1 (Reproduced): Definition of labels based on Internal Taxonomy
No.

Label

1

Green

2

BrightYellow

3

Yellow

4

Red

Description
Assets with zero or near zero GHG emissions→ Low-emission finance
Assets with zero or near zero GHG emissions attached to O&G upstream
assets→ Emission reduction finance
Assets aligned with 1.5°C target based on the consideration of industry andtimeline→ Transition finance
Assets that are not classified as either of the above Green, Bright Yellow or
Yellow(assets that are not aligned with the goals of the Paris Agreement)

Enabler CTF-2. Business Model Environmental Materiality:-

Environmental materiality: SMBC confirms that the borrower's climate change
initiatives contribute to the transformation of core business activities that areenvironmentally material in terms of business characteristics, now and in the futureof the borrower.

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-

Climate change-related scenarios: SMBC confirms which climate change scenario
the borrower's transition strategy is based on and, in the case of PF and UoP,
confirms that they are closely linked to the nominated projects and operations.

Enabler CTF-3. Climate Transition Strategy to be ‘Science-based’ including Targets
and Pathways:-

Scientific rationale: SMBC confirms that the targets and pathways quantified asabsolute or relative values set by the borrower are set by reference to thescientifically based trajectories required to achieve the goals of the Paris
Agreement. Individual assessments may be carried out taking into consideration
the strategy of the country or region in which the project is implemented.

-

Consideration of key emissions scopes: SMBC confirms that the borrower's
GHG emissions reduction targets cover the GHG Protocol and are set by otherappropriate indicators, targets, etc., depending on country and region, businesscharacteristics, and timelines for technology development and reduction progress.

Enabler CTF-4. Implementation Transparency:-

Investment plan: SMBC confirms the overall investment plan for the realizationof the borrower's transition strategy. If the timeline for realising the strategy islong or if the overall investment plan is difficult to set due to external factors suchas technology progress, SMBC confirms the short-term investment plan, including
the said project, to the extent practicable.

-

Outcomes and impact: SMBC confirms that the climate-related and other outcomes
and impacts envisaged by the nominated projects for allocation or through theborrower’s entire business activities are clearly demonstrated by the borrower(whether direct or indirect, quantitative or qualitative).

-

Finance execution and management: When providing PF and UoP financing,
SMBC assesses in advance that the borrower has an appropriate process for
managing and reporting its plans for allocating proceeds for transition projects andmonitoring the post-financing implementation status (e.g. allocation status and
GHG reduction benefits). It is also stipulated that SMBC confirms the execution
and management status of the loan at least once a year during the loan period
after the funding. In addition, in the case of GCP, SMBC monitors the achievement
status of the borrower's transition strategy.

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(2) Findings and DNV’s Opinion against Four Elements Required for the Managementof Transition Finance (TF) in the Format of Use of Proceeds Instruments (see
GLP/GLGLs)
TF-1. Use of Proceeds:-

Project finance (PF): SMBC has established a PF decision-making process(evaluation flow) which evaluates the nominated assets for PF and the status oftransition initiatives of the main sponsor*1 based on the Playbook.

-Finance in the format of General Corporate Purpose instruments (GCP):
SMBC has established a GCP decision-making process (evaluation flow) which,based on the Playbook, evaluates the status of the borrower's transition initiatives
and then sets one or more KPIs to measure progress towards net zero GHG
emissions. The GCP does not require management of the five elements required
for transition-linked finance categorised as the CTF, and no setting of financecharacteristics or verification will be conducted using the trigger event(s)determination based on the setting or achievement of SPTs. The implementationof the transition strategy based on the borrower’s business activities is considered
as a “project” and the achievement status of targets based on the implementationof the transition strategy is monitored.
Therefore, while the process for GCP is not the same process for Use of Proceeds
instruments used in standard transition finance, DNV's overall assessment is that
there is a certain degree of effectiveness in the way that the GCP supports the
progress of the borrower's transition through financing and that it promotes thetransition of the borrower and the society as a whole by targeting a wide range ofborrowers and projects.

-

Finance in the format of Use of Proceeds instruments (UoP): SMBC hasestablished a UoP decision-making process (evaluation flow), which assesses thestatus of the borrower's transition initiatives based on the Playbook and InternalTaxonomy.

-

Common: SMBC confirms that the decision-making process of each financing
ultimately complies with the “SMBC Group Environmental and Social
Framework.”*2 Furthermore, in addition to the credit assessment, the application
for approval is submitted after a review of reputation risk, 2025 financed
emissions, credit risk, etc.
*1

The “main sponsor” refers to the sponsor or group of sponsors, either individually or collectively,
with decision-making authority over the transition strategy, or is defined on a consultation basis.
Details are described in the Playbook.

*2

SMBC Group Environmental and Social Framework
https://www.smfg.co.jp/english/sustainability/group_sustainability/esframework/

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Table-2: SMBC Transition Finance Overall Requirements*See Figures 6.1 to 6.5 for details of each type of finance (Product Type in Table-2).

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TF-2. Process for Project Evaluation and Selection:-

SMBC has classified the transition finance for which it provides funds as the
Enabler into 3 categories: (i) PF, (ii) GCP and (iii) UoP.

-

SMBC has established a decision-making process (evaluation flow) to ensure thatthe target to be financed meets CTF-1 to 4 and TF-1 to 4, respectively. Thisdecision-making process consists of three main common processes, and detailed
processes are set individually for each target. An overview of the three common
processes is described below.

-

The three common processes stipulate the involvement of SMBC's Sustainability
Division and relevant departments for each step to ensure that appropriate
decisions and assessment are made.

-In addition, if an eligibility assessment has already been conducted by a thirdparty organization, SMBC may, after careful assessment of the third party
assessment, use the results of such assessment as valid, as long as it does not
violate the “SMBC Group Environmental and Social Framework”.

-

This process will be reviewed as appropriate to ensure the alignment with market
needs and the latest standards.

Process 1: Asset criteria *PF and UoPLabel asset eligibility based on Internal Taxonomy.
“Green,” “Yellow,” “Bright Yellow,” “Red,” etc.
Process 2: Transition strategy criteria * All types of finance including the above
and GCPs

Assess the borrower's transition finance eligibility based on
Enabler CTF-1 to CTF-4. (in addition, “other criteria” are set
for each of the four target categories, which take exceptions into
consideration and conduct more detailed process assessment).
Confirm the compliance with the “SMBC Group Environmental
and Social Framework”. *All types of finance
Process 3: Conduct a review of reputation risk, impact
on financed emissions, credit risk, etc. inaddition to the credit assessment. *All typesof financeComplete transition finance eligibility assessment* All types of finance(As necessary, the labelling of Process 1 may be changed or“Other” may be used if it is not included in any of these.)

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Evaluation and Selection *”Green” may be read as “Transition” and ”borrower” may be read as“Enabler,” as appropriate.
☒☒☒

Conforms to the borrower’s
achievement of environmental
contribution goals
The project is eligible for use ofproceeds by green bond andtransparency is ensured
The project is evaluated and selectedbased on the published standard
summary (green project withreferenceable criteria)☒

Documented process to determine thatprojects fit within defined categories☒

Documented process to identify andmanage potential ESG risks associatedwith the project
Other (please specify):☐

Information on Responsibilities and Accountability☒☐

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

Page 28 of 47

In-house assessment

Figure-6.1: SMBC Project Finance (PF) Decision-Making Process Overview(Flowchart produced based on the Playbook)*The details of (1) through (11) in the diagram are separately definedin SMBC’s internal procedures.

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Figure-6.2: SMBC General Corporate Finance (GCP) decision-making process(Flowchart produced based on the Playbook)*The details of (1) through (12) in the diagram are separately definedin SMBC’s internal procedures.

Page 30 of 47

Figure-6.3: SMBC Use-of-Proceeds (UoP) decision-making process for Utilities(Flowchart produced based on the Playbook)*The details of (1) through (12) in the diagram are separately
defined in internal SMBC procedures.

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Figure-6.4: SMBC Use-of-Proceeds (UoP) decision-making process for Oil & gas(Flowchart produced based on the Playbook)*The details of (1) through (12) in the diagram are separately
defined in internal SMBC procedures.

Page 32 of 47

Figure-6.5: SMBC Use-of-Proceeds (UoP) decision-making process for other sectors(Flowchart produced based on the Playbook).
*The details of (1) through (12) in the diagram are separately
defined in internal SMBC procedures.

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TF-3. Management of Proceeds:-

SMBC confirms through reports from the borrower (either through written
submissions or interviews) prior to the loan that there are procedures in place toensure that the proceeds raised by the borrower through transition finance fromSMBC are managed in accordance with the borrower's internal processes.

-

For example, systems and forms are used to ensure the total amount of
nominated transition projects is managed to be not less than the proceeds fromtransition finance (“allocated amount + cash and cash equivalents” ≥ “loanamount (drawn amount in the case of a line of credit agreement)”). SMBC
ensures that the amount equal to the unallocated proceeds is maintained in cash
or cash equivalents until the proceeds have been allocated.

-

Both are monitored by SMBC at least once a year until all loan amounts havebeen allocated.

Tracking of Proceeds:*”Green” may be read as “Transition” and “borrower” may be read as “Enabler,” as appropriate.
☒

Some or all of the proceeds by green finance that are planned to be allocated aresystematically distinguished or tracked by the borrower.

☐

Disclosure of intended types of temporary investment instruments for unallocated proceeds☒

Other (please specify): Unallocated proceeds are managed in cash or cash equivalents. The
proceeds are managed in the same way by the Enabler or the borrower.

Additional Disclosure:☐☒☐

Allocations to future investments
only
Allocation to individual
disbursements
Disclosure of portfolio balance of
unallocated proceeds☐

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

Other (please specify):☒

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TF-4. Reporting:-

Allocation status: SMBC requires borrowers to report to SMBC on the
allocation status of the proceeds until the full amount of the transition financeproceeds has been allocated to the Transition Project. This includes the
allocated amount, the balance of the unallocated amount and, if refinanced, theamount allocated for refinancing.

-

Environmental benefits: SMBC requires borrowers to report quantitatively or
qualitatively to SMBC on the transition project to which allocation has been
started, based on appropriate indicators, on the project’s overview, progress,and environmental benefits (e.g., GHG emissions reduction benefits). The
specific contents of the reporting will be determined in consultation with theborrower for each individual financing.

-

Monitoring: During the financing period, SMBC monitors changes in, andimplementation of, the transition strategy of the main sponsor and theborrower and may cancel the status of transition finance (e.g., by removing thedisplay) if necessary. Such monitoring is conducted once a year during the loan
period and corrective actions may be considered even after the end of the loan
period.

-Reporting: SMBC will report annually on the status of sustainable financeincluding transition finance and other initiatives in the TCFD report.

<Allocation Status>•

The allocated amount•The balance of unallocated proceeds•

Of the allocated amount, the amount or the share allocated for refinancing<Examples of Environmental Benefits>•

Project overview, progress, etc.

•

Annual GHG emission reductions (e.g., t-CO2e/year)

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Reporting on Allocation Status:*”Green” may be read as “Transition” and ”borrower” may be read as “Enabler,” as appropriate.
☒

Project-by-project☒

On a project portfolio basis☐

Linkage to individual bond(s)☒Other (please specify): To
be determined according to
the loan

Information reported:
Share of total investment amount☒

Allocated amounts☐

allocated by proceeds from Green
Finance☐

Other (please specify):

Frequency:☒

Annual☐Other (please specify):☐

Semi-annual

Impact Reporting (Environmental Benefit):☒

Project-by-project☒

On a project portfolio basis☐

Linkage to individual bond(s)☒Other (please specify): To be determinedaccording to the loanFrequency:☒

Annual☐Other (please specify):☐

Semi-annual

Information reported (expected/Post-funding Impact):☒

GHG Emissions/Savings☐

Energy savings☒

Other ESG indicators (please

To be determined according to the loan such as

specify):

project overview and progress

Means of Disclosure☒

Information published in financial report☐(Integrated Report)☐

Information published in sustainability
reportInformation published in ad hoc documents☒

Other (please specify): Reporting may
only be reported by the borrower to SMBC
or may be disclosed to the public throughthe borrower's website and/or Integrated
Report.

☐Reporting Reviewed (if yes, please specify which parts of the reporting are subject to external
review):

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(3)External Review

If SMBC considers it necessary to ensure the credibility and transparency that theindividual transition finance executed on the basis of the results of the Playbook
decision-making process (eligibility assessment results) as shown in TF-2 is appropriate
transition finance, SMBC may, through an external review, confirm that SMBC's eligibility
assessment has been appropriately completed (by obtaining a written statement ofeligibility from the external assessment body).

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Assessment Conclusion
On the basis of the Playbook and other relevant documentation and information provided
by SMBC, DNV has confirmed that the Playbook established by SMBC to further promote
and implement Transition Finance as the Enabler is an assessment procedure that
extensively covers the guidelines and other frameworks related to transition finance withreference to the criteria required by CTFH/CTFBG and GLP/GLGLs as well as NZBA-TFG,
CTFWP and ATFG. DNV has also confirmed that SMBC has a process in place to ensurethat it appropriately manages and reports on the borrower's management of proceeds
and reporting. In particular, DNV the Playbook, which refers to the NZBA-TFG and otherglobally benchmarked guidelines, is effective from the perspective of SMBC’s making atransition based on a consistent process as a global financial institution.
Based on the above, it is DNV’s opinion that the transition finance carried out by SMBC
as the Enabler is aligned with the definition and purpose of transition finance that is to“Provide investment opportunities necessary for climate transition finance to be executedwith transparency and credibility”.

DNV Business Assurance Japan K.K.
11 April 2024

Naoki Maeda

Jun Chokai

Managing Director/SCPA Vice President

Technical Reviewer

DNV Business Assurance Japan K.K.

DNV Business Assurance Japan K.K.

Masato Kanedome

Hisashi Hashimoto

Project Leader

Assessment Leader

DNV Business Assurance Japan K.K.

DNV Business Assurance Japan K.K.

Page 38 of 47

About DNVDriven by our purpose of safeguarding life, property and the environment, DNV enables organisations to advance the safety andsustainability of their business. Combining leading technical and operational expertise, risk methodology and in-depth industry knowledge,
we empower our customers’ decisions and actions with trust and confidence. We continuously invest in research and collaborative
innovation to provide customers and society with operational and technological foresight.
With our origins stretching back to 1864, our reach today is global. Operating in more than 100 countries, our 16,000 professionals are
dedicated to helping customers make the world safer, smarter and greener.
Disclaimer
Responsibilities of the Management of the Fundraiser and the Second-Party Opinion Providers, DNV : The management of Fundraiser has
provided the information and data used by DNV during the delivery of this review. Our statement represents an independent opinion and isintended to inform the Fundraiser management and other interested stakeholders in the Bond as to whether the established criteria havebeen met, based on the information provided to us. In our work we have relied on the information and the facts presented to us by theFundraiser. DNV is not responsible for any aspect of the nominated assets referred to in this opinion and cannot be held liable if estimates,
findings, opinions, or conclusions are incorrect. Thus, DNV shall not be held liable if any of the information or data provided by theFundraiser’s management and used as a basis for this assessment were not correct or complete

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Schedule-1. Transition Finance Eligibility Assessment Process as the Enabler (Produced based on the Playbook)
The table below shows the overall requirements for assessing a borrower's eligibility for transition finance in the Playbook established by SMBC to execute transition
finance as the Enabler. It includes the overall requirements for the three transition finance categories: (i) PF, (ii) GCP, and (iii) UoP. For (i) and (iii), apart fromthese overall requirements, a process has been developed to confirm that the financing proceeds meet the four elements required for management of transition
finance with a specific use of the proceeds.
In addition, DNV has confirmed that the Transition Finance Eligibility Assessment Process meets the criteria required in the relevant frameworks such as
CTFH/CTFBG and GLP/GLGLs, as well as the practical assessment steps for the Enabler as set out in the CTFWP and ATFG, and concluded that it is eligible.

Table: SMBC Transition finance Overall Requirements*See Figures 6.1 to 6.5 for details of each finance (Product Type in Table-2).

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Schedule-2. Eligibility Assessment Protocol for Transition Finance in the Format of Use of Proceeds
Instruments as the Enabler-

The following checklists (GLP-1 through GLP-4) are the DNV assessment protocol created for the eligibility assessment of the Playbook of SMBC as the Enabler
based on the requirements of the GLP and GLGLs. The “Confirmed documents” in the “Work Undertaken” column include the Enabler’s internal documents andare provided by SMBC to DNV as evidence for determining the eligibility.

-

Please note that, although the term GLP is used in Schedule-2 in accordance with the practice, this schedule includes the criteria and requirements to bereferred to in the case of financing that specifies the use of proceeds, such as transition projects in the case of transition finance that specifies the use ofproceeds (PF and UoP) based on CTFH and CTFBG. Therefore, the following checklists should be read in the context of transition finance as appropriate.

-Transition finance executed by SMBC as the Enabler also includes GCP. In the assessment of GCP, the implementation of the transition strategy based on the
borrower's business activities is considered as a "project". Therefore, the term “project” in the checklists should be read as “business activity”. The GCP does
not require management of the five elements required for transition-linked finance categorised as the CTF, and no setting of finance characteristics orverification will be conducted using the trigger event(s) determination based on the setting or achievement of SPTs.

GLP-1 Use of Proceeds
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

1aTypes of funds

The types of transition loan are classified
into one of the following types defined by
GLP.
・ (Standard) Transition Loan
・ Transition Revenue Loan
・ Transition Project Loan・ Other

Confirmed documents:- Playbook- Checklists

Through the assessment, DNV confirmed that the types oftransition loan are classified into the following categories.

Interviews withstakeholders

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The Transition Finance implemented by SMBC as the Enabler isclassified into “(Standard) Transition loans” and “Transition projectloans”.
While the GCP is included as "other," the GCP does not require
management of the five elements required for transition-linked
finance categorised as the CTF, and no setting of financecharacteristics or verification will be conducted using the trigger
event(s) determination based on the setting or achievement of
SPTs. The implementation of the transition strategy based on the
borrower’s business activities is considered as a “project” and theachievement status of targets based on the implementation of thetransition strategy is monitored.

Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

1b

Green/transition
Project Classification

The key to a transition loan is that theproceeds will be used for a transition
project, which should be properly stated in
the legal documents relating to thesecurity/loan.

Confirmed documents:- Playbook- Loan agreement

DNV confirmed that the transition finance is intended to be used tofinance a wide range of transition projects or GCP that focus on
the realization of the environmental goals and transition strategiesof the borrowers whose eligibility is assessed by SMBC as Enabler,
as described in the Playbook.

Interviews withstakeholders

Specifically, DNV assessed the transition finance (PF, GCP and
UoP) that meets SMBC's Transition Finance Eligibility Assessment
Procedures as set out in Schedule-1 and in the main text of thisreport (Table-2 and Figures- 6.1 to 6.3) where the entire amountof proceeds obtained through transition finance are allocated to
one or more transition projects. For GCP, see 1a.
Through the assessment, DNV concludes that the projects thathave been appropriately assessed as eligible in accordance with
the SMBC’s Playbook and internal process will truly deliverenvironmental benefits as transition-eligible projects. DNV also
concludes that the borrower is expected to contribute to thedecarbonization of society as a whole through their transition
initiatives by using the GCP on an appropriate timeline.
1c

Environmental
benefits

All transition projects to which the funds
are used should have clear environmental
benefits, the effects of which should beassessed by the borrower and, where
possible, quantitatively demonstrated.

Confirmed documents:- Playbook- Internal Taxonomy- Checklists
Interviews withstakeholders

Transition projects are those which contribute to decarbonizationthat have been evaluated by SMBC’s eligibility assessment
described in 1b as projects contributing to the goals based on the
borrower's transition strategy. The borrower is expected tocontribute to the decarbonization of society as a whole throughtheir transition initiatives by using the GCP on an appropriate
timeline. The environmental benefits of both the transition projects
and GCP are GHG emissions reduction, which are assessed either
quantitatively or qualitatively by SMBC or the borrower.
DNV confirmed that, in cases where confidentiality of informationor competitive considerations are required before the execution oftransition finance or before the start of project operations, only the

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Ref.

Criteria

Requirements

Work Undertaken

DNV Findings
evaluation method (calculation method) and items of theenvironmental benefits of the project will be disclosed, and thatindicators and GHG emission reductions according to projectcharacteristics will be evaluated and reported quantitatively or
qualitatively in annual reporting. (If it is difficult to assess
quantitative GHG emission reductions due to the projectcharacteristics, the project overview will be reported to the extent
practicable.) Reporting may be made to the public or to SMBC
only, or both.

1d

Refinancing rate

If all or part of the proceeds are used or
may be used for refinancing, the borrower
will indicate the estimated ratio of theinitial investment to the refinancing and, if
necessary. Therefore, it is recommended
to clarify which investment or project
portfolio is subject to refinancing.

Confirmed documents:- Playbook- Loan agreement
Interviews withstakeholders

SMBC confirms with the borrower whether the borrower plans to
use all of the proceeds for either new investment or refinancing, orboth, for one or more of the nominated projects that have been
determined to be eligible in the Eligibility Assessment Process
shown in Schedule-1.
If it is clear before the execution of the transition finance whether
the proceeds will be used for new investment or refinancing, suchinformation will be explained in the loan agreement or otherdocuments. If it is undecided, SMBC confirms with the borrowerthat the amount of the proceeds allocated for refinancing will be
disclosed through annual reporting.

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GLP-2 Process for Project Evaluation and Selection
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

2aProject selection
process

Green/transition finance borrowers should
provide an overview of the process ofqualifying projects for whichgreen/transition finance funding will be
used. This includes (but is not limited to):・ The process by which the borrower
determines that the project in questionis included in the business category ofa qualified green/transition project.
・ Creation of criteria for eligibility of
projects for which green/transition
finance funding will be used
・ Environmental sustainability goals

Confirmed documents:- Playbook- Checklists- Internal Taxonomy

DNV confirmed that SMBC has a process document for determining
the eligibility of projects for which the transition finance proceeds
will be used, and that the outline is clearly stated in the Playbook
and related documents.

Interviews withstakeholders

Furthermore, to consider any negative impacts associated with theimplementation of the project, SMBC and/or the borrower will
ensure compliance with national and local laws and regulations,conduct assessments based on the “SMBC Group Environmental
and Social Framework,” and make an application for approval after
screening in the course of operating the Playbook and InternalTaxonomy.
In addition, the Playbook states that the following four key
principles should be considered in executing transition finance:-

Do No Significant Harm
Avoid Carbon Lock-in
Best Available Technology
Just Transition

In addition to the above, all transition finance is subject to therequirement to comply with the “SMBC Group Environmental andSocial Framework.”
2b

Borrowers'
Environmental andSocial Governance
Framework

In addition to criteria and certifications,the information published by borrowers
regarding the green/transition financeprocess also considers the quality of
performance of the borrower's frameworkand environmental sustainability.

Confirmed documents:- Playbook- Checklists
Interviews withstakeholders

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When determining eligibility for transition finance for projects,
SMBC takes into consideration that, in addition to the borrowers'
transition plans being aligned with the CTF, the borrowers are incompliance with environmental laws, regulations, ordinances andrules regarding the projects for which proceeds are actually used.
SMBC also takes into consideration that environmental benefits

Ref.

Criteria

Requirements

Work Undertaken

DNV Findingssuch as GHG emission reductions are clear either throughout the
projects’ life cycle or in each process.
Through its assessment of the Enabler, DNV confirmed that SMBC
has a process to ensure that the transition projects implemented
by the borrower are consistent with the borrowers' transition
strategies, objectives and pathways.

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GLP-3 Management of Proceeds
Ref.

Criteria

3a

Tracking procedure-1

3b

3c

Tracking procedure-2

Temporary holding

Requirements

Work Undertaken

DNV Findings

The net proceeds from of green/transition
finance should be managed in subaccounts, included in sub-portfolio, or
otherwise tracked. It should also be
certified by the borrower in a formalinternal process related to the borrower's
investment and financing operations for
the Transition Project.

Confirmed documents:- Playbook- Operations manuals

Through its assessment of SMBC, DNV confirmed that SMBC
confirms that the proceeds from transition finance can be tracked
by the borrower's internal system and forms, and verify the actual
system and related documents in use. DNV confirmed that SMBC
confirms that the management status of the proceeds can beproven on this basis.

During the green/transition financeredemption period, the balance of funds
raised that is being tracked should be
adjusted at regular intervals to match theamount allocated to eligible projects
undertaken during that period.

Confirmed documents:- Playbook- Operations manuals

If no investment or payment has been
made in a qualified green/transition
project, the borrower should also informthe investor of the possible temporary
investment method for the balance of
unallocated proceeds.

Confirmed documents:- Playbook- Operations manuals

Interviews withstakeholders

Interviews withstakeholders

Interviews withstakeholders

Page 46 of 47

DNV confirmed that SMBC and the borrower plan to review thebalance of the proceeds at least once a year during the period
from the execution of the transition finance to repayment, using
internal system and forms described in 3a.

DNV confirmed that SMBC confirms that the borrower has amechanism for the sequential recognition of the balance of
unallocated proceeds based on the borrower’s internal system,
forms and related workflows. DNV also confirmed that SMBC
confirms through the explanatory materials from the borrower thatthe balance of unallocated proceeds is managed in cash or cash
equivalents.
DNV also confirmed that SMBC confirms the balance of unallocatedproceeds through the reporting from the borrower on the
allocation status of the proceeds.

GLP-4 Reporting
Ref.

Criteria

4aPeriodical Reporting

Requirements

Work Undertaken

DNV Findings

In addition to reporting on the use ofproceeds and the temporary investment of
unallocated proceeds, the issuer willconsider each project at least once a year
for projects to which the Green/transitionbond proceeds have been allocated, taking
into account the following: A list of eachproject should be provided.

Confirmed documents:- Playbook- Operations manuals

DNV confirmed that from the time of funding until the proceeds
are fully allocated, the borrower will annually report on transition
finance to SMBC or to the public and disclose the allocation status,
the projects to which the proceeds have been allocated, or
information on environmental benefits.

Interviews withstakeholders

For environmental benefits, DNV confirmed that any or all of thefollowing will be disclosed, so far as is within the scope of its dutyof confidentiality and so far as is reasonably practicable.
The reporting to SMBC or to the public will be disclosed in the
Integrated Report or on the website.

- Confidentiality and competitive
considerations- Outline of each project, expectedsustainable environmental and social
effects<Allocation Status>•
The allocated amount•The balance of unallocated proceeds•
Of the allocated amount, the amount or the share allocatedfor refinancing<Examples of Environmental Benefits>•
Project overview, progress, etc.
•
Annual GHG emission reductions (e.g. t-CO2 e/year)

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