Hitachi Zosen Corporation
Green Waste-to-Energy Project

DNV GL GREEN BOND PERIODIC REVIEW(#2)

Sep. 2020
DNV GL Business Assurance Japan K.K.

Issue Log

Description

August 31 , 2018

Second Party Opinion – Green bond eligibility pre-issue assessment reportAugust 21st, 2019

Green Bond Periodic Reviewst

Sep 30th, 2020
(This Issue)

Green Bond Periodic Review (#2)
-Use of Proceeds:Proceeds from the green bond (total 5.0b-JPY) has been fully
allocated to the eligible green project, as scheduled.
-Project Progress:Project of Kyoto City Government, commercial operation stated on
Sep. 2019
Project Kikuchi, Environmental Preservation Association, under construction
as scheduled. , commercial operation is planned from Mar. 2021
-Environmental Contribution:CO2 emission reduction result will be published in the Hitz website intimely manner or annual report on FY2021

DNV GL Business Assurance Australia Pty. Ltd. Level 4, 181 Miller Street, North Sydney, NSW Australia, 2060. Ph: +61 (2) 9922 1966 https://www.dnvgl.com/assurance/

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Scope and Objectives
On September 21, 2018, Hitachi Zosen Corporation (hereinafter “Hitz” or “Issuer”) issued Hitachi Zosen
Green Bonds (hereinafter “BOND”). The issuance value for the BOND is five billion Japanese yen. DNV GL
Business Assurance Japan Co., Ltd. (hereinafter referred to as “DNV GL”) conducted a green bond eligibility
assessment by using the Green Bond Guidelines (the Ministry of the Environment (Japan), 2017) and theGreen Bond Principles 2018 (hereinafter “GBP”).
Hitz has used the proceeds of the BOND to finance the nominated projects and assets falling under thefollowing categories:“Pollution prevention and control” (energy/emission-efficient Waste to Energy)-

Table-1 shows the nominated projects. The nominated projects are two Waste to Energy plants.
One has been installed in a facility of Kyoto City Government (Fushimi-ku, Kyoto City), and theother has been installed in a facility of Kikuchi Environmental Preservation Association (Koshi City,
Kumamoto Prefecture).

-

The project of Kyoto City Government has started commercial operation on September 2019. Photo1 shows the external view of the project.

-

The project of Kikuchi Environmental Preservation Association, the civil engineering work has been
started in February 2019 as scheduled. There is no change in the plan of completion date(estimated in March 2021), as of July 2020. Photo-2 shows the external view of the project.

-

As of March 2020, green bond proceeds 5.0 billion Japanese yen has been fully allocated.

Table-1 Nominated projects and assets (energy/emission-efficient waste-to-energy
plant) *details are described in schedule-1
Project (Site)
Kyoto City Government(Fushimi-ku, Kyoto City)

Rated power
generation output
14.0MW

Sep 2019(Started commercial operation)

2.8MW

Mar 2021(as scheduled)

Kikuchi Environmental Preservation
Association (Koshi City, Kumamoto

Completion time

Prefecture)

DNV GL has been commissioned by Hitz to provide the initial and periodic review of the Hitz’s eligibility of
the BOND. Our criteria and information covered to achieve this is described under ‘Work Undertaken’ shown
below. The periodic review was based on information provided by Hitz as of 20 July 2020. We do notprovide any independent assurance or other type of audit activities.

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In this paper, no assurance is provided regarding the financial performance of the Issuer, the value of any
investments in the BOND, or the long term environmental benefits arising from the nominated projects. Our
objective of these reviews has been to provide an assessment that the usage of the proceeds of the BOND
has met the criteria established on the basis set out below.
The scope of DNV GL`s opinion is limited to the latest version of the Green Bond Principles 2018 (GBP,
ICMA) and Green Bond Guidelines (GBGLs, the Ministry of Environment, Japan).

Photo-1 Project of Kyoto City Government(commercial operation started from Sep. 2019)https://www.city.kyoto.lg.jp/kankyo/page/0000270765.html

Photo-1 Project of Kikuchi Environmental Preservation Association(commercial operation will start from Mar. 2021)

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Responsibilities of the Management of Hitachi Zosen and DNV GL
The management of Hitz has provided the information and data used by DNV GL during the delivery of thisreview. Our statement represents an independent opinion and is intended to inform Hitz management andother interested stakeholders in the BOND as to whether the established criteria have been met, based on
the information provided to us. In our work we have relied on the information and the facts presented to us
by Hitz. DNV GL is not responsible for any aspect of the nominated assets referred to in this opinion andcannot be held liable if estimates, findings, opinions, or conclusions are incorrect. Thus, DNV GL shall not beheld liable if any of the information or data provided by Hitz used as a basis for this assessment were notcorrect or complete.

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Basis of DNV GL’s opinion
DNV GL adapted our Green Bond Principles*1, Green Bond guideline*2, and Climate Bond Standard (forreference at pre-issuance stage)*3 assessment methodologies, which incorporate the requirements of the
GBP, to create a Hitz specific Green Bond Eligibility Assessment Protocol (henceforth referred to as“Protocol”) for each project. Our Protocol includes a set of suitable criteria that can be used to underpin DNV
GL’s opinion. The overarching principle behind the criteria is that a green bond should “enable capital-raisingand investment for new and existing projects with environmental benefits”.
As per our Protocol, the criteria against which the BOND has been reviewed are grouped under the fourPrinciples:Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirement that anissuer of a green bond must use the funds raised to finance eligible activities. The eligible activities
should produce clear environmental benefits.

Principle Two: Process for Project Evaluation and Selection. The Project Evaluation and Selection
criteria are guided by the requirements that an issuer of a green bond should outline the process it
follows when determining eligibility of an investment using Green Bond proceeds, and outline any
impact objectives it will consider.



Principle Three: Management of Proceeds. The Management of Proceeds criteria are guided by therequirements that a green bond should be tracked within the issuing organization, that separate
portfolios should be created when necessary ant that a declaration of how unallocated funds will behandled should be made.



Principle Four: Reporting. The Reporting criteria are guided by the recommendation that at least
Sustainability Reporting to the bond investors should be made of the use of bond proceeds and thatquantitative and/or qualitative performance indicators should be used, where feasible.

*1:Green bond principle (June 2018, International Capital Market Association)*2:Green Bond Guidelines, 2017 (March 2017, the Ministry of the Environment (Japan))*3:Climate Bond Standard | version 2.1 (Climate Bonds Initiative)

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Work undertaken
Our work constituted a high level review of the available information, based on the understanding that thisinformation was provided to us by Hitz in good faith. We have not performed an audit or other tests tocheck the veracity of the information provided to us. The work undertaken to form our opinion includes
initial assessment and periodic assessment.
Initial Assessment:Creation of a Hitz -specific Protocol, adapted to the purpose of the BOND, as described above and in
Schedule-2 to this Assessment.


Assessment of documentary supporting documents provided by Hitz on the BOND andsupplemented assessment by a high-level desktop research. These checks refer to current
assessment best practices and standards methodology;Discussions with Hitz, and review of relevant documentation;

Documentation of findings against each element of the criteria.

Periodic Assessment:

Evaluation of the supporting documents provided by Hitz and related to the BOND issuance, highlevel desktop research, document reviews, and interviews with key personnel of the Issuer. Thesechecks refer to best practices in current assessment and standard methodologies;Discussions with Hitz management and review of relevant documentation;



Field survey and inspection, if required;

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

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

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Findings and DNV GL’s opinion
DNV GL’s findings are listed below:

1. Use of Proceed
Hitz has reported usage of the proceeds of the BOND to finance the projects and assets, which meetthe green bond criteria below:
Eligibility Criteria of Green Bond: Pollution prevention and control
The proceeds are allocated to the construction and related work/business of “the energy/emissionefficient waste to energy” (GBP 2018), which are proposed in Table-1 and Schedule-1 (two projects;
Kyoto City Government and Kikuchi Environmental Preservation Association). The proceeds from thegreen bond total 5.0 billion Japanese yen, has been fully allocated to the two projects at the end of
fiscal year 2019 (March 2020).
DNV GL reviewed the eligibility of the nominated projects and assets to meet the criteria for the
project categories above.
- Project ; Kyoto City Government: 4.366 b-JPY- Project ; Kikuchi Environmental Preservation Association: 0.634 b-JPY
total

: 5.0

b-JPY

Kyoto City Government(Fushimi-ku, Kyoto City)
Kikuchi Environmental Preservation Association (Koshi City, Kumamoto Prefecture)

2. Project Evaluation and Selection Process
The proceeds of the BOND have been allocated solely to finance the projects and assets as defined in
Schedule-1. DNV GL has reviewed supporting documents that demonstrates that Hitz regularly
assesses opportunities for improvement and devises and initiatives action plans initiatives to mitigate
negative environmental and social impacts from its operations.

3. Management of Proceeds
DNV GL has reviewed and confirmed supporting documents showing how Hitz has traced/managed
the proceeds from the BOND, from the time of issuance to the time of disbursement. DNV GL has
confirmed that Hitz manages the remaining amount of the BOND in cash or cash equivalents and Hitz
periodically reviews its outstanding balance. As of the end of fiscal year 2019 (end of March 2020),

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the proceeds from the green bond total 5.0 billion Japanese yen, has been fully allocated to the two
projects at the end of fiscal year 2019 (March 2020).

As stated above, DNV GL provides no assurance regarding the financial performance of the Issuer,
the value of any investments in the BOND, or the effects of the transaction.

4. ReportingDNV GL has confirmed that Hitz reports and discloses the specific information required by the Green
Bond periodically in its company website or Integrated Report. These include description of the
project and its progress, allocation and management of the proceeds invested, as well as theassociated qualitative and quantitative environmental impacts.
As for the progress of the nominated projects, the project for Kyoto City, scheduled for completion in
March 2019, has been postponed to September 2019 as a result of coordination with the customer,
and as of July 2019. Finally, the project has completed as scheduled and started commercial
operation from Sep. 2019. For Kikuchi Environmental Preservation Association, construction work
progresses as original schedule and will start commercial operation from Mar. 2021. The
environmental contribution, CO2 emission reduction will be calculated and be published in the Hitz
website in timely manner or annual report on FY2021.
As for evaluation of CO2 emission, DNV GL has confirmed that Hitz plans to evaluate/calculate in theappropriate method based on the operation performance of each project (such as operation records).
DNV GL will conduct periodic ongoing reviews and state that quantified CO 2 emissions reductions to
be reported in those reviews, as required.

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Through the reviews, DNV GL confirmed that Green Waste-to-Energy Project of Hitz has beenplanned and executed following the Green Bond criteria (Green Bond Guidelines, Climate Bond
Standard, and GBP).
On the basis of the information provided by Hitz and the work undertaken, it is DNV GL’s opinion thatthe BOND meets the criteria established in the Protocol and that it is aligned with the stated definitionor purpose of green bonds within the Green Bond Principles and Green Bond Guidelines, which is to“enable capital-raising and investment for new and existing projects with environmental benefits”.

DNV GL Business Assurance Japan K.K.

30th Sep, 2020

Mark Robinson

Naoki Maeda

Manager, Sustainability Services
DNV GL Business Assurance, AUS

Managing Director
DNV GL Business Assurance Japan K.K.

Masato Kanedome
Project leader
DNV GL Business Assurance Japan K.K.

About DNV GL
Driven by our purpose of safeguarding life, property and the environment, DNV GL enables organisations to advance thesafety and sustainability of their business. Combining leading technical and operational expertise, risk methodology andin-depth industry knowledge, we empower our customers’ decisions and actions with trust and confidence. We
continuously invest in research and collaborative innovation to provide customers and society with operational andtechnological foresight. With our origins stretching back to 1864, our reach today is global. Operating in more than 100
countries, our 16,000 professionals are dedicated to helping customers make the world safer, smarter and greener.

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1. Schedule-1 General Description of the Nominated Project

Ref.

Nominated Project

01

02

GBP category

GBP sub category

Waste to Energy(Kyoto-city, Kyoto)

Pollution prevention
and control

energy/emission-efficientwaste to energy waste toenergyWaste to Energy(Kikuchi, Kumamoto)Pollution prevention
and control

energy/emission-efficientwaste to energy waste toenergyFunded AmountFull green bond proceeds has
been allocated to thenominated project as of Mar.
2020, as scheduled

Remarks
14.0MW, general waste
Commercial operation(started) : Sep.2019
Funded amount (as of Mar.2020):
4.366 Billion JPY.
2.8MW, general waste
Commercial operation (planned): Mar.2021
Funded amount (as of Mar.2020):
0.634 Billion JPY.

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2. Schedule-2 Green Bond Eligibility Assessment Protocol
Hitz Green Bond Framework and Amendment to Shelf Registration Statement has been published for explanation to investor(1)

Use of proceeds

Ref.

Criteria

Requirements

Work Undertaken

DNV GL Findings

1aType ofbond

The bond must fall in one of thefollowing categories, as definedby the Green Bond Principles:Green Use of Proceeds BondGreen Use of Proceeds
Revenue BondGreen Project BondGreen Securitized Bond

Documents reviewed:
Hitz Green Bond
Framework
Amendment to Shelf
Registration
Statement
Discussions with Hitz
management

The reviewed evidence confirms that the BOND falls in the category:

The cornerstone of a Green
Bond is the utilization of theproceeds of the bond whichshould be appropriately
described in the legal
documentation for the security.

Documents reviewed:
Hitz Green Bond
Framework
Amendment to Shelf
Registration
Statement
Project documents(including asset
specifications)
Discussions with Hitz
management

As identified by the purpose of the BOND is to use the proceeds to financefor projects falling under the following categories has been fully allocated:“Pollution prevention and control” (energy/emission-efficient waste toenergy)1b

Green
Project
Categories

Green Use of Proceeds Bond.

- Kyoto City (Kyoto)- Kikuchi Environmental Preservation Association(Kumamoto)
DNV GL’s assessment concluded that these projects are within theenergy/emission-efficient waste to energy category under the Green Bond
Principles and they present a low risk of CO2 emissions and analyse
negative effect in quantitative and qualitative terms. Above information isPage 12 of 16

Ref.

Criteria

Requirements

Work Undertaken

DNV GL Findings

included in legal documents such as Amendment to Shelf Registration
Statement. DNV GL confirms that 1b requirement is satisfied.

1c

Environmen
tal benefits

All designated Green Project
categories should provide clear
environmentally sustainable
benefits, which, where feasible,
will be quantified or assessed by
the issuer.

Documents reviewed:
Hitz Green Bond
Framework
Project documents(including asset
specifications)
CO2 mitigation
evaluation sheet
Discussions with Hitz
management

DNV GL notes that Waste to Energy project can present risks of land use
and ecology system through construction and operation. DNV GL reviewed
Hitz’s provided document and confirmed that Hitz already identified theenvironmental risk and addressed appropriate countermeasure. Hitz has
clearly demonstrated these projects will contribute benefit forenvironment such as CO2 emission reduction.
DNV GL confirms that 1c requirement is satisfied.

1d

Refinancing
share

In the event that a proportion of
the proceeds may be used forrefinancing, it is recommended
that issuers provide an estimateof the share of financing vs. refinancing, and whereappropriate, also clarify whichinvestments or project portfolios
may be refinanced.

Documents reviewed:
Hitz Green Bond
Framework
Discussions
with Hitz management

Refinance is not applied for these projects.

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Process for Project Selection and Evaluation

Ref.

Criteria

Requirements

2aInvestmentdecision
process

The issuer of Green Bond should outline thedecision-making process it follows todetermine the eligibility of projects using
Green Bond proceeds. This includes,
without limitation:• A process to determine how the projects
fit within the eligible Green Projects
categories identified in the Green Bond
Principles;• The criteria making the projects eligible
for using the Green Bond proceeds; and• The environmental sustainability
objectives

2bIssuer’s
environmen
tal andsocial andgovernanceframework

In addition to information disclosed by anissuer on its Green Bond process, criteria
and assurances, Green Bond investors may
also take into consideration the quality of
the issuer’s overall framework andperformance regarding environmental
sustainability.

Work Undertaken

DNV GL Findings

Documents reviewed:
Hitz Green Bond
Framework
Discussions with Hitz
management.

As per Hitz Green Bond Frame work, the Issuer has set out thefollowing criteria for project selection.
In Green Bond, Hitz has decided eligible project as follows,
considering “eligible Green Project” means alignment with Hitz’s
environmental basic policy and the compliance with GBP 2018.

-- Waste to Energy plant(Pollution prevention and control)
DNV GL has confirmed these nominated projects and assets is
discussed within the related departments and responsible
manages of Hitz.
DNV GL confirms that 2a requirement is satisfied throughinterview, discussion and document review.
Documents reviewed:
Hitz Green Bond
Framework
Hitz environmental
policy and Hitz
SDGs promotion
policyDiscussions with Hitz
management

Through interviews with Hitz and reviews of documents provided
by Hitz, DNV GL has confirmed that Hitz works to realize asustainable society through business activities based on Hitz's
environmental basic policy, Hitz SDGs promotion policy and “ Hitz
2030 Vision '' formulated in 2017. Hitz has published an
integrated report that includes the status of sustainability
activities described above.
https://www.hitachizosen.co.jp/csr/sdgs.html
https://www.hitachizosen.co.jp/ir/data/annual.html
DNV GL confirmed that Hitz’s environmental activities contributed
to a sustainable society through Green Projects.

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Management of proceeds

Ref.

Criteria

Requirements

Work Undertaken

DNV GL Findings

3aTracking
procedure-1

The net proceeds of Green Bonds shouldbe credited to a sub-account, moved toa sub- portfolio or otherwise tracked by
the issuer in an appropriate manner andattested to by a formal internal processthat will be linked to the issuer’s lending
and investment operations for Green
Projects.

Documents reviewed:
Hitz Green Bond Framework
Amendment to Shelf
Registration Statement
Hitz’s internal protocol (e.g.
accounting protocol,
document control procedure)
Status of appropriation ofgreen bond funds
Full list of funding allocationof project for Kyoto City and
Kikuchi Environmental
Preservation Association
Discussions with Hitz
management

DNV GL reviewed documents and interviewed andconfirmed that Hitz traced the proceeds of the BOND,
from the time of issuance to the time of disbursement
appropriately and the full amount of the proceeds wasmanaged by Hitz’s financial department.
DNV GL confirmed Hitz managed and tracked theoutstanding balance of the proceeds of the BOND with its
internal process. DNV GL confirms that 3a requirement issatisfied.

3b

Tracking
procedure-2

So long as the Green Bonds areoutstanding, the balance of the tracked
proceeds should be periodically reducedby amounts matching eligible green
investments or loan disbursements
made during that period.

Documents reviewed:
Hitz Green Bond Framework

DNV GL reviewed documents and interviewed andconfirmed that Hitz traced at the proceeds of the BOND,
from the time of issuance to the time of disbursement, andreduced the net balance of proceeds by amounts in linewith the projects and assets as schedule. The proceedsfrom the green bond total 5.0 b-JPY has been fully
allocated to the eligible project by Mar. 2020. No
outstanding is appeared. DNV GL confirms that 3b
requirement is satisfied.

-Hitz’s internal protocol (e.g.
accounting protocol)-

Status of appropriation ofgreen bond funds
Full list of funding allocationof project for Kyoto City andPage 15 of 16

Ref.

Criteria

Requirements

Work Undertaken

DNV GL Findings

Kikuchi Environmental
Preservation Association
Discussions with Hitz
management
3c

Temporaryholdings

Pending such investments or
disbursements to eligible Green
Projects, the issuer should make known
to investors the intended types of
temporary investment instruments forthe balance of unallocated proceeds.

Documents reviewed:
Hitz Green Bond Framework
Amendment to Shelf
Registration Statement
Full list of funding allocationof project for Kyoto City and
Kikuchi Environmental
Preservation Association
Discussions with Hitz
management

The net proceeds of the BOND were managed by financial
department. The net proceeds of the BOND has been fully
allocated. DNV GL confirmed that outstanding was held
and managed as cash or cash equivalent until
disbursement to the nominated projects and assets as per
Hitz Green Bond Framework.
DNV GL confirms that 3c requirement is satisfied.

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Reporting

Ref.

Criteria

Requirements

Work Undertaken

DNV GL Findings

4aPeriodical
reportingIn addition to reporting on the use of proceeds
and the temporary investment of unallocatedproceeds, issuers should provide at least
annually a list of projects to which Green Bond
proceeds have been allocated including- when possible with regards to confidentiality
and/or competitive considerations- a brief description of the projects and theamounts disbursed, as well as the expectedenvironmentally sustainable impact.

Documents reviewed:
Hitz Green Bond Framework
CO2 mitigation evaluation sheet
Draft website disclosure of “HitzGreen Bonds”
Discussions with Hitz management

Hitz is publishing the annual report including a
dedicated section on the Green Bond in its
Annual Report and website. This will include
description of the project and value of theproceeds invested, as well as the associatedqualitative and quantitative environmental
impacts. Hitz plans to report on the total
amount of CO2 emission reduction evaluation
based on the operation records (e.g. amountof electricity generation per year, MWh/y).
(Note that the commercial operation is notstarted yet.)
DNV GL concluded that 4a requirement issatisfied.