PRE-CONTRACTUAL DISCLOSURE FOR THE FINANCIAL PRODUCTS REFERRED TO IN
ARTICLE 8, PARAGRAPHS 1, 2 AND 2A, OF REGULATION (EU) 2019/2088 AND ARTICLE 6,
FIRST PARAGRAPH, OF REGULATION (EU) 2020/852
Product Name: Nippon Accommodations Fund Inc.
Nippon Accommodations Fund Inc. (“NAF”) promotes environmental or social characteristics, but does
not have as its objective a sustainable investment within the meaning of Article 9(1) of Regulation (EU) 2019/2088(“SFDR”). NAF has no employees in accordance with the prohibition on having employees under the Act on
Investment Trusts and Investment Corporations of Japan and relies on Mitsui Fudosan Accommodations FundManagement Co., Ltd. (the “Asset Manager”), to manage and operate the properties in NAF’s portfolio. NAF
and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our.” References to “fiscalyear” or “FY” are to the 12 months began or beginning April 1 of the year specified in line with the fiscal yearof the Asset Manager, unless noted otherwise.
Does this financial product have a sustainable investment objective?
☐ Yes
☒ No
☐ It will make a minimum of sustainable ☐ It
promotes
Environmental/Social(E/S)
investments with an environmental
characteristics and while it does not have as its
objective: __%objective a sustainable investment, it will have aminimum proportion of __% of sustainable investments☐ in economic activities that qualify☐ with an environmental objective in economic
as environmentally sustainable
under the EU Taxonomy
activities that qualify as environmentally
sustainable under the EU Taxonomy☐ in economic activities that do not☐ with an environmental objective inqualifyasenvironmentally
sustainable under the EU
economic activities that do not quality as
Taxonomyenvironmentally sustainable under the EU
Taxonomy☐ with a social objective☐ It will make a minimum of sustainable
investments with a social objective: __%☒ It promotes E/S characteristics, but will not make any
sustainable investments

What environmental and/or social characteristics are promoted by NAF?
We invest in “accommodation assets”, which include rental apartments, dormitories, serviced apartments,
senior residential properties, corporate housing and hotels; in particular, NAF’s current investments are focusedon newly developed residential properties that address ongoing social and lifestyle changes. By region,
approximately 80 percent of NAF’s properties are in the 23 wards of Tokyo.
As we increasingly confront environmental issues such as climate change and socio-structural changes
in Japan such as a shrinking and rapidly-aging population due to declining birthrates, ESG initiatives have become
essential to our asset management activities and achieving sustainable growth. In April 2016, we established a
Sustainability Policy in line with the environmental policy and policy for social contribution initiatives of the
Mitsui Fudosan Group, to which we belong. Since then, we have implemented various environmental, social andgovernance (“ESG”) initiatives. In addition, to contribute to the United Nations’ Sustainable Development Goals(“SDGs”), in February 2020, we identified for ourselves a set of material ESG issues that we believe must be
addressed to meet global standards.
NAF does not have a specific index designated as a reference benchmark to determine whether NAF isaligned with the environmental or social characteristics that it promotes.
We implement various environmental initiatives at NAF’s properties including the following.

•Addressing climate change. We aim to reduce CO2 emissions intensity of common areas of NAF’s
properties by 50% by 2030 from the level in 2015. We also aim to maintain water consumption
intensity of common areas of NAF’s properties at the level in 2015 through 2030.

•

Supporting TCFD. In September 2021, the Asset Manager expressed its support for therecommendations by the Task Force on Climate-Related Financial Disclosures (“TCFD”), which
was established by the Financial Stability Board in December 2015 to develop recommendations formore effective climate-related disclosures. In September 2021, the Asset Manager also joined the
TCFD Consortium, an organization made up of Japanese companies that support therecommendations by TCFD.

•

Energy saving and reduction of CO2 emissions. We seek to reduce CO2 emissions with measuresthat promote efficient use of energy in asset management activities, including installment of energysaving equipment at NAF’s properties. These measures include monitoring and management ofenergy consumption (including electricity consumption) and CO2 emissions in the common areas of
NAF’s residential properties, installment of energy-efficient equipment, such as LED lighting in thecommon areas of NAF’s properties, and improvement of air-conditioning systems. We have steadily
installed LED lighting in the common areas of NAF’s properties to promote energy-saving andreduce CO2 emissions, and as of February 29, 2024, LED lighting was installed in the common areasof 118 properties (87% of NAF’s 136 properties as of February 29, 2024). Energy consumption of
the common areas of NAF’s residential properties in 2023 decreased by 13.51% compared to that of2015, of which electricity consumption of the common areas of NAF’s residential properties in 2023
decreased by 13.73% compared to that of 2015; and CO2 emissions of the common areas of NAF’s
residential properties in 2023 decreased by 22.73% compared to that of 2015.

•

Preserving water environment and promoting resource saving and waste reduction. We aim topreserve our water environment with water saving initiatives and water-saving devices. Water
consumption in 2023 decreased by 10.28% compared to that of 2015. We also promote reduction ofharmful substances, resource saving, and waste reduction. We are trying to reduce water usage incommon areas and provide tenants with information on waste separation rules set by the government
so that resources can be recycled efficiently.

•

Introduction of renewable energy. We utilize renewable energy from solar panels. As of February
29, 2024, two of NAF’s properties were equipped with solar panels.

•

Collaboration with the Asset Manager and tenants. We outsource property management of NAF’s
properties to Mitsui Fudosan Residential Lease Co., Ltd. (the “Property Manager”), which observes
the Mitsui Fudosan Group’s environmental policy and collaborates with us in implementing
environmental initiatives. Through this collaboration, we have raised tenants’ awareness ofenvironmental issues by providing tenants with energy saving techniques with guidebooks and otherinformation available on our website, and have implemented other measures to reduce theenvironmental load of NAF’s properties. Also, under lease agreements with NAF’s tenants of rental
apartments, which as of February 29, 2024, accounted for over 90% of NAF’s entire portfolio, we
require the tenants to save energy and water to mitigate the burden on the environment.

•

Environmental consideration in supply chain. We promote sustainability throughout our supply
chain by reviewing our suppliers’ environmental and social initiatives and conduct periodic reviewof the status of such initiatives. Specifically, we evaluate the Property Manager once a year to
confirm if the Property Manager has an organizational structure to carry out its property managementbusiness appropriately. We review our business partners once a year to ensure that they are not using
any child labor and that they are not engaged in any unfair transaction.

•

Rules concerning structure for promotion of sustainability. To make sustainability efforts
practicable, the Asset Manager has established basic policies and specific procedures for continuous
monitoring and reduction of energy consumption, greenhouse gas emissions, water consumption andwaste, as well as basic policies and specific procedures for cooperation (e.g., green procurement)with third parties on sustainability matters.

We implement various social initiatives at NAF’s properties including the following.

•

Initiatives for employees. The Asset Manager recognizes the value of its human resources and has
implemented initiatives for its employees:oSupport for acquisition of qualification: We encourage acquisition of various qualifications
related to our business (related to real estate, accounting, and securitization) and offer subsidies
to our employees to help them acquire qualifications;oSupport for education and training: We encourage and support our employees to participate ina variety of internal and external education and training sessions. In FY2023, the total time oftraining received by our employees was 474.6 hours, which was 18.2 hours per person;oGoal-setting and performance evaluation: During each fiscal year, we work with each employee
to help them set their goals, check on progress from time to time during the fiscal year, andevaluate them against those goals at the end of the fiscal year. The transparency of this system
has contributed to effective communication between supervisors and subordinates. Our
performance evaluation system evaluates each employee from a range of perspectives, including
their sustainability efforts;oPeriodic physical examinations: We require and pay for our employees’ periodic physicalexams, and subsidize influenza vaccinations. We have also established a program for older
employees that allows them to take time off from work for comprehensive physical exams,
which we subsidize;oSupporting employees to achieve work-life balance: Every month, managers have a debriefing
session to report the paid holiday acquisition rate of each department to make it easier to take apaid holiday. We also have adopted childcare leave, nursing care leave and other special leave
to ensure that employees can take time off for reasonable personal reasons;oSupport for childcare and nursing care: We have established the following benefits to support
the work-life balance for employees with children or employees who are caregivers for family
members: childcare/caregiver leave programs, time off for sick/injured children or those being
cared for, and reduced working hours during childcare and nursing care;oIntroduction of system for remote work: The Asset Manager has introduced flexible work
schedule and remote work policy to support the work-life balance of individual officers andemployees, and to improve the work level and productivity of the organization and eachindividual so that it can make further progress as an asset management company;oIntroduction of Cumulative Investment Program: A cumulative investment program wasintroduced to further raise awareness of the need to improve the performance of NAF, contributeto the improvement of medium- to long-term unitholder value of NAF, and enhance the welfareof the employees of the Asset Manager by having employees of the Asset Manager hold theinvestment units of NAF;

o

Periodic employee survey: We conduct an employee survey every fiscal year to measureemployees’ satisfaction levels with respect to their office environment, including amenities, andto maintain and enhance their health. We have worked on the following matters to address issues
raised by employees in the survey:

Shared office usage system: We have partnered with Mitsui Fudosan Co., Ltd. toenable our employees to use the shared offices operated by Mitsui Fudosan Co. tocreate a suitable environment for work outside the head office at any time. The sharedoffices are not only in Tokyo but all over Japan, and our employees can choose any
offices;

Digitization of certain accounting-related work to make it easier to work from home;and

Increasing the number of internet providers to stabilize our online work environment;

•

•

o

Establishing rules on respect for human rights, anti-discrimination and anti-harassment: All of
our employees are required to watch a human rights training video every fiscal year to enhancetheir understanding of human rights. The participation rate for the last training session held in
Murch 6, 2024 was 100%; andoConsultation with the Compliance Officer: We allow employees to consult directly with theChief Compliance Officer directly or outside consultants when they become aware of any
compliance problem. The Chief Compliance Officer or the outside consultants, as the case may
be, are required to keep such communication confidential, except that they are allowed toconsult each other. They investigate the facts of each case, report to the President, responsible
officers and/or report to the Compliance Committee as needed, and give feedback to theemployee. Employees are protected under the Whistleblower Protection Act of Japan, and may
not be treated unfavorably by the Company for the fact of making such consultations.

Improving tenant satisfaction. The Asset Manager strives to improve the security, safety, andcomfort of NAF’s properties and continuously improve tenant satisfaction by investing in highquality rental apartments, renovating common areas, providing security and safety and conducting
tenant satisfaction surveys. For example, we collaborate with the Property Manager in the following
initiatives to improve security and safety for tenants.
oAn around-the-clock, toll-free number exclusively for tenants to report problems regarding
buildings such as water leakage; andoProactively providing security and safety information to tenants with disaster-response
handbooks and a website with information on local governments and disaster prevention
measures to help tenants them prepare for earthquakes and other disasters.

•

Supply chain initiatives. We promote sustainability throughout our supply chain by reviewing our
suppliers’ environmental and social initiatives and conduct periodic review of the status of suchinitiatives. Furthermore, the Property Manager, with a strong sense of social responsibility, has abasic policy of prioritizing business continuity and fast restoration of buildings in times of disasters.
In August 2016, the Property Manager received the “Resilience Certification” from the JapaneseCabinet Secretariat, which was awarded to us for (i) having a business continuity plan; (ii) having
had no scandals; and (ii) promotion of employee social contribution activities.

•

Contribution to local community. We contribute to the vitalization and development of local
communities where NAF’s properties are located. For example, we have proactively participated in
activities organized by NAF’s properties’ management associations, such as disaster prevention
events. We have installed bicycle-sharing ports at some of NAF’s properties, thereby contributing
to reduction of CO2 emissions as well as promoting health. We provide financial support every year
to the Canal Renaissance Program for Promoting Waterfront Vitalization by the Tokyo Metropolitan
Government, in which the participants study the role and history of Shibaura Canal and Tokyo Bay.

What sustainability indicators are used to measure the attainment of the environmental or social
characteristics promoted by NAF?

We use the following indicators to measure the attainment of the environmental and social characteristics
we promote.
•Environmental certification of properties. To track the environmental performance of NAF’s
properties, we rely on certifications issued by third-party organization, such as the Development
Bank of Japan’s (“DBJ”) Green Building Certification, Building Energy-efficiency Labeling System(“BELS”) certification, Comprehensive Assessment System for Built Environment Efficiency(“CASBEE”) certification and other equivalent certifications. With respect to DBJ certifications, weconsider a property to have sufficient environmental certification if it received three stars rating or
higher out of DBJ’s five-star ranking system. With respect to BELS, we consider a property to havesufficient environmental certification if it received three stars rating or higher out of BELS’ five-starranking system. With respect to CASBEE, we consider a property to have sufficient environmental
certification if it received B+ Rank or higher out of the CASBEE ranking system featuring Rank S

(excellent), Rank A (very good), Rank B+ (good), Rank B- (slightly inferior) and Rank C (inferior).
We consider NAF’s properties that receive any such sufficient environmental certifications as“eligible green assets”. As of February 29, 2024, we had acquired five stars out of DBJ’s five-starranking system for three of NAF’s properties, four stars out of DBJ’s five-star ranking system for
two of NAF’s properties and three stars out of DBJ’s five-star rankling system for one of NAF’s
properties. As of February 29, 2024, we had acquired Rank S (excellent) out of CASBEE’s ranking
system for one of NAF’s properties,and Rank A (very good) out of CASBEE’s ranking system forthree of NAF’s properties. As of February 29, 2024, 32.5% of the properties in NAF’s portfolio werequalified as eligible green assets based on gross floor area. We have set a goal of increasing thepercentage of eligible green assets in NAF’s portfolio to 40% based on gross floor area by 2030.
•

Energyconsumption(including
electricity
consumption)

Electricity
consumption

CO2 emissions

Water
consumption

Tracking of environmental performance data. The Asset Manager tracks and monitors data onenergy consumption (including electricity consumption), CO2 emissions and water consumption of
the common areas of the residential properties in NAF’s portfolio.

Unit

2015

2016

2017

2018

2019

2020

2021

2022

2023

%
Change
(2023
vs.
2015)

Total
(1000
kWh)

10,544

10,387

9,895

9,580

9,406

9,001

9,064

9,129

9,046

-13.53%

Intensity(1000
kWh / m2)

52.05

50.93

48.32

46.55

45.38

43.24

42.44

42.13

41.7

-19.25%

Total
(1000
kWh)

9,800

9,650

9,111

8,839

8,659

8,434

8,414

8,440

8,454

-13.74%

Intensity(1000
kWh / m2)

48.38

47.32

44.49

42.95

41.78

40.52

39.40

38.95

38.97

-19.44%

Total (tCO2)

5,038

4,958

4,509

4,183

3,297

2,646

3,355

3,542

3,880

-22.99%Intensity(t-CO2 /m2)

0.02490.02430.02200.02030.01590.01270.01570.01630.0179-28.08%

Total (m3)24,273

23,836

23,811

24,055

22,811

19,996

20,07820,18021,777-10.28%Intensity(m3 / m2)

0.11980.11690.11630.11690.1101

0.0961

0.09400.09310.1004-16.21%(Note1) Data for co-owned properties are based on NAF’s co-ownership interests in relevant
residential properties. Figures in the tables above for intensity are adjusted based on the period of
NAF’s ownership of relevant residential properties.
(Note2) We estimate the CO2 emissions based on energy consumption (including electricity
consumption) of the common areas of NAF’s residential properties by using adjusted emissions
coefficient published by the Ministry of the Environment of Japan.
•

ESG assessment. To track our ESG performance, we obtain third-party assessments, such as GRESBReal Estate Assessment (“GRESB”), which is an annual benchmarking assessment to measure thelevel of ESG integration achieved by real estate companies and funds. Launched in 2009 by a groupof major European pension funds that played leading roles in launching Principles for Responsible
Investment (PRI), the GRESB framework looks at the sustainability efforts of real estate companies
and REITs, rather than at the property level. As of October 4, 2023, we received a “Green Star”

rating for high environmental marks on the management component and performance component,
and had acquired three stars out of GRESB’s 5-star rating system.
••

Assurance of environmental performance data. We have received an assurance report by Deloitte
Tohmatsu Sustainability Co., Ltd. with respect to our 2020, 2021, 2022 and 2023 environmental
performance data, which include energy consumption (including electricity consumption), CO2
emissions from energy consumption (including electricity consumption) and water consumption,
confirming that such data were prepared in accordance with our calculation and reporting standards
and therefore that such data were reliable.

What are the objectives of the sustainable investments that the financial product partially intends to makeand how does the sustainable investment contribute to such objectives?
Not applicable.

•

How do the sustainable investments that the financial product partially intends to make, not causesignificant harm to any environmental or social sustainable investment objective?
Not applicable.

Principal Adverse Impacts

Does NAF consider principal adverse impacts on sustainability factors?
Yes, we collect on an ongoing basis select information on NAF’s existing portfolio regarding theprincipal adverse impact indicators, including exposure to fossil fuels through real estate assets, exposure toenergy-inefficient real estate assets, greenhouse gas (“GHG”) emissions and energy consumption intensity. We
aim to manage the risk connected to principal adverse impacts from NAF’s investment decisions in several ways,
including general screening criteria and due diligence.
•

Exposure to fossil fuels through real estate assets. NAF does not invest in real estate properties
involved in the extraction, storage, transport or manufacture of fossil fuels.

•

Exposure to energy-inefficient real estate properties. We consider the properties in NAF’s portfolio
other than eligible green assets to be “energy-inefficient real estate assets.” As of February 29, 2024,
67.5% of NAF’s properties were not eligible green assets and were considered as energy-inefficient
real estate assets. As described in more detail above, we implement as appropriate measures toreduce the environmental impact of these properties, including by obtaining environmental
certifications. We have set a goal of increasing the percentage of eligible green assets in NAF’s
portfolio to 40% based on gross floor area by 2030.

•

GHG emissions. Scope 1 and Scope 3 GHG emissions generated by real estate assets are notapplicable to NAF’s properties. We estimate Scope 2 GHG emissions based on energy consumption(including electricity consumption) of the common areas of NAF’s residential properties by using
adjusted emissions coefficient published by the Ministry of the Environment of Japan. Scope 2 GHG
emissions (and total GHG emissions) generated by the residential properties in NAF’s portfolio
were: 4,183 t-CO2 (in 2018), 3,297 t-CO2 (in 2019), 2,646 t-CO2 (in 2020), 3,355 t-CO2 (in 2021),
3,542 t-CO2 (in 2022) and 3,880 t-CO2 (in 2023). Based on such Scope 2 GHG emissions (and total
GHG emissions), the GHG emissions intensity based on gross floor area of the common areas of
NAF’s residential properties was: 0.0203 t-CO2/m2 (in 2018), 0.0159 t-CO2/m2 (in 2019), 0.0127 tCO2/m2 (in 2020), 0.0157 t-CO2/m2 (in 2021), 0.0163 t-CO2/m2 (in 2022) and 0.0179 t-CO2 (in 2023).
We aim to reduce GHG emissions intensity of the common areas of NAF’s residential properties by
50% by 2030 from the level in 2015 (0.0249 t-CO2/m2).

•

Energy consumption intensity. We track and monitor energy consumption intensity (including
electricity consumption intensity) of the common areas of NAF’s residential properties. The energy
consumption intensity based on gross floor area of the common areas of NAF’s residential properties
was: 46.55 MWh/m2 (in 2018), 45.38 MWh/m2 (in 2019), 43.23 MWh/m2 (in 2020), 42.44 MWh/m2(in 2021), 42.13 MWh/m2 (in 2022) and 41.70 MWh/m2 (in 2023). We aim to reduce energy

consumption intensity of the common areas of NAF’s residential properties by 50% by 2030 fromthe level in 2015 (52.05 MWh/m2).
We believe that investment decisions that negatively affect climate or other environment-relatedresources, or have negative implications for society, can have a significant impact to risk and value creation for
our unitholders. To this end, we consider the principal adverse impacts of NAF’s investment decisions on theabove sustainability factors throughout all major steps of the investment decision and management process
throughout the lifecycle of the properties in NAF’s portfolio.
We consider, both at the entity-level (i.e., the Asset Manager) and at the fund-level (i.e., NAF), principal
adverse impacts of NAF’s investment decisions on sustainability factors. Under the Investment Trust Act of Japan,
we are prohibited from having any employees and is required to outsource asset management to a third party.
Accordingly, as discussed in detail elsewhere, any consideration at the fund-level of principal adverse impacts of
NAF’s investment decisions on sustainability is principally conducted by the Asset Manager, subject to approvalof our Board of Directors. In addition to the Asset Manager’s contractual obligations to us under the asset
management agreement, the Financial Instruments and Exchange Act of Japan provides that the Asset Manager
owes us a fiduciary duty in conducting its activities, including making investment decisions informed bysustainability considerations.
Investment Strategy
What investment strategy does NAF follow?
As mentioned above, we invest in “accommodation assets”, which include rental apartments, dormitories,
serviced apartments, senior residential properties, corporate housing and hotels; in particular, NAF’s current
investments are focused on newly developed residential properties that address ongoing social and lifestylechanges. We believe that being responsive to the diverse needs and desires of residents and others users of NAF’s
properties, and their satisfaction with the space and time of their stay, contributes to maximizing the value of
NAF’s properties.
In order to ensure that our asset management is sustainable while meeting the increasingly diverse needs
and desires of our customers, we established the Sustainability Policy in April 2016 to give significant
consideration to ESG factors in our investment and asset management processes. In order to implement thesustainability policy, the Asset Manager has established the Sustainability Promotion Office, which generally
holds meetings every quarter to set sustainability objectives and formulate implementation plans. Objectives andimplementation plans formulated by the Sustainability Promotion Office are reviewed and discussed at theInvestment Committee, which includes the President & CEO of the Asset Manager, who is the ultimate decision
maker on sustainability matters. The Sustainability Promotion Office is responsible for disseminating
sustainability objectives and implementation plans throughout the organization. The Sustainability Promotion
Office generally reports on the progress of objectives and implementation plans to the Investment Committee
twice a year and is evaluated by the Asset Manager’s management.
We believe that our green finance framework (“Green Finance Framework”), under which we raise funds
to be applied to eligible green assets, strengthens our funding base by expanding the group of investors interested
in ESG investments and financing. The key elements of our Green Finance Framework are as follows:•

Use of proceeds. We issue green bonds or obtain green loans (collectively referred to as “green
finance”) when we intend to use the proceeds toward funds for acquisition of an eligible green asset(defined below) or funds for repayment of existing loans or redemption of investment corporation
bonds that were procured for acquisition of eligible green assets. As of February 29, 2024, we had
eight eligible green assets in NAF’s portfolio (32.5% of NAF’s portfolio based on gross floor area),
representing a total acquisition price of ¥ 90.8 billion.

•

Eligibility criteria. Assets for which any of the following certifications from a third-party
certification body have been or will be obtained (“eligible green assets”).
o3, 4, or 5 Stars under the DBJ Green Building Certification,o

3 Stars, 4 Stars, or 5 Stars under the BELS Certification,oB+, A, or S rank under the CASBEE certification for Real Estate, oroRating of an equivalent level to the above under another green building certification•

Process for project evaluation and selection. The eligibility criteria are drafted by the Sustainability
Promotion Office, which is made up of members from across different department of the AssetManager, and are determined by the Investment Committee, the members of which include thePresident & CEO, the Chief Investment Officer, and the Chief Financial Officer of the AssetManager. Projects for green finance are selected by the Sustainability Promotion Office based on
the eligibility criteria followed by deliberation and approval by the Investment Committee.

•

Management of proceeds. The upper limit for green finance is set at an amount calculated bymultiplying total acquisition price of eligible green assets in NAF’s portfolio by the ratio of interestbearing debt to total assets (“eligible green debt”) so that the total amount invested in eligible green
assets does not exceed the amount of eligible green debt.

•

Reporting. The following items will be disclosed on our website as at the end of February of eachyear so long as any amount raised through green finance has been invested in eligible green assets,
and such assets remain in NAF’s portfolio.
oTotal acquisition price of eligible green assetsoRatio of interest-bearing debt to total assetsoAmount of eligible green debtoTotal amount invested in eligible green assets

Our Green Finance Framework received the highest rank “Green 1(F)” by Japan Credit Rating Agency,
Ltd. (“JCR”) on June 18, 2020. JCR evaluates green bond issuance or green loan borrowing policies for the
purpose of ensuring compliance with the International Capital Markets Association’s (ICMA) International Green
Bond Principles, the Loan Market Association’s Green Loan Principles or the Guidelines for Green Bonds
established by the Ministry of the Environment of Japan.
•

What are the binding elements of the investment strategy used to select the investments to attain each of
the environmental and social characteristics promoted by NAF?

A binding element of NAF’s investment strategy is our Green Finance Framework. Our goal is to increase
the number of eligible green assets by one per year. The eligibility criteria (described above) are proposed by the
Sustainability Promotion Office, which is composed of four general managers within the Asset Manager and otherpersonnel appointed by the general managers, and decided by the Investment Committee, the members of which
include the President & CEO, the Chief Investment Officer, and the Chief Financial Officer of the Asset Manager.
Our green finance projects are selected by the Sustainability Promotion Office based on the eligibility criteria,
followed by deliberation and approval by the Investment Committee.

•

What is the committed minimum rate to reduce the scope of the investments considered prior to theapplication of that investment strategy?

Not applicable. However, when investing in properties using proceeds from green financing, we do notconsider properties that do not meet the eligibility criteria under our Green Finance Framework discussed above.
Prior to NAF’s investment in a property, the Asset Manager conducts due diligence on the property, including not
only profitability but also ESG-related features.
•

What is the policy to assess good governance practices of the investee companies and NAF?

NAF does not invest in investee companies and have therefore opted to provide information on thegovernance policies adopted by NAF and the Asset Manager. While there is no third-party rating used to assess
our governance practices, we, along with the Asset Manager, have introduced the following measures to assessand enhance our governance systems:•Compliance. In order to establish an appropriate management structure, the Asset Manager has
appointed a full-time Chief Compliance Officer to head compliance operations and has alsoestablished a Compliance Committee, which, with the Chief Compliance Officer as its chairperson,
deliberates on and approves conflict-of-interest transactions as well as important legal and othercompliance matters.

•

Internal audits. The Asset Manager’s Chief Compliance Officer conducts internal audits throughout
the company and its businesses to confirm whether the business and operation of each department
is carried out appropriately and efficiently in accordance with applicable law as well as internal rules.
The audit results are reported to the relevant departments audited and to the Compliance Committee
and the Board of Directors.

•

Transparent and appropriate disclosure. We make efforts to make our disclosure transparent toenable our unitholders to understand our businesses. We hold meetings with institutional investors
using financial results briefing materials, and provide appropriate information to retail investors
through seminars and other means to seek their understanding.

We also make the following ongoing disclosures related to our Green Finance Framework and Eligible
Green Projects:••

We disclose the following information as of the end of each February on our website, as long as the
any amount raised through green finance has been invested in eligible green assets, and such assets
remain in NAF’s portfolio.
oTotal acquisition price of eligible green assetsoRatio of interest-bearing debt to total assetsoAmount of eligible green debtoTotal amount invested in eligible green assets

We also disclose the following matters on our website, as long as any amount raised through green
finance has been invested in eligible green assets, and such assets remain in NAF’s portfolio.
oGreen building certification (number of properties, floor area, and ratio of such assets basedon floor area)oEach eligible green asset’s property name, certification type, rating, and green building
certification (renewal) dateoEnergy (electricity) consumption volume and intensityoEnergy-originated CO2 emissions volume and intensityoWater consumption volume and intensity

Asset Allocation
What is the asset allocation planned for NAF?
As of February 29, 2024, 32.5 % of the properties in the portfolio were qualified as eligible green assets,
and 67.5 % were not, in each case based on gross floor area. Our target is to increase the number of eligible green
assets by one each year. We have set a goal of increasing the percentage of eligible green assets in NAF’s portfolio
to 40% based on gross floor area by 2030.

32.5% is #1 Aligned with
E/S

#1B Other E/Scharacteristics

Investments of NAF
67.5% qualifies as #2
Other#1 Aligned with E/S characteristics includes the investments of the financial product used to attain theenvironmental or social characteristics promoted by the financial product.
The sub-category #1B Other E/S characteristics covers investments aligned with the environmental or social
characteristics that do not qualify as sustainable investments.
#2Other includes the remaining investments of the financial product which are neither aligned with theenvironmental or social characteristics, nor are qualified as sustainable investments.
•

How does the use of derivatives attain the environmental or social characteristics promoted by NAF?
Not applicable.

To what minimum extent are sustainable investments with an environmental objective aligned with the EU
Taxonomy?
Not applicable.
•

Does NAF invest in fossil gas and/or nuclear energy related activities that comply with the EU Taxonomy?
No. NAF does not invest in real estate assets involved in fossil gas and/or nuclear energy-related activities.

•

What is the minimum share of investments in transitional and enabling activities?
Not applicable.

What is the minimum share of sustainable investments with an environmental objective that are not alignedwith the EU Taxonomy?
Not applicable.
What is the minimum share of socially sustainable investments?
Not applicable.
What investments are included under “#2 Other”, what is their purpose and are there any minimum
environmental or social safeguards?

As of February 29, 2024, 67.5% of NAF’s properties were not eligible green assets based on gross floor
area. These properties do not meet the eligibility criteria due to the cost of meeting such criteria, but we intend toincrease the number of eligible green assets. With each acquisition opportunity, we review findings of due
diligence on the property, including not only profitability but also environmental features, and take into accountthe acquisition of environmental certifications or future potential to obtain them and energy efficiency assessment.

Index as Reference Benchmark
Is a specific index designated as a reference benchmark to determine whether NAF is aligned with theenvironmental or social characteristics that it promotes?
Not applicable. NAF does not have a specific index designated as a reference benchmark to determine
whether NAF is aligned with the E/S characteristics that it promotes.
•

How is the reference benchmark continuously aligned with each of the environmental or social
characteristics promoted by of NAF and with the investment strategy?
Not applicable.

•

How is the alignment of the investment strategy with the methodology of the index ensured on acontinuous basis?
Not applicable.

•

How does the designated index differ from a relevant broad market index?
Not applicable.

•

Where can the methodology used for the calculation of the designated index be found?
Not applicable.

More Product-specific Information
Where can I find more product specific information online?
More product-specificr.jp/english/esg/index.html.

information

can

be

found

on

the

website:https://www.naf-

Note Regarding the EU Taxonomy Regulation
As set out above, we promote certain environmental characteristics.
The Asset Manager is required, under Regulation (EU) 2020/852 (the “EU Taxonomy Regulation”), todisclose whether its assets are aligned with the environmental objectives formulated in the EU Taxonomy
regulation. The EU Taxonomy Regulation is to be complemented by technical standards and screening criteria
which are currently developed. The technical screening criteria for the first two environmental objectives (climatechange mitigation and climate change adaptation) were adopted in December 2021 and amended in June 2023.
The amended criteria apply as of January 1, 2024. The technical screening criteria for the other four environmental
objectives (sustainable use and protection of water and marine resources, transition to a circular economy,
pollution prevention and control, and protection and restoration of biodiversity and ecosystems) were adopted inJune 2023. They apply as of January 1, 2024.
We invest in economic activities that are eligible under the EU Taxonomy Regulation in respect ofclimate change mitigation and/or climate change adaptation. This means that screening criteria for theseinvestments have been or will be developed. The Asset Manager expressly states that in view of the fact that theregulations are still under development or have only recently been adopted and/or amended and the fact that, as aresult thereof, data on alignment of NAF’s investments with these environmental objectives and climate related
goals in line with the EU Taxonomy Regulation are not sufficiently available, the Asset Manager is not currently

in a position to disclose on an accurate and reliable basis to what extent NAF’s investments technically qualify as
Taxonomy-aligned or “environmentally sustainable” within the specific meaning of the EU Taxonomy Regulation.
NAF’s investments may have a positive contribution to these environmental objectives and may therefore
eventually be considered Taxonomy-aligned, but at this stage, the Asset Manager is required to state that there isno minimum proportion of NAF’s investments that qualify as such.
The Asset Manager further states that the “do no significant harm” principle applies only to thoseinvestments underlying the financial product that takes into account the EU criteria for environmentally
sustainable economic activities. The investments underlying the other portion of this financial product do not take
into account the EU criteria for environmentally sustainable economic activities.

Integration of Sustainability Risks in the Investment Decisions, and the Impact of Such Risks on the
Returns of NAF (SFDR Article 6 Disclosure)
As described in further detail above, we have established the Sustainability Promotion Office, which
generally meets once every three months to set objectives and formulate implementation plans concerning our
promotion of sustainability. We identified for ourselves a set of material ESG issues through discussion at the
Sustainability Promotion Office, and the material ESG issues identified were approved by the Investment
Committee, which includes the President and CEO of the Asset Manager, who is a member of the Committee andthe highest-level decision maker of the company. The material ESG issues have been communicated to all
employees in the asset manager as well as board members in the investment committee. The material ESG issues
are subject to periodical review and update to reflect changes in society and environment.
We have established an environment management system (EMS) and implements a PDCA (plan, do,check and act) cycle every year to manage the environmental load of NAF’s portfolio and achieve ourenvironmental targets. The sustainability risks of NAF’s properties are periodically evaluated with the purpose ofidentifying and understanding the sustainability risks of NAF’s properties. If significant sustainability risks are
discovered based on the evaluation results, the office will propose improvement measures aimed at reducing suchrisks
Under this organizational structure, we have instituted a number of initiatives to promote theenvironmental and social characteristics. Such initiatives include climate change initiatives, initiatives for savingenergy and reducing CO2 emissions, and initiatives for employees’ initiatives.
In order to conduct sustainable asset management while maximizing the value of NAF’s properties, wehave taken into consideration ESG factors in our investment and asset management processes. We also haveestablished the Green Finance Framework in related to fund procurement.
While sustainability issues will severely impact our business activities, we believe that such issues may
also become potential business opportunities to create new value for sustainable growth. Accordingly, we position
our commitment to sustainability as a top priority in our management strategies. We also believe that integrating
sustainability factors alongside traditional financial and operational metrics in NAF’s investment decision process
helps us make a more holistic assessment of property’s risks and opportunities and is commensurate with the
pursuit of superior risk-adjusted returns.
Physical risks
The assets in which the fund invests are exposed to physical climate risks. These can manifest themselves through,for example, floods, storms, heat and limited access to natural resources. This can mean that the assets in which
the fund invests become worth less. Specifically for NAF, the following risks are particularly relevant. The risks
are assessed by the Task Force on Climate-Related Financial Disclosures (“TCFD”) 4 ℃ scenario. Moreinformation, including risk analysis under different TCFD scenarios, can be found on the website:
https://www.naf-r.jp/english/esg/environmental/climate-change.html
Potential Changes in
Business Environment

Emerging Risks

Our Understanding

Potential
Countermeasures

Torrential
rainfall,flooding due to nearby
rivers overflowing andinland flooding

Reduced rental income
due to lower
occupancy rates

We assess such risk aslarge because territorial
rainfall and flooding
occur frequently in Japanand could affect the valueof NAF’s portfolio.

Monitoring physicalrisks, identifying highrisk properties, and either
taking preventive
measures or disposing ofthem

Increased flood
countermeasure costs

Reflecting physical risk
information in theassessment process when
acquiring new properties

Damage to properties fromtyphoons

Increased repair costs
and insurance
premiums

We assess such risk aslarge because typhoons
occur frequently in Japanand could affect the valueof NAF’s portfolio.

Same as above

Flooding of low-elevation
properties, etc. due torising sea level

Increased costs ofcountermeasures forhigh-water damage

We assess such risk aslarge because rising sea
level is occurring andcould affect the value of
NAF’s portfolio.

Same as above

Increase in high-water
damage due to rise inabnormal weather, such as
extremely hot or cold days

Increased air
conditioner equipment
maintenance andoperation costs

We assess such risk aslarge because abnormal
weather is increasing andcould affect the value of
NAF’s portfolio.

Managing air conditioner
equipment maintenanceand operation costs

Transition risks
The assets in which the fund invests are exposed to physical transition risks. These can manifest themselves
through, for example, changes in regulations, technical developments and/or social developments. Suchdevelopments may mean that the assets in which the fund invests become worthless. Specifically for NAF, thefollowing risks are relevant. The risks are assessed by the TCFD 4 ℃ scenario. More information, including risk
analysis under different TCFD scenarios, can be found on the website: https://www.nafr.jp/english/esg/environmental/climate-change.html
Potential Changes in
Business Environment

Emerging Issues andRisks

Our Understanding

Potential
Countermeasures

Increased GHG emission
costs due to introduction ofcarbon tax

Increased operating
costs due tointroduction of carbon
tax and increased
carbon reduction costs
to meet emission
quotasWe assess such risks as
small because the effectsof such increased costson NAF’s portfolio
would be limited.

Setting GHG emission
intensity reduction
targets and disclosing
achievement status

Steep rise in current
electricity prices due tocarbon tax hikes

Considering energysaving upgrades forproperties
Procuring renewableenergyAcquiring ZEH (Note 2)
properties andconsidering retrofittingof existing properties
Sharing expertise acrossthe Mitsui FudosanGroupTighteningofenvironmental standards

Increased procurement
and repair costs forbuildings andequipment

We assess such risk as
small because the effectsof such increased costson NAF’s portfolio
would be limited.

Same as above

Evolution and spread ofrenewable energy andenergy-saving
technologies

Increased costs ofadapting to changing
building specification
requirements/standards
as products created bytechnologicalrevolution become
more widespread

We assess such risk as
small because the effectsof such increased costson NAF’s portfolio
would be limited, and incertain cases, view suchrisk as an opportunity tomake investments in cost
reduction.

Gathering information
about new technologies
and services andconsidering
implementation policy

We assess such risk as
small because decrease invalue due to poor
environmental
performance would be
limited.

Striving to gather
information on real estate
assessment trends andeither improving
properties' environmental
performance or disposingof them

Reducedenvironmental
footprint and energy
costs due to theinstallation of LED
lighting, highefficiency A/Cequipment, etc. andintroduction ofrenewable energy
facilities
Impact on real estatetransaction markets

Lower values forproperties with poor
environmental
performance (strandingof assets)

Sharing expertise acrossthe Mitsui FudosanGroup

Setting GHG emission
intensity reduction
targets and disclosing
achievement status
Considering energysaving upgrades forproperties
Procuring renewableenergyImpact on funding markets

Worse funding
conditions due toclimate change
response being
perceived as
insufficient

We assess such risk as
small because lack ofaction on climate change
unlikelytoworsenfinancing conditions.

Comprehensive climaterelated financial
information disclosure
Ongoing implementationof green financing
Pursuing the acquisitionof environmental
certifications (green
building certifications,etc.)

Impact on rental housing
markets

Avoidance ofproperties with poor
environmental
performance, leading
to decreased demand

We assess such risk as
small
becausedisfavoring housings due
to poor environmental
performance is limited inrental housing markets.

Monitoring needs
through tenantsatisfaction surveys, etc.
Considering energysaving upgrades
Pursuing the acquisitionof environmental
certifications (green
building certifications,etc.)

Impact on operating costs

Increased running costs
due to steep rise inenergy prices
Increased renewableenergy costs due tochanging energy mix

Reduced brand reputation
on financial and capital
markets

Decreased investment
unit value due toperceived passive
response to climatechangeWe assess such risk as
small because the effectsof such increased costson NAF’s portfolio
would be limited.

Purchasing renewableenergy (green power
certificates, etc.)

We assess such risk as
mediumbecauseinvestors increasingly aredemanding more active
responses
toenvironmental issues andsuch perception may turnawayenvironmentally
focused investors.

Maintaining brand image
by proactively pursuing
initiatives aimed at adecarbonized society androbustly addressing
climate change