Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

SECOND PARTY OPINION
KOMATSU LTD.
KOMATSU GROUP SUSTAINABILITY-LINKED BOND
FRAMEWORK
Prepared by: DNV Business Assurance Japan K.K.
Location: Kobe, Japan
Date: September 26, 2022
Ref. Nr.: PRJN-419254-2022-AST-JPN-01

Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Contents
Executive Summary

3

I. Introduction

6

Ⅱ. Scope and Objectives

9

Ⅲ. Responsibilities of Komatsu and DNV

9Ⅳ. Basis of DNV's Opinion

10

V. Work Undertaken

12

Ⅵ. Findings and DNV's Opinion

13

Schedule-1 Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs)

23

Schedule-2 Sustainability-Linked Bond Framework Eligibility Assessment Protocol

24

Revision history
Issue Date
September 26, 2022

Remarks
InitialDisclaimer
Our assessment relies on the premise that the data and information provided by Issuer 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 riskthat errors or irregularities, possibly significant, may not have been detected. Limited depth of evidence gathering including inquiry and analytical procedures andlimited 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 aperson or an entity may make based 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 for bodies providing audit and certification of management systems, and accordingly maintains a comprehensive system of quality control, including
documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We
have complied with the DNV Code of 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 ordata 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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Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Executive Summary
The Komatsu Group (hereinafter, "Komatsu") comprises Komatsu Ltd., 213 subsidiaries, and42 associated companies (as of March 31, 2022). Since its foundation in Komatsu City,
Ishikawa Prefecture in May 1921, Komatsu has been engaged in an extensive range of
operations from research and development, production, sales, marketing, services and retailfinancing for customers in three business segments of Construction, Mining and Utility
Equipment, Retail Finance, and Industrial Machinery and Others in Japan and abroad.
Komatsu upholds the management principle of maximizing its corporate value, i.e., the totalsum of trust from society and all its stakeholders, as it remains committed to Quality andReliability. Through its business operations, together with its customers, Komatsu is working
to achieve safe, highly productive, smart and clean workplaces of the future.
In promoting such initiatives, Komatsu has established new ESG management goals in its
mid-term management plan announced in April 2019 and to be completed in the fiscal year
ending March 31, 2022, in which the environmental impact reduction targets include CO2
emission reduction by 50% by 2030 (compared to 2010) and rate of renewable energy use
raised to 50% by 2030. Subsequently, Komatsu formulated the "Komatsu Green Bond
Framework" in June 2020 and issued its first green bond in July of the same year. In
addition, in the Integrated Report "Komatsu Report 2021" issued in September 2021,
Komatsu newly set out its long-term vision on its efforts to become carbon neutral, with
virtually zero CO2 emissions by 2050. In the goals under the mid-term management planannounced in April 2022 and to be completed in the fiscal year ending March 31, 2025, CO2
emission reduction, rate of renewable energy use, and carbon neutrality (challenging goal) as
above are clearly stated.
Komatsu has established the "Komatsu Group Sustainability-Linked Bond Framework"(hereinafter, the "Framework") to implement the sustainability-linked bond in a manner that
conforms to the framework which is established referring to international standards.
DNV Business Assurance Japan K.K. (hereinafter, "DNV") has evaluated the eligibility of the
Framework based on the documentation and information provided by Komatsu.
The standards and guidelines applied are the Sustainability-Linked Bond Principles(International Capital Markets Association: ICMA, 2020) (hereinafter, "SLBP") and theSustainability-Linked Bond Guidelines (Ministry of the Environment, 2022) (hereinafter,"SLBGLs").
Followings (SLBP-1 ~ SLBP-5) are findings and opinions of DNV against the five elements
described in the SLBP.

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Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

SLBP-1. Selection of Key Performance Indicators (KPIs):
Komatsu has selected the following two KPIs, shown in Table-1, as important indicators in
its comprehensive sustainability strategy towards "Carbon neutrality by 2050" and"Creating value for a decarbonized society". KPI 1 relates to Scope 1 and Scope 2, while
KPI 2 relates to Scope 3 Category 11.
KPI 1: Reduction of CO2 emissions from production (intensity)
KPI 2: Reduction of CO2 emissions from product use (intensity)
The selection of KPIs is based on a rational process, and the KPIs are clearly defined,measurable and verifiable, and has robust, reliable and in accordance with the SLBP.
SLBP-2. Calibration of Sustainability Performance Targets (SPTs):
For each KPI, Komatsu has set the following SPTs, shown in Table-1.
SPT 1: "Reduction of CO2 emissions from production (intensity)" by 45% and 50% in 2024
and 2030, respectively, compared to 2010
SPT 2: "Reduction of CO2 emissions from product use (intensity)" by 24% and 50% in 2024
and 2030, respectively, compared to 2010
DNV has confirmed that Komatsu's SPTs are meaningful and relevant in the context ofboth Komatsu's sustainability and business strategy and represent a material improvement
over a predetermined timeline. DNV has also confirmed that the achievement of SPTs is inline with Komatsu's initiatives towards carbon neutrality. DNV concluded through its
review that Komatsu's plans are feasible and on track to achieve the goals in 2024 and
2030.
SLBP-3. Bond Characteristics:
The financial characteristics of the sustainability-linked bond under the Framework
are impacted based on SPTs performance under KPIs. DNV has confirmed in theformal documentation relating to the bond that this impact is linked to changes inbond interest rates, and that it is specified in the relevant documentation of thespecific transaction (e.g., the prospectus or offering memorandum for the relevant
SLB) upon execution of each bond by specific trigger events (achievement status of
SPTs) in the period/due date defined under the Framework.
SLBP-4. Reporting:
Komatsu plans to include the information required by the SLBP in reporting, andstipulates in the Framework that the reporting will be disclosed at least once perannum.
SLBP-5. Verification:
Komatsu will obtain verification of KPI-related data by an independent externalverifier annually.

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Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Table-1 Komatsu Sustainability-Linked Bond KPIs and SPTs
KPIs

SPTs

KPI 1: CO2 emissions from production

SPT 1.1: 45% reduction by 2024 vs 2010 base year

(intensity)

SPT 1.2: 50% reduction by 2030 vs 2010 base year

KPI 2: CO2 emissions from product use

SPT 2.1: 24% reduction by 2024 vs 2010 base year

(intensity)

SPT 2.2: 50% reduction by 2030 vs 2010 base year
Description of KPIs

Description of SPTs

Each KPI is closely related to Komatsu's
mid-term management plan.

Each SPT is linked to Komatsu's mid-term management goals
with a view to its long-term targets for CO2 emission reduction.

These are the core KPIs of the management
indicator "Reduction of environmental
impact" under the "ESG" item in Komatsu's
mid-term management goals, which can bemeasured quantitatively and continuously
using methods determined by Komatsu.

These will contribute to achieve "Science-Based Targets (SBT):
Well-below 2°C" that Komatsu obtained the initial certificationin April 2017 and a renewal certification in March 2022, andare more ambitious than other companies in the industry that
may go beyond "Business as Usual".
The SPTs' pathway to the 2024 and 2030 trigger judgments
are based on linear interpolation from 2022 to 2024 and from2024 to 2030 as a guide.

On the basis of the information, including framework, provided by Komatsu and the work
undertaken, DNV confirmed that the framework formulated by Komatsu and thesustainability-linked bond executed by this framework meets the criteria required by therelevant frameworks within the SLBP/SLBGLs and is eligible.

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Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

I. Introductioni.

About the Issuer

The Komatsu Group (hereinafter, "Komatsu") comprises Komatsu Ltd., 213 subsidiaries, and42 associated companies (as of March 31, 2022). Since its foundation in Komatsu City,
Ishikawa Prefecture in May 1921, Komatsu has been engaged in an extensive range of
operations from research and development, production, sales, marketing, services and retailfinancing for customers in three business segments of Construction, Mining and Utility
Equipment, Retail Finance, and Industrial Machinery and Others in Japan and abroad.
Komatsu upholds the management principle of maximizing its corporate value, i.e., the totalsum of trust from society and all its stakeholders, as it remains committed to Quality andReliability. Through its business operations, together with its customers, Komatsu is working
to achieve safe, highly productive, smart and clean workplaces of the future.

ii.

Issuer's Initiatives for ESG/SDGs

Komatsu's basic stance is to contribute to society through its business activities. Prior to theformulation of the mid-term management plan to be completed in the fiscal year ending
March 31, 2025, Komatsu defined six material issues—environment, customers, employees,
ethics and governance, human rights, and communities—that were deemed to have material
importance in terms of their impact on sustainability and their business importance.
Furthermore, the four areas of environment, customers, employees, and ethics andgovernance were identified as being of particularly high priority among these issues, andinitiatives for addressing these areas have been incorporated into the growth strategies ofthe mid-term management plan.

Figure-1 Materiality at Komatsu
Based on the "Sustainability Policy" established in December 2021, Komatsu aims tocontribute to society through its business activities.
The mid-term management plan, “DANTOTSU Value - Together, to ‘The Next’ forsustainable growth”, to be completed in the fiscal year ending March 31, 2025, is forPage 6 of 32

Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

generating a positive cycle for resolving ESG issues and improving earnings to achievesustainable growth by addressing material issues based on an understanding of therelationship between materiality, the Sustainability Policy, and the SDGs. Specifically, it isupholding three pillars of growth strategies, namely, "Accelerate growth by means ofinnovation", "Maximize earnings power", and "Enhance corporate resilience". To this end,
Komatsu has updated its ESG management goals, which were newly established in the midterm management plan to be completed in the fiscal year ending March 31, 2022 (seeFigure-2).

Figure-2 Key activity themes for resolving ESG issues

iii. Issuer's Environmental Initiatives
In its previous mid-term management plan, Komatsu set the environmental impact reduction
target to CO2 emission reduction by 50% by 2030 (compared to 2010) and the rate ofrenewable energy use raised to 50% by 2030. In addition, in the Integrated Report "Komatsu
Report 2021" issued in September 2021, Komatsu newly set out its long-term vision on its
efforts to become carbon neutral, with virtually zero CO2 emissions by 2050. Furthermore, inthe ongoing mid-term management plan (FY2022-FY2024), Komatsu has set "carbon
neutrality" as one of its challenging goals in its management goals to be achieved by 2050,
and declared to tackle challenges to create value for a decarbonized society. To realize thisgoal, Komatsu has set specific measures for each of the activity themes shown in Figure-2
and is promoting initiatives.

iv. About the Sustainability-Linked Bond Framework
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Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Komatsu has established the "Komatsu Group Sustainability-Linked Bond Framework"(hereinafter, the "Framework") to implement the sustainability-linked bond in a manner that
conforms to the framework which is established referring to international standards.
The criteria which this Framework specifically referred to is described in Section II below.

Name of the Issuer: Komatsu Ltd.
Name of the framework: Komatsu Group Sustainability-Linked Bond Framework
Name of the external reviewer: DNV Business Assurance Japan K.K.
Creation date of report: September 26, 2022

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Ⅱ. Scope and Objectives
DNV has been commissioned by Komatsu to provide a pre-issuance assessment on the
Komatsu Group Sustainability-Linked Bond (hereinafter, the "BOND"). Our objective has been
to confirm whether the BOND meets the criteria shown in the table below to provide asecond party opinion on the eligibility of the BOND.
DNV, as an independent external reviewer, has identified no real or perceived conflict ofinterest associated with the delivery of this second-party opinion for Komatsu.
In this report, no assurance is provided regarding the financial performance of the BOND, thevalue of any investments in the BOND, or the long-term environmental benefits of thetransaction.

Standards/guidelines to be applied
No.
1.
2.

Standards/guidelines

Scheme owner

Applied level*1

Sustainability-Linked Bond Principles(SLBP)
Sustainability-Linked Bond Guidelines(SLBGLs)

International Capital Markets Association(ICMA), 2020

Apply

Ministry of the Environment, 2022

Apply

*1 Apply: The eligibility for all five elements common to each principle or guideline was assessed.

Ⅲ. Responsibilities of Komatsu and DNV
Komatsu has provided the information and data used by DNV during the delivery of thisreview. DNV's second party opinion represents an independent opinion and is intended to
inform Komatsu and other interested stakeholders in the BOND as to whether the establishedcriteria have been met, based on the information provided to us. In our work, we have reliedon the information and the facts presented to us by Komatsu. 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 Komatsu and used as a basis for thisassessment were not correct or complete.

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Ⅳ. Basis of DNV's Opinion
To provide as much flexibility for the fundraiser as possible, we have adapted our
Sustainability-Linked Bond assessment methodologies, which incorporates the requirementsof the SLBP/SLBGLs, to create a Sustainability-Linked Bond Assessment Protocol(hereinafter, the "Protocol"). Please refer to Schedule-2. The Protocol is applicable to thesustainability-linked bond under the SLBP/SLBGLs.
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 behind the criteria is that the sustainability-linked bond should"provide an investment opportunity with transparent sustainability credentials" and "isimportant through KPIs and SPTs, quantitative, pre-determined, ambitious, and regularly
monitored and externally validated and encourage the achievement of ESG of issuers".
As per our Protocol, the criteria against the sustainability bond to be reviewed is grouped
into the following five elements:

Principle One: Selection of Key Performance Indicators (KPIs)
The fundraiser of a sustainability-linked bond should clearly communicate toinvestors or lenders its overall objectives, as set out in its sustainability strategy,
and how these relate to its SPTs. The KPI should be reliable, material to thefundraiser's core sustainability and business strategy, address relevant ESG
challenges of the industry sector and be under management control.
Principle Two: Calibration of Sustainability Performance Targets (SPTs)
The SPTs should be ambitious, meaningful and realistic. The target setting should
be done in good faith and based on sustainability improvement in relation to apredetermined performance target benchmark.
Principle Three: Bond Characteristics
The BOND will need to include a financial and/or structural impact depending onwhether the selected KPIs reach (or not) the predefined SPTs. The BOND
documentation needs to require the definitions of KPI(s) and SPT(s) and thepotential variation of the SLB’s financial and/or structural characteristics. Any
fallback mechanisms in case the SPTs cannot be calculated or observed in asatisfactory manner, should be explained.
Principle Four: Reporting
The fundraiser should publish and keep readily available and easily accessible up todate information on the performance of the selected KPI(s), as well as averification assurance report (see Principle 5) outlining the performance against the
SPTs and the related impact and timing of such impact on the finance’s financial
and/or structural characteristics, with such information to be provided to thosePage 10 of 32

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institutions participating in the finance or to investors participating in the finance atleast once per annum.
Principle Five: Verification
The fundraiser should have its performance against its SPTs independently verified
by a qualified external reviewer with relevant expertise, at least once per annum.
The verification of the performance against the SPTs should be made publicly
available.

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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 the fundraiser 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:

Sustainability-Linked Bond Pre-Issuance Assessment
Creation of the fundraiser-specific assessment protocol (see Schedule-2);Assessment of documentary evidence provided by the fundraiser and supplemented
assessment by a comprehensive desktop research;Interviews with the fundraiser and review of relevant documentation;

Documentation of findings against each element of the criteria.

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Ⅵ. Findings and DNV's Opinion
DNV's findings and opinions are as follows.
(1)

Selection of Key Performance Indicators (KPIs)-

DNV has reviewed Komatsu sustainability KPIs and confirmed that the chosen
KPIs are material and relevant to the company’s core sustainability
management.

-

The KPIs defined by Komatsu (Reduction of CO2 emissions from production(intensity), Reduction of CO2 emissions from product use (intensity)), shown in
Table-1, are key indicators in Komatsu's comprehensive sustainability strategy
towards "Carbon neutrality by 2050" (challenging goal in the management
goals) and "Creating value for a decarbonized society".

-"Carbon neutrality by 2050", "Creating value for a decarbonized society", and"decrease in the rate of energy use (environmental materiality)" are importantfor Komatsu. KPI 1 "Reduction of CO2 emissions from production (intensity)" issufficiently appropriate to select as a KPI as it relates to its own Scope 1 andScope 2, and contributes to the reduction of CO2 emissions in the entire supply
chain by reducing KPI 1. KPI 1 is also positioned as a core KPI in the "Komatsu
Mid-Term Management Plan (FY2022-FY2024)".

-

Similarly, KPI 2 "Reduction of CO2 emissions from product use (intensity)" is amajor KPI that contributes to the reduction of CO2 emissions from product use(Scope 3 Category 11) that account for approximately 90% of the total CO2
emissions through Komatsu's entire supply chain.

-

DNV has confirmed that the KPIs selected by Komatsu are consistent with the"Carbon Neutrality in 2050" targeted by the Japanese Government and areappropriately selected as comparable indicators.

-

DNV believes that the initiatives to the KPIs are closely related to the"Challenges to create value (products and services) for carbon neutrality" setout in the "Komatsu Mid-Term Management Plan (FY2022-FY2024)" and willcontribute to Komatsu's aim of "Accelerate growth by means of innovation"and be an important driving force for expanding profits. We believe it willcontribute to Komatsu's aim of "accelerating growth through innovation" andwill be an important driver to improve profitability. The KPIs are also
considered to contribute to realize the "Long-Term Vision for Carbon Neutral
Initiatives" and to the alignment of Komatsu's business strategy with the goals
relating to sustainability management.

-

DNV concludes that CO2 emissions (intensity) as KPIs are measurable based ona consistent methodology (Komatsu's own calculation method), externallyverifiable and able to be benchmarked to external references. DNV also
concludes that CO2 emissions through the supply chain are a robust andreliable metric.

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DNV has confirmed that the KPIs chosen by Komatsu have a clear evaluation
scope and calculation methodology. Please see Schedule-2 for more
information.

List of selected KPIs
 KPI 1: Reduction of CO2 emissions from production (intensity)
 KPI 2: Reduction of CO2 emissions from product use (intensity)

Definition, scope, and parameters☒

Clear definition of each selected KPI☐

Other (please specify):☒

Clear calculation methodology

Relevance, robustness, and reliability of the selected KPIs☒

Credentials that the selected KPIs are☒

relevant, core and material to the

Evidence that the KPIs are externallyverifiable

Issuer’s sustainability and businessstrategy☒

Credentials that the KPIs are measurable☒

Evidence that the KPIs can be benchmarked☐

Other (please specify):or quantifiable on a consistentmethodological basis

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Calibration of Sustainability Performance Targets (SPTs)-

DNV has confirmed that the SPTs shown in Table-1 contain the perspective andspecific plans that support the goals set out in Komatsu's "Carbon neutrality by
2050" and "Creating value for a decarbonized society" as well as thegovernment target to which they refer, the "Carbon Neutrality in 2050", andthat they are ambitious, realistic and meaningful. DNV has also confirmed thatthe achievement of the SPTs is in line with Komatsu's initiatives to becomecarbon neutral.

-

Based on the information provided by Komatsu, DNV concluded that the SPTs
are realistic, the plan is feasible, and it is on track to achieve the goals.

-

The targets set out by Komatsu; CO2 emissions from production (intensity):
45%/50% reduction by 2024/2030 vs 2010 base year (SPT 1.1/SPT 1.2), andCO2 emissions from product use (intensity): 24%/50% reduction by 2024/2030
vs 2010 base year (SPT 2.1/SPT 2.2) will contribute to achieve "Science-Based
Targets (SBT): Well-below 2°C" that Komatsu obtained the initial certification in
April 2017 and a renewal certification in March 2022, and are more ambitious
than other companies in the industry that may go beyond "Business as Usual".

-

DNV has confirmed that the SPTs set by Komatsu are tied to the improvementof KPIs. Komatsu's initiatives to address the KPIs/SPTs are expected to be a
driving force for Komatsu’s efforts to implement its sustainability strategy.

-

DNV has confirmed that the SPTs setting process has been based on an
appropriate combination of benchmarking approaches.

-From information on Komatsu's performance up to 2021 andinformation on the KPIs based on appropriate data provided guidance
for setting targets up to 2030.



The SPTs are evaluated as ambitious set based on Komatsu's Wellbelow 2°C certification from the SBTi and Komatsu's recent
performance levels.



DNV concludes that the SPTs are appropriately relevant to thegovernment target "Carbon Neutrality in 2050". In addition, theFramework is consistent with national guidelines that are aligned withthe achievement of the targets set out in the Paris Agreement.
Komatsu's initiatives for "Carbon neutrality by 2050" will be supported
by two KPIs/SPTs and their respective action plans.

DNV has confirmed that the SPTs setting is properly disclosed as follows.


The timelines of SPTs target achievement is set for the period up to2024/2030. The SPTs' pathway to the 2024 trigger judgments are
based on linear interpolation from 2021 to 2024 as a guide. For 2030,
the guide will be set for between 2024 and 2030 based on the same
thought.

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The base year for the SPTs on CO2 emission reductions is 2010. This is
to avoid including both the deterioration of Japan's CO2 emission factor
due to the 2011 Great East Japan Earthquake and its impact on
Komatsu's operations, which is said to be reasonable in the long-term
pathway of CO2 emission reduction.



Through the framework, action plan, and roadmap, the details wereexplained on how to achieve a reduction of CO2 emissions fromproduction (intensity) by 45%/50% by 2024/2030 compared to 2010,
and a reduction of CO2 emissions from product use (intensity) by
24%/50% by 2024/2030 compared to 2010.

Table-1 (the same as shown previously) Komatsu Sustainability-Linked Bond KPIs and
SPTs
KPIs

SPTs

KPI 1: CO2 emissions from production

SPT 1.1: 45% reduction by 2024 vs 2010 base year

(intensity)

SPT 1.2: 50% reduction by 2030 vs 2010 base year

KPI 2: CO2 emissions from product use

SPT 2.1: 24% reduction by 2024 vs 2010 base year

(intensity)

SPT 2.2: 50% reduction by 2030 vs 2010 base year
Description of KPIs

Description of SPTs

Each KPI is closely related to Komatsu's
mid-term management plan.

Each SPT is linked to Komatsu's mid-term management goals
with a view to its long-term targets for CO2 emission reduction.

These are the core KPIs of the management
indicator "Reduction of environmental
impact" under the "ESG" item in Komatsu's
mid-term management goals, which can bemeasured quantitatively and continuously
using methods determined by Komatsu.

These will contribute to achieve "Science-Based Targets (SBT):
Well-below 2°C" that Komatsu obtained the initial certificationin April 2017 and a renewal certification in March 2022, andare more ambitious than other companies in the industry that
may go beyond "Business as Usual".
The SPTs' pathway to the 2024 and 2030 trigger judgments
are based on linear interpolation from 2022 to 2024 and from2024 to 2030 as a guide.

(SPTs') rationale and level of ambition☒

Evidence that the SPTs represent a☒material improvement☒

Credentials on the relevance and reliability of
selected benchmarks and baselines

Evidence that SPTs are consistent with☒

the Issuer's sustainability and business

Credentials that the SPTs are determined on apredefined timeline

strategy☐

Other (please specify):

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Benchmarking approach☒

Issuer own performance☒Issuer's peers☒

Reference to the science☐

Other (please specify):☒

Issuer's strategy to achieve description☐

Other (please specify):

Additional disclosure☒

Potential recalculations or adjustments
description☒

Identification of key factors that may
affect the achievement of the SPTs

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Bond Characteristics

DNV has confirmed that the financial characteristics of the sustainability-linked bondexecuted under the Framework is affected by the achievement of SPTs. The impact here
refers to the interest rate of the bond. The Framework has determined the observation
period for the target achievement judgment in relation to certain trigger events.
-

DNV has confirmed that Komatsu has examined an appropriate fallback
mechanism (fallback alternatives), and consequently Komatsu concluded thatthey would not set other SPTs or calculation method at this time since the riskof being uncalculated or unobservable is negligible.

-

DNV has confirmed that Komatsu may set multiple interest rates depending on
the achievement status of individual KPIs/SPTs.

-

In addition to changes in interest rates, one or more out of a donation related tothe purpose of the Bond or other appropriate penalty/incentive methods. These
will be determined by Komatsu's internal process and disclosed in a legal
document, etc. related with the Bond.

-

Komatsu explained that Komatsu may change the KPIs and SPTs due toboth/either external factors and/or Komatsu's management decision result, suchas when the changes of Komatsu’s business circumstances, change of businessstructures where reasonable demonstration.

-

DNV has confirmed that Komatsu intends to obtain an external review of any
changes to its KPIs or SPTs.

Financial impact☒

Variation of the coupon☒

Other (please specify): One or more out of a donation related to the purpose of the Bond orother appropriate penalty/incentive methods may be selected in bonds to be issued thereafter.

Structural characteristic☒

Other (please specify): The trigger judgment may be made against the goals for 2024 and2030 by some kind of methodology (e.g., linear interpolation) with target values set for the
fiscal year. The result of trigger judgment will be reflected in subsequent interest payments,
which will be clearly stated in the prospectus or other documents (statutory disclosure
documents or other methods to disclose publicly).

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Reporting

DNV concludes that required information will be disclosed in a timely manner regarding
the following required by SLBP.
-

KPIs performance: Obtain verification by an external body, etc. and disclose on
the website, etc. after the issuance of the sustainability-linked bond, at least
once a year before the redemption is completed.

-

SPTs achievement status: Will be subject to annual verification from an
independent reviewer and it is used to determine financial characteristics(interest rate of the bond) or other financial incentives.

-

Adjustments of KPIs and SPTs: Discuss the level of ambition of the SPTs of
Komatsu with DNV, etc. and change it if necessary in the event of significant or
structural changes at Komatsu (e.g., acquisitions, company splits, mergers,
internalization, outsourcing), changes in the measuring method of KPIs, andimprovements in calculation methods or access to data.

Information reported☒

Performance of the selected KPIs☒

Verification assurance report☒

Level of ambition of the SPTs☒

Other (please specify): Information on thefinancial impact when implementing trigger
judgement (e.g., information of interest rate).
Validity of the adjustment and recalculation
result of KPI and SPT, if necessary.

Frequency☐

Semi-annual

Information published in financial report☐

Information published in sustainability report

Information published in ad hoc☒

Other (please specify): Issuer’s website, etc.

☐

Reasonable assurance☐

Other (please specify):☒

Annual☐Other (please specify):

Means of disclosure☐☐

documents☐

Reporting reviewed

Level of assurance on reporting☒

Limited assurance(5)
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Verification-

DNV has confirmed that Komatsu plans to undergo independent verification of
KPIs-related data at least once a year by a qualified external reviewer with
relevant expertise in SPT trigger events.

Frequency☒

Annual☐Other (please specify):☐

Semi-annual☒

KPI methodology

Material change☒

Perimeter☒

SPTs calibration

Page 21 of 32

Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Assessment Conclusion
On the basis of the information provided by Komatsu and the work undertaken, it is DNV'sopinion that Komatsu meets the requirements in the Sustainability-Linked Bond Eligibility
Assessment Protocol, it is aligned with the stated definition and purpose within the
SLBP/SLBGLs, which is to "encourage the achievement of significant, quantifiable, predetermined, ambitious, regularly monitored, and externally verified sustainable (ESG)
goals through KPIs and SPTs", and that it "provides an opportunity for transparent,sustainable, and reliable investment".

DNV Business Assurance Japan K.K.
September 26, 2022

Mark Robinson

Naoki Maeda

Manager, Sustainability Services

Managing Director

DNV Business Assurance, Australia

DNV Business Assurance Japan K.K.

Masato Kanedome

Yasuaki Miyamoto

Project Leader

Team Leader

DNV Business Assurance Japan K.K.

DNV Business Assurance Japan K.K.

About DNV
Driven by our purpose of safeguarding life, property and the environment, DNV 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.

Disclaimer
Responsibilities of the Management of the Issuer and the Second-Party Opinion Providers, DNV: The management ofIssuer has provided the information and data used by DNV during the delivery of this review. Our statement represents
an independent opinion and is intended to inform the Issuer management and other 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 haverelied on the information and the facts presented to us by the Issuer. DNV is not responsible for any aspect of thenominated assets referred to in this opinion and cannot be held liable if estimates, findings, opinions, or conclusions areincorrect. Thus, DNV shall not be held liable if any of the information or data provided by the Issuer’s management andused as a basis for this assessment were not correct or complete.

Page 22 of 32

Komatsu Group Sustainability-Linked Bond Framework Second Party Opinion

Schedule-1 Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs)
KPIs: Key Performance Indicators
KPIs

Description
Each KPI is closely related to Komatsu's mid-term management plan.

KPI 1: CO2 emissions from production (intensity)

These are the core KPIs of the management indicator "Reduction ofenvironmental impact" under the "ESG" item in Komatsu's mid-term

KPI 2: CO2 emissions from product use (intensity)

management goals, which can be measured quantitatively and continuously
using methods determined by Komatsu.

SPTs: Sustainability Performance Targets
SPTs

Description
Each SPT is linked to Komatsu's mid-term management goals with a view to its

SPT 1.1: 45% reduction by 2024 vs 2010 base year
SPT 1.2: 50% reduction by 2030 vs 2010 base year

long-term targets for CO2 emission reduction.
These will contribute to achieve "Science-Based Targets (SBT): Well-below 2°C"
that Komatsu obtained the initial certification in April 2017 and a renewal
certification in March 2022, and are more ambitious than other companies in the

SPT 2.1: 24% reduction by 2024 vs 2010 base year
SPT 2.2: 50% reduction by 2030 vs 2010 base year

industry that may go beyond "Business as Usual".
The SPTs' pathway to the 2024 and 2030 trigger judgments are based on linear
interpolation from 2022 to 2024 and from 2024 to 2030 as a guide.

Page 23 of 32

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

Schedule-2 Sustainability-Linked Bond Framework Eligibility Assessment Protocol
The checklist below (SLBP-1 ~ 5) is a DNV evaluation procedure created for Komatsu Group Sustainability-Linked Bond Framework Eligibility Assessment based on
the requirements of SLBP.

SLBP-1 Selection of Key Performance Indicators (KPIs)
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

1a

KPI - material
to coresustainability
and businessstrategy

The issuer’s sustainability performanceis measured using sustainability KPIs
that can be external or internal. The
KPIs should be material to the issuer’s
core sustainability and businessstrategy and address relevant
environmental, social and/or
governance challenges of the industry
sector and be under management’s
control. The KPI should be of highstrategic significance to the issuer’s
current and/ or future operations;

Confirmed documents:- Framework- Komatsu Report 2021
- Mid-term management plan

DNV has reviewed Komatsu sustainability KPIs and confirmed that thechosen KPIs are material and relevant to the company's coresustainability management.
Komatsu has initiatives for "Carbon neutrality by 2050 (challenging
goal in the management goals)", “Creating value for a decarbonizedsociety", and "decrease in the rate of energy use (environmental
materiality)". In reducing CO2 emissions throughout Komatsu's supply
chain, it is essential to reduce its own Scope 1 and Scope 2. Therefore,
KPI 1 "Reduction of CO2 emissions from production (intensity)" ispositioned as the core KPI in the "Komatsu Mid-Term Management
Plan (FY2022-FY2024)". KPI 2 "Reduction of CO2 emissions fromproduct use (intensity)" is positioned as a major KPI that contributes
to the reduction of CO2 emissions in the entire supply chain, as CO2
emissions from product use account for approximately 90% of CO2
emissions through Komatsu's entire supply chain.
DNV has confirmed that the KPIs selected by Komatsu are consistent
with the "Carbon Neutrality in 2050" targeted by the Japanese
Government and are appropriately selected as comparable indicators.
DNV believes that the initiatives to the KPIs are closely related to the"Challenges to create value (products and services) for carbon
neutrality" set out in the "Komatsu Mid-Term Management Plan
(FY2022-FY2024)" and will contribute to Komatsu's aim of "Accelerate
growth by means of innovation" and be an important driving force for
expanding profits. We believe it will contribute to Komatsu's aim of"accelerating growth through innovation" and will be an importantdriver to improve profitability. The KPIs are also considered toInterviews with stakeholders

It is recommended that issuers
communicate clearly to investors therationale and process according towhich the KPI(s) have been selected
and how the KPI(s) fit into theirsustainability strategy.

Page 24 of 32

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

Ref.

Criteria

Requirements

Work Undertaken

DNV Findings
contribute to realize the "Long-Term Vision for Carbon Neutral
Initiatives" and to the alignment of Komatsu's business strategy withthe goals relating to sustainability management.
The selected KPIs are listed below (see Schedule-2 for details).
KPIs
KPI 1: Reduction of CO2 emissions from production (intensity)
KPI 2: Reduction of CO2 emissions from product use (intensity)

1b

KPI measurability

KPIs should be measurable orquantifiable on a consistentmethodological basis; externallyverifiable; and able to be benchmarked,
i.e. as much as possible using an
external reference or definitions tofacilitate the assessment of the SPT’slevel of ambition.
Issuers are encouraged, when possible,
to select KPI(s) that they have alreadyincluded in their previous annual
reports, sustainability reports or othernon-financial reporting disclosures toallow investors to evaluate historicalperformance of the KPIs selected. In
situations where the KPIs have notbeen previously disclosed, issuers
should, to the extent possible, provide
historical externally verified KPI values
covering at least the previous 3 years.

Confirmed documents:- Framework- Komatsu Report 2021
- Mid-term management plan
- Calculation procedures andmeasures for CO2 emissions
from production- Calculation procedures andtimeline for CO2 emissions
from product use
Interviews with stakeholders

Page 25 of 32

DNV concludes that CO2 emissions (intensity) as KPIs are measurable
based on a consistent methodology (Komatsu's own calculation
method) described in 1c, externally verifiable and able to bebenchmarked to external references.
DNV has confirmed that the KPIs selected by Komatsu are tied to the
KPIs in the mid-term management plan and that performance overtime is managed internally to align with that plan.

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

1c

KPI - clear
definition

A clear definition of the KPI(s) should
be provided and include the applicable
scope or perimeter as well as thecalculation methodology.

Confirmed documents:- Framework- ESG Databook 2021

DNV has confirmed that the KPIs chosen by Komatsu have a clear
evaluation scope and calculation methodology. Specifically, they arecalculated as follows:

Interviews with stakeholders

KPI 1: Total direct*1 and indirect*2 emissions at eachfactory/processing costs incurred in product manufacturing
KPI 2: CO2 emissions through the life of each model*3/workload*1 Scope 1 calculated in compliance with the GHG protocol*2 Scope2 calculated in compliance with the GHG protocol*3 CO2 emissions calculated based on the productperformance and work efficiency
Note: CO2 emission factor is the figure given in the ESG
Databook.
DNV has confirmed that this calculation method correlates well withthe method used to assess Komatsu's emissions intensity.

Page 26 of 32

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

SLBP-2 Calibration of Sustainability Performance Targets (SPTs)
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

2aTarget setting- meaningful

The SPTs should be ambitious, realistic
and meaningful to the issuer’s businessand be consistent with the issuers’
overall strategic sustainability/ESG
strategy.

Confirmed documents:- Framework- Komatsu Report 2021
- Mid-term management plan
- Calculation procedures andmeasures for CO2 emissions
from production- Calculation procedures andtimeline for CO2 emissions
from product use

DNV has confirmed that the SPTs contain the perspective and specificplans that support the goals set out in Komatsu's "Carbon neutrality
by 2050" and "Creating value for a decarbonized society" as well as
the government target to which they refer, the "Carbon Neutrality in
2050", and that they are ambitious, realistic, and meaningful. DNV
has also confirmed that the achievement of the SPTs is in line with
Komatsu's initiatives to become carbon neutral.

Interviews with stakeholders

2bTarget setting- meaningful

SPTs should represent a material
improvement in the respective KPIs
and be beyond a “Business as Usual”
trajectory; where possible be compared
to a benchmark or an externalreference and be determined on apredefined timeline, set before (orconcurrently with) the issuance of thebond.

Confirmed documents:- Framework- Komatsu Report 2021
- Mid-term management plan
- Calculation procedures andmeasures for CO2 emissions
from production- Calculation procedures andtimeline for CO2 emissions
from product use

The targets set out by Komatsu; CO2 emissions from production(intensity): 45%/50% reduction by 2024/2030 vs 2010 base year
(SPT 1.1/SPT 1.2), and CO2 emissions from product use (intensity):
24%/50% reduction by 2024/2030 vs 2010 base year (SPT 2.1/SPT
2.2) will contribute to achieve "Science-Based Targets (SBT): Wellbelow 2°C" that Komatsu obtained the initial certification in April
2017 and a renewal certification in March 2022, and are more
ambitious than other companies in the industry that may go beyond"Business as Usual".

Interviews with stakeholders

2cTarget setting- benchmarks

The target setting exercise should bebased on a combination ofbenchmarking approaches:

Confirmed documents:- Framework- Komatsu Report 2021

Page 27 of 32

DNV has confirmed that the SPTs setting exercise has been basedon an appropriate combination of benchmarking approaches.
From information on Komatsu's performance up to 2021 andKomatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

Ref.

Criteria

Requirements

Work Undertaken

1. The issuer’s own performance over time

- Mid-term management plan
- Calculation procedures andmeasures for CO2 emissions
from production- Calculation procedures andtimeline for CO2 emissions
from product use

for which a minimum of 3 years, where
feasible, of measurement track record on
the selected KPI(s) is recommended andwhen possible forward-looking guidanceon the KPI
2. The SPTs relative positioning versus theissuer’s peers where comparable oravailable, or versus industry or sector
standards
3. Systematic reference to science-based
scenarios, or absolute levels (e.g. carbon
budgets) or official
country/regional/international targets or
to recognised Best-AvailableTechnologies or other proxies

2dTarget setting- disclosures

Disclosures on target setting shouldmake clear reference to:
1.

The timelines of target achievement, thetrigger event(s), and the frequency of
SPTs

DNV FindingsInterviews with stakeholders

Confirmed documents:- Framework- Komatsu Report 2021
- Mid-term management plan

Page 28 of 32

information on the KPIs based on appropriate data provided
guidance for setting targets up to 2030.
The SPTs are evaluated as ambitious based on Komatsu's recent
performance levels.
DNV concludes that the SPTs are appropriately relevant to thegovernment target "Carbon Neutrality in 2050". In addition, theFramework is consistent with national guidelines that are alignedwith the achievement of the targets set out in the Paris
Agreement. Komatsu's initiatives for "Carbon neutrality by 2050"
will be supported by two KPIs/SPTs and their respective actionplans.

DNV has confirmed that the SPTs setting is properly disclosed asfollows.


The timelines of SPTs target achievement are set for the period
up to 2024/2030. The SPTs' pathway to the 2024 and 2030
trigger judgments are based on linear interpolation from 2022 toKomatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

Ref.

Criteria

Requirements

Work Undertaken

Where relevant, the verified baseline orreference point selected for improvementof KPIs as well as the rationale for thatbaseline or reference point to be used
3. Where relevant, in what situations
recalculations or pro-forma adjustmentsof baselines will take place
4. Where possible and taking into accountcompetition and confidentiality
considerations, how the issuers intend toreach such SPTs

Interviews with stakeholders

2.

DNV Findings2024 as a guide.
The base year for the SPT on CO2 emission reductions is 2010.
This is to avoid including both the worsening of Japan's CO2
emission factor due to the 2011 Great East Japan Earthquake
and the impact on Komatsu's operations, which is reasonable in
the long-term CO2 emission reduction pathway.
Through the framework, action plan and roadmap, it details how
a 45%/50% reduction in CO2 from production in 2024/2030
compared to 2010 (intensity) and a 24%/50% reduction in CO2
from product use in 2024/2030 compared to 2010 (intensity) will
be achieved. The report explains in detail how this will beachieved.

Based on the information provided by Komatsu, DNV concluded that
the SPTs are realistic, the plan is feasible, and it is on track toachieve the SPTs targets outlined in the Framework.

Page 29 of 32

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

SLBP-3 Bond Characteristics
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

3a

Bond
characteristics- SPT
financial/
structural
impactThe SLB will need to include a financial
and/or structural impact involving
trigger event(s) based on whether the
KPI(s) reach the predefined SPT(s).

Confirmed documents:- Framework

DNV has confirmed that the inclusion of trigger event(s) under the
Framework is in line with the requirements outlined by SLBP.
DNV has also confirmed that, for the sustainability-linked bondexecuted under the Framework, the trigger events and their scopeof impact, with the observation period of specific SPTs andperformance requirements, are linked to the achievement of targets
and financial incentives.

Bondcharacteristics- fallback
mechanism

Any fallback mechanisms in case the
SPTs cannot be calculated or observedin a satisfactory manner should be
explained.

Confirmed documents:- Framework

3b

Interviews with stakeholders

Interviews with stakeholders

Issuers may also consider including,where needed, language in the bonddocumentation to take into
consideration potential exceptional
events.

Page 30 of 32

DNV has confirmed that Komatsu has examined an appropriate
fallback mechanism (fallback alternatives), and consequently
Komatsu concluded that they would not set other SPTs or
calculation method at this time since the risk of being uncalculatedor unobservable is negligible.
Komatsu explained that Komatsu may change the KPIs and SPTs
due to both/either external factors and/or Komatsu's management
decision result, such as when the changes of Komatsu’s businesscircumstances, change of business structures and KPIs where
reasonable demonstration.

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

SLBP-4 Reporting
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

4aReportingIssuers of SLBs should publish, andkeep readily available and easily
accessible:

Confirmed documents:- Framework

DNV has confirmed that required information will be disclosed in atimely manner regarding the following required by SLBP.

Interviews with stakeholdersUp-to-date information on theperformance of the selected KPI(s),including baselines where relevant
2. A verification assurance report relative to
the SPT outlining the performanceagainst the SPTs and the related impact,
and timing of such impact, on the bond’s
financial and/or structural characteristics
3. Any information enabling investors tomonitor the level of ambition of the SPTs
1.

This reporting should be publishedregularly, at least annually, and in any
case for any date/period relevant forassessing the SPT performance leading
to a potential adjustment of the SLB’s
financial and/or structuralcharacteristics.

Page 31 of 32

KPIs performance: Obtain verification by an external body, etc.
and disclose on the website, etc. after the issuance of thesustainability-linked bond, at least once a year before theredemption is completed.
SPTs achievement status: Will be subject to annual verificationfrom an independent reviewer and it is used to determine
financial characteristics (interest rate of the bond) or otherfinancial incentives.

Komatsu Ltd Green Bond Pre-issuance Verification Report/Second Party Opinion.

SLBP-5 Verification
Ref.

Criteria

Requirements

Work Undertaken

DNV Findings

5aExternal
verification

Issuers should have its performanceagainst each SPT for each KPI
independently verified by a qualified
external reviewer with relevant
expertise, at least once a year and foreach SPT trigger event.

Confirmed documents:- Framework

DNV has confirmed that Komatsu plans to undergo independentvalidation of KPIs-related data at least once a year by a qualified
external reviewer with relevant expertise in SPT trigger events.

Interviews with stakeholders

Page 32 of 32