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Hitachi Zosen Corporation
Green Waste-to-Energy ProjectGreen bond eligibility pre-issue assessment report

DNV GL second party opinion

Aug. 2018

DNV GL Business Assurance Japan K.K.

Page 2 of 13ContentsIIntroduction (About issuer and green bond)3

Ⅱ

Scope and Objectives

5

Ⅲ

Responsibilities of the Issuer(Hitz) and the assurance providers, DNV GL

7

Ⅳ

Basis of DNV GL’s opinion

8

Ⅴ

Work undertaken

9Ⅵ

Findings and DNV GL’s opinion (eligibility against for GB criteria)

101.

Schedule-1 Nominated assets & Green bond project outline

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Hitachi Zosen Corporation Green BondDNV GL Second Party Opinion

IIntroduction (About issuer and green bond)Hitachi Zosen Corporation(here after Hitz or the issuer) is a plant engineering
company rooted in Osaka Tekkosho (Osaka Iron Works) founded in 1881 by
E.H.Hunter. Hitz’s global enterprises, “Environment and Plant Engineering”,“Mechanical Engineering” and “Infrastructure”, has expanded in order to provide
the values for society through engineering and manufacturing technologies
developed by shipbuilding technology (after shipbuilding business division wasdivested in 2002). Its head office is located at Osaka in Japan. The global
enterprise activity is executed with 10,377 employees and 114 branch companies
in 19 countries (as of March 31, 2018).

Hitz established its policy “Basic Environmental Protection Policies” 1 for its
employees in 1992, and established its environmental management organization
which is responsible for environmental issues in order to work actively for
resolution of environmental issues, as well. Hitz technologies and trust establishedin Japan can provide solution for social issues aligned with social communities
globally.
1: “Environmental Data book 2017” (Hitachi Zosen) http://www.hitachizosen.co.jp/ir/data/pdf/DB2017_J.pdf

Hitz has also established strategy and policy for concrete activity the “HitachiZosen Environmental Protection Promotion Plan” in 1993, which intends to protect
ozone layer, global warming and waste reduction, recycling and mitigation as wellas activity for regional environment protection.

Hitz’s activity has achieved as below results in FY 2016.

-18.4% CO2 emission reduction (compared with 2005 fiscal year)-

17.4% wastes reduction (compared with 2000 fiscal year)-66.4% landfill waste reduction (compared with 2000 fiscal year)

Hitz would issue Green Bond as for providing Hitz’s environmental solution
technology and service (facilities and management) to achieve Hitz’s mission.

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In this paper, no assurance is provided regarding the financial performance of theBOND, the value of any investments in the BONDS, or the long term
environmental benefits of the transaction. DNV GL’s objective has been to provide
an assessment that the BOND has met the criteria of the Green Bond Principle andthe associated Technical Criteria on the basis set out after the next page.

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Ⅱ

Scope and Objectives
Hitz intends to finance the projects of specific categories, including:-“Pollution prevention and control” (energy/emission-efficient waste to energy)-

As some secondary benefit, “CO2 emission reduction” is prospected.

-

According to the Hitz green project plan, the total fund of 5 billion JPY
intended to be allocated to green activity in full.

-Hitz would allocate green bond to the project whose benefit of CO2 emission
reduction exceed the negative effect.

-In this green bond project activity, environmental impact was evaluated by
the issuer according to the Japanese environmental evaluation methodology
required by the relevant laws which includes environmental investigation,estimation and assessment in order to mitigate detrimental effects.

-Table-1 shows the nominated projects and assets

Table-1 nominated projects and assets(energy/emission-efficient waste to energy)
details are described in schedule-1
Project Site

Power generation output

Commercialoperation

Kyoto (Kyoto)

14.0MW

Mar. 2019

Kikuchi (Kumamoto)

2.8MW

Mar. 2021*Waste-to-Energy Facility
Waste-to-Energy facility can utilize waste as important resource of energy byburning hygienically. Waste itself is undesirable materials though at the same timeis unavoidable by human activities. However, it can be an important energy
resource, as well. Hitz can simultaneously realize ‘energy generation’ and waste
treatment of useless, not reusable and not recyclable wastes. Hitz’s activities
contribute/provide effective solution of energy problem for global future.

DNV GL holds no other engagements with Hitz, including its direct shareholders,for which we foresee conflict of interest to carry out the Scope of Work as definedin the Request for Proposal.

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Hitz intends to distribute any unallocated proceeds in line with the Use of Proceeds
and Management of Proceeds sections set out in the Hitz Green Bond Framework.
DNV GL Business Assurance Japan.K.K. (henceforth referred to as “DNV GL”) has
been commissioned by Hitz to provide a Green Bond pre-issue second party
opinion. Our methodology to achieve this is described under ‘Work Undertaken’
below. We were not commissioned to provide independent assurance or other audit
activities.
No assurance is provided regarding the financial performance of the issuer, thevalue of any investments in the BONDS, or the long term environmental benefits ofthe transaction. Our objective has been to provide an assessment that the BOND
has met the criteria established on the basis set out below.
The scope of this DNV GL opinion is limited to the Green Bond Principles 2018
(GBP2018). DNV GL also considered the requirements of the Green bond guideline(MOE, Japan 2017) and Climate Bond Standard Version 2.1 during its assessment,
however at the time of review, no Technical Criteria for Waste to Energy wasavailable for Issuer use. No opinion of conformance with the Standard is provided
here and no Certification has been applied for at this time. Any future application
for Certification under the Climate Bond Standard would be at the discretion of theIssuer, Hitz .

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Ⅲ Responsibilities of the Issuer(Hitz) and the assurance providers,
DNV GL
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 and other interested stakeholders in the BOND as to whether theestablished criteria have been met, based on the information provided to us. In ourwork 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
and cannot be held liable if estimates, findings, opinions, or conclusions are incorrect.
Thus, DNV GL shall not be held liable if any of the information or data provided byHitz used as a basis for this assessment were not correct or complete.

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Basis of DNV GL’s opinion
To provide as much flexibility for the issuer, Hitz as possible, we have adapted ourGreen Bond Principles*1, Green Bond guideline*2, and Climate Bond Standard*3
assessment methodologies, which incorporates the requirements of the GBP, tocreate a Hitz -specific Green Bond Eligibility Assessment Protocol (henceforthreferred 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-raising andinvestment for new and existing projects with environmental benefits”.
Our Protocol, the criteria against which the BOND has been reviewed are grouped
under the four Principles:•Principle One: Use of Proceeds. The Use of Proceeds criteria are guided by the requirementthat an issuer of a green bond must use the funds raised to finance eligible activities.

•Principle Two: Process for Project Evaluation and Selection. The Project Evaluation andSelection 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 the requirements that a green bond should be tracked within the issuing organization, that
separate portfolios should be created when necessary to disclose how unallocated funds will behandled.

•Principle Four: Reporting. The Reporting criteria are guided by the recommendation that atleast Sustainability Reporting to the bond investors should be made of the use of bond proceeds
and that quantitative 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, Ministry of the Environment)*3:Climate Bond Standard | version 2.1 (Climate Bonds Initiative)

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ⅤWork undertaken

Our work constituted a high level review of the available information, based on theunderstanding that this information was provided to us by Hitz in good faith. We have notperformed an audit or other tests to check the veracity of the information provided to us.
The work undertaken to form our opinion included:•Creation of a Hitz -specific Protocol, adapted to the purpose of the BOND.

•Assessment of documentary evidence 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. Our opinion asdetailed below is a summary of these findings.

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ⅥFindings and DNV GL’s opinion (eligibility against for GB criteria)

1. Principle One, Use of Proceed
DNV GL has confirmed that the proceeds from the bond issued by Hitz will beallocated to the two waste to energy plant projects which meet the green bondcriteria below;
Eligibility Criteria of Green Bond: Pollution prevention and control
All the proceeds will be allocated to the construction and related work/business of“the energy/emission-efficient waste to energy” (GBP 2018) which are proposed inthe Schedule-1 (two projects; Kyoto-Nambu and Kikuchi). The outline of the projects
is as follows; using thermal energy generated in the process of incinerating generalwaste, generate steam by the boiler. Generated steam rotates the steam turbine andthe electric generator connected to the steam turbine. Finally, thermal energy isconverted into electric energy and providing electric power.
In order to achieve this process more effective, Hitz will install a high-efficiency boiler
developed by their original technology which improve the power generation efficiencyby high temperature and high pressure steam. At the same time, Hitz plans to install
the multiple exhaust gas clean up systems to reduce harmful material emission asrequired, to realize “the energy/emission-efficient waste to energy”
The implementation of the project resulted to provide the electricity without additional
CO2 emissions. It was evaluated that these projects can contribute to mitigate CO2emissions from energy sources.
DNV GL evaluates and concludes that Hitz’s nominated projects and assets fall within
the green bond criteria.

2. Principle Two, Process for Project Evaluation and Selection
DNV GL has confirmed that the two projects described in the Schedule-1, wereevaluated and selected through the appropriate process by the relevant departmentof Hitz based on the policy of the contribution to the environment including“BasicEnvironmental Protection Policies ” and“Hitachi Zosen Environmental Protection
Promotion Plan”. DNV GL has reviewed evidence that demonstrates that Hitz regularly
assesses opportunities for improvement and devises action plans and initiatives tomitigate negative environmental and social impacts from its operation.
Specifically, as for the negative impact caused by construction of waste to energy
plant, based on the environment assessment report, appropriate countermeasures
were taken after the evaluation (e.g. selection of environmental elements).
Secondary CO2 emission by operation of waste to energy plant (CO2 emission fromthe pre-treatment process of waste segregation) was also considered/evaluated. DNV
GL confirmed that the amount of these CO2 emissions were estimated to beimmaterial compared to the estimated reduction benefit of CO2 emission by operationof the waste to energy plant.

Page 11 of 133. Principle Three, Management of Proceeds
DNV GL has reviewed and confirmed Hitz’ plan to trace/manage the proceeds fromthe Bond, from the time of issuance to the time of disbursement, as well as theappropriateness and clarity of their plan to manage total amount of the proceeds. Hitz
will manage the cash or cash equivalents which equals to fund, until decision of theproceed allocation.DNV GL has confirmed that Hitz will periodically review theoutstanding balance of the Bond.
As stated above, DNV GL provides no assurance regarding the financial performanceof the Bond, the value of any investments in the Bond, or the effects of thetransaction.

4. Principle Four, ReportingDNV GL has confirmed that Hitz has plans to report/disclose the specific information
required by the Green Bond periodically in its company website or Integrated Report.
These will include description of the project and its progress, allocation andmanagement of the proceeds invested, as well as the associated qualitative andquantitative environmental impacts (reduction of CO2 emission).
As for evaluation of CO2 emission, DNV GL has confirmed that Hitz plans toevaluate/calculate in the appropriate method based on the operation performance ofeach project (such as operation record). DNV GL will conduct periodic ongoing
reviews and state that quantified CO2 emissions reductions will be reported in thosereviews.

Considering all of the above assessment, DNV GL has confirmed that the waste toenergy projects of Hitz are designed and are planned to be executed in accordancewith related criteria of the green bond (Green Bond Principles and Green Bond
Guideline by Ministry of the Environment).

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DNV GL Business Assurance Japan K.K.

31st. Aug. 2018Mark 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 advancethe safety and sustainability 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 andconfidence. 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.

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1. Schedule-1 Nominated assets & Green bond project outline

Ref.

Nominated projectsand assets

GBP category

GBP Sub category

GBP分類

GBPサブ分類

Pollution prevention andcontrol

energy/emissionefficient waste toenergy waste toenergy

対象プロジェクト及び資産0102

Waste to Energy(Kyoto-city, Kyoto)

Waste to Energy(Kikuchi, Kumamoto)Pollution prevention andcontrol

energy/emissionefficient waste toenergy waste toenergy

Amount Fund(Plan)

Remarks 特記事項

充当額(計画時)

14.0MW, general waste
Commercial
operation(plan):Mar.2019
5 billion JPY(for 2 projects total)

2.8MW, general waste
Commercial
operation(plan):Mar.2021