SUSTAINABILITY-RELATED DISCLOSURE
Product name: Nippon Accommodations Fund Inc.
Nippon Accommodations Fund Inc. (“NAF”) promotes environmental or social characteristics, but does nothave 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 underthe Act on Investment Trusts and Investment Corporations of Japan and relies on Mitsui Fudosan
Accommodations Fund Management 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.”
Summary
No sustainable
investment objective

The financial products offered by NAF promote environmental or social
characteristics, but do not have as its objective sustainable investment.

Environmental orsocial characteristicsof the financial
product

As we increasingly confront environmental issues such as climate change andsocio-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 andpolicy 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 meetglobal standards.
Accordingly, we implement various environmental or social initiatives, as further
described below.

Investment strategy

NAF invests directly or indirectly through trust beneficiary interests in real estate
and real estate-related assets. Therefore, investment strategy and due diligence
review (including the assessment of good governance practices) in relation toinvestee companies are not applicable. The investment strategy and due diligencepolicies as described below are related to real estate and real estate-related assets.
NAF invests 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 ofresidents and others users of NAF’s properties, and their satisfaction with thespace and time of their stay, contributes to maximizing the value of NAF’s
properties.
As further described below, we give significant consideration to ESG factors in
our investment and asset management processes, and have established a green
finance framework.

Proportion of
investments

NAF offers financial products which promote environmental or social
characteristics but does not have sustainable investments as its objective. As of
February 29, 2024, 32.5 % of the properties in the portfolio were qualified as“eligible green assets” (as defined below), 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.

Monitoring ofenvironmental orsocial characteristics
Methodologies

In order to periodically monitor and track our performance on environmental orsocial characteristics, we use the initiatives and indicators such as (i)environmental certification of properties.; (ii) tracking of environmental
performance data; (iii) ESG assessment; and (iv) assurance of environmental
performance data, each as further described below.
The Asset Manager has established internal rules for promoting sustainability forthe sake of implementing the Sustainability Policy. Based on these rules, thePresident & CEO of the Asset Manager has been designated as the person withoverall responsibility for sustainability promotion and the respective chief
officers of divisions in charge of the relevant measures (Chief Investment Officer
or Chief Financial Officer) assume responsibility for executing individual
measures related to sustainability promotion.
In addition, the Asset Manager has established the Sustainability Promotion
Office, which is composed of four general managers from each team of the AssetManager and personnel appointed by the four general managers. It serves as abody for setting objectives and formulating implementation plans concerning
NAF’s promotion of sustainability. Objectives and implementation plans are
initially formulated by the Sustainability Promotion Office, and deliberated anddecided upon at the Investment Committee, which includes the Asset Manager’s
President & CEO serving as the ultimate decision maker. Once finalized, theobjectives and implementation plans are shared by the Sustainability Promotion
Office with all of the officers and employees of the Asset Manager. The
Sustainability Promotion Office reports to the Investment Committee twice ayear, in principle, regarding the objectives and progress achieved in carrying out
the implementation plans. In addition, the objectives and progress of theimplementation plans are subject to a management review by the Asset Manager,
which in turn is reported to the Board of Directors of NAF.

Data sources andprocessing

Limitations tomethodologies anddata

The Asset Manager used the methodologies as described below to monitor andtrack our key ESG indicators such as (i) environmental certification ofproperties.; (ii) tracking of environmental performance data; (iii) ESG
assessment; and (iv) assurance of environmental performance data, each as
further described below.
As further described below, the Asset Manager obtains certain ESG-related datafrom tenants, property management companies, third-party consulting firms andissuers of environmental certifications, depending on the type of data. In addition,
the Asset Manager seeks to ensure data accuracy and quality by coordinatingwith relevant departments within the Asset Manager and obtaining an assurance
report regarding certain ESG data from an independent third-party accounting
firm.
As further described below, the primary limitation to the methodology or data
source is the necessity of our reliance on the tenants and property managementcompanies for raw data at the property level. Data at the portfolio level arecompiled internally at the Asset Manager. To ensure the accuracy of compiled
data at the portfolio level, we have engaged an independent third-party
accounting firm which has provided an assurance report regarding the accuracy
and quality of certain parts of the compiled annual data at the portfolio level inaccordance with our own criteria and methodologies. However, the assurance
report does not provide independent verification of accuracy of raw data at theproperty level and the challenges associated with our reliance on the tenant andproperty management companies for raw data at the property level remain.

Limitations to the methodology and data are not expected to affect the attainmentof the environmental or social characteristics promoted by NAF in any materialway.
Due diligence

Prior to our investment in a property, the Asset Manager conducts due diligenceon the property, including not only profitability but also ESG-related features.
With each acquisition opportunity, we review findings of due diligence on theproperty and take into account the acquisition of environmental certifications or
future potential to obtain them and energy efficiency assessment.

Engagement policies

We do not generally consider investing in properties that are designated as
contaminated areas that require government notification under the Soil
Contamination Countermeasures Act of Japan or that do not otherwise meet ourenvironmental standards based on their history of land usage and soil
contamination assessment by experts and examination of presence of harmful
substances, unless appropriate measures are taken under the Soil Contamination
Countermeasures Act or we conclude, after appropriate due diligence review, thatany health or other ESG risk is limited. We also review whether the property we
may acquire is compliant with applicable law.

Designated reference
benchmarkWhen investing in properties using proceeds from our ESG financing, we do notconsider properties that do not meet the criteria under our Green Finance
Framework and do not qualify as eligible green assets for NAF’s investment. 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.
NAF has no benchmark index designated as a reference benchmark to meet theenvironmental or social characteristics promoted by NAF.

No sustainable investment objective
The financial products offered by NAF promotes environmental or social characteristics, but does
not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
NAF invests 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. 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-structuralchanges 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 and governance (“ESG”) initiatives. In addition, to contribute to the United Nations’Sustainable Development Goals (“SDGs”), in 2020, we identified for ourselves a set of material ESG issues
that we believe must be addressed to meet global standards.
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.

•Energy saving and reduction of CO2 emissions. We seek to reduce CO2 emissions withmeasures that promote efficient use of energy in asset management activities, including
installment of energy-saving equipment at NAF’s properties. These measures include
monitoring and management of energy consumption (including electricity consumption) andCO2 emissions in the common areas of our residential properties, installment of energy-efficientequipment, such as LED lighting in the common areas of NAF’s properties, and improvementof air-conditioning systems. We have steadily installed LED lighting in the common areas of
NAF’s properties to promote energy-saving and reduce CO2 emissions.

•

Preserving water environment and promoting resource saving and waste reduction. We aim topreserve our water environment with water saving initiatives and water-saving devices. We also
promote reduction of harmful substances, resource saving, and waste reduction. We are trying
to reduce water usage in common 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.

•

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 of environmental issues by providing tenants with energy saving techniques withguidebooks and other information available on our website, and have implemented othermeasures to reduce the environmental load of NAF’s properties. Also, under lease agreementswith our tenants of rental apartments, 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
review of 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
management business appropriately. We review our business partners once a year to ensure thatthey 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 forcontinuous monitoring and reduction of energy consumption, greenhouse gas emissions, water
consumption and waste, 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 andhas 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
in a variety of internal and external education and training sessions;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 year,
and evaluate them against those goals at the end of the 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 adebriefing session to report the paid holiday acquisition rate of each department to make iteasier to take a paid holiday. We also have adopted childcare leave, nursing care leave andother special leave to ensure that employees can take time off for reasonable personalreasons;o

Support 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,
contribute to the improvement of medium- to long-term unitholder value of NAF, andenhance the welfare of the employees of the Asset Manager by having employees of theAsset Manager hold the investment units of NAF,

o

Periodic employee survey: We conduct an employee survey every year to measureemployees’ satisfaction levels with respect to their office environment, including amenities,
and to maintain and enhance their health. We have worked on the following matters toaddress 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
shared offices are not only in Tokyo but all over Japan, and our employees canchoose 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;oEstablishing 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 year toenhance their understanding of human rights;oConsultation with the Compliance Officer: We allow employees to consult directly with
the Chief Compliance Officer directly or outside consultants when they become aware of
any compliance problem. The Chief Compliance Officer or the outside consultants, as thecase may be, are required to keep such communication confidential, except that they areallowed to consult 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 the employee. 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; and•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 andconducting 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 ofsuch initiatives. Furthermore, the Property Manager, with a strong sense of social responsibility,
has a basic policy of prioritizing business continuity and fast restoration of buildings in timesof disasters. In August 2016, the Property Manager received the “Resilience Certification” fromthe Japanese Cabinet 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 roleand history of Shibaura Canal and Tokyo Bay.

Investment strategy
NAF invests directly or indirectly through trust beneficiary interests in real estate and real estaterelated assets. Therefore, investment strategy and due diligence review (including the assessment of good
governance practices) in relation to investee companies are not applicable. The investment strategy and due
diligence policies as described below are related to real estate and real estate-related assets.
As mentioned above, NAF invests 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 lifestyle changes. We believe that being responsive to the diverse needs and desires of residents andothers users of NAF’s properties, and their satisfaction with the space and time of their stay, contributes tomaximizing 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 NAF’s tenants, 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 and implementation plans formulated by the Sustainability Promotion Office are reviewed anddiscussed at the Investment Committee, which includes the President & CEO of the Asset Manager, who isthe ultimate decision maker on sustainability matters. The Sustainability Promotion Office is responsible fordisseminating 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, under which we raise funds to be applied to green
assets, strengthens our funding base by expanding the group of investors interested in ESG investments andfinancing. 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.

•

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 Development Bank of Japan’s (“DBJ”) Green Building
certification,o

3 Stars, 4 Stars, or 5 Stars under the Building Energy-efficiency Labeling System (“BELS”)
certification,oB+, A, or S rank under the Comprehensive Assessment System for Built Environment
Efficiency (“CASBEE”) certification for Real Estate, oroRating of an equivalent level to the above under another environmental 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 Asset Manager, and are determined by the Investment Committee, themembers of which include the President & CEO, the Chief Investment Officer, and the Chief
Financial Officer of the Asset Manager. Projects for green finance are selected by the
Sustainability Promotion Office based on the eligibility criteria followed by deliberation andapproval 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 ofinterest-bearing debt to total assets (“eligible green debt”) so that the total amount invested ineligible 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 ofeach year 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.

We do not invest in investee companies and have therefore opted to provide information on thegovernance policies adopted by us 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 toassess and 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 other compliance 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 ofeach 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 andto the Compliance Committee and the Board of Directors.

•

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

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

We disclose the following information as of the end of each February on our website, as longas the any amount raised through green finance has been invested in eligible green assets, andsuch 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 throughgreen 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
based on 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

Proportion of investments
NAF offers financial products which promote environmental or social characteristics, but does nothave sustainable investments as its objective. 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.
Monitoring of environmental or social characteristics
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 environmental certifications issued by third-party organization, such as
the DBJ Green Building Certification, BELS certification, CASBEE certification and otherequivalent environmental certifications. With respect to DBJ certifications, we consider aproperty 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 certifications, we consider aproperty to have sufficient environmental certification if it received three stars rating or higher
out of BELS’ five-star ranking system. With respect to CASBEE certifications, we consider aproperty 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). As noted above, we consider NAF’s properties
that receive any such sufficient environmental certifications as “eligible green assets”.

•

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.

•

ESG assessment. To track our ESG performance, we obtain third-party assessments, such as
GRESB Real Estate Assessment (“GRESB”), which is an annual benchmarking assessment tomeasure the level of ESG integration achieved by real estate companies and funds. Launchedin 2009 by a group of major European pension funds that played leading roles in launching
Principles for Responsible Investment (PRI), the GRESB framework looks at thesustainability efforts of real estate companies and REITs, rather than at the property level.

•

Assurance of environmental performance data. We have received an assurance report by
Deloitte Tohmatsu Sustainability Co., Ltd., an independent third-party accounting firm, withrespect to our environmental performance data, which include energy consumption, CO2
emissions from energy consumption and water consumption, confirming that such data wereprepared in accordance with our calculation and reporting standards and therefore that such data
were reliable.

Methodologies
The Asset Manager has established internal rules for promoting sustainability for the sake of
implementing the Sustainability Policy (https://www.naf-r.jp/english/esg/concept/sustainabilitymanagement.html). Based on these rules, the President & CEO of the Asset Manager has been designated as
the person with overall responsibility for sustainability promotion and the respective chief officers ofdivisions in charge of the relevant measures (Chief Investment Officer or Chief Financial Officer) assume
responsibility for executing individual measures related to sustainability promotion.
In addition, the Asset Manager has established the Sustainability Promotion Office, which iscomposed of four general managers from each team of the Asset Manager and personnel appointed by thefour general managers. It serves as a body for setting objectives and formulating implementation plansconcerning NAF’s promotion of sustainability. Objectives and implementation plans are initially formulatedby the Sustainability Promotion Office, and deliberated and decided upon at the Investment Committee,
which includes the Asset Manager’s President & CEO serving as the ultimate decision maker. Once finalized,
the objectives and implementation plans are shared by the Sustainability Promotion Office with all of theofficers and employees of the Asset Manager. The Sustainability Promotion Office reports to the Investment

Committee twice a year, in principle, regarding the objectives and progress achieved in carrying out theimplementation plans. In addition, the objectives and progress of the implementation plans are subject to a
management review by the Asset Manager, which in turn is reported to the Board of Directors of NAF.
•

Environmental certification of properties. In principle, the Financial Team under the Financial
Division of the Asset Manager reports matters related to environmental certifications ofproperties to the Sustainability Promotion Office on a quarterly basis. The Sustainability
Promotion Office is responsible for reviewing NAF’s existing properties and selecting
candidate properties for acquisition of environmental certifications. The Financial Teamprepares, and the Sustainability Committee reviews and discusses, the reports on environmental
certification documents and supporting materials to be submitted to the third-party issuer of therelevant environmental certification.

•

Tracking of environmental performance data. The Asset Management Team under theInvestment Division of the Asset Manager annually compiles and tracks data on energy
consumption (including electricity consumption), CO2 emissions and water consumption of thecommon areas of the residential properties at the portfolio level. At the property level, theproperty management companies monthly collect and report relevant data for each property,
which are reviewed and compiled by the Asset Management Team, which in turn is reported to
the Sustainability Promotion Office. The compiled annual data is disclosed on the website andour annual ESG Report we publicly disclose.

•

ESG assessment. The Financial Team under the Financial Division of the Asset Manager
oversees the assessment process for the GRESB Real Estate Assessment. The assessment
process for the GRESB Real Estate Assessment involves submission of questionnaires by
GRESB by July 1 of each year. The Financial Team oversees preparation of our responses to
the GRESB questionnaires by engaging a third-party consulting firm. Based on the final results,
the public disclosure report and other reports regarding the GRESB Real Estate Assessment
issued by the GRESB secretariat, the Asset Manager analyzes the details of the final results,
evaluates any room for future improvements and other data and formulates action plans for
progressing sustainability and ESG targets with the assistance from a third-party consulting
firm. In addition, NAF’s GRESB rating and final results are disclosed on the website.

•

Assurance of environmental performance data. To ensure data quality, the Asset Manager also
obtains an assurance report regarding environmental performance data at the portfolio levelfrom Deloitte Tohmatsu Sustainability Co., Ltd., an independent third-party accounting firm.
Deloitte Tohmatsu Sustainability Co., Ltd. conducts onsite monitoring and checks the accuracy
and reasonableness of data collection and aggregation methods.

Data sources and processing
We use the following data sources:•

Environmental certification of properties. At the property level, the property managementcompanies initially collect and report relevant environmental performance data and supporting
materials for each property that we target for obtaining environmental certification prior to our
engagement with the third-party issuer of the relevant environmental certification at the requestof the Asset Management Team under the Investment Division of the Asset Manager. The AssetManagement Team reviews and compiles the relevant data and materials required by the thirdparty issuer of the relevant environmental certification both internally and externally byengaging a third-party consulting firm. The Financial Team under the Financial Division of theAsset Manager is in charge of submitting the relevant data and materials to the third-party issuerof the relevant environmental certification and implementing follow-up actions, if any.

•

Tracking of environmental performance data. At the property level, the property managementcompanies monthly collects and reports data on energy consumption (including electricity
consumption), CO2 emissions and water consumption of the common areas of the residential

properties in NAF’s portfolio to the Asset Management Team under the Investment Division of
the Asset Manager, which in turn confirms the accuracy of the reported data internally. At theportfolio level, the Asset Management Team annually compiles and discloses the compiled
annual data on the website.
•

ESG assessment. Before we submit the responses to the questionnaires of the GRESB Real
Estate Assessment, the property management companies initially collect the environmental
performance data and supporting materials used for the responses at the property level. The
Asset Management Team under the Investment Division of the Asset Manager reviews andcompiles the relevant data and materials at the portfolio level with the assistance from a thirdparty consulting firm. The consulting firm also advises the Asset Manager on assessing andformulating prospects and action plans for future improvements.

•

Assurance of environmental performance data. As noted elsewhere, the property managementcompanies initially collect the environmental performance data and supporting materials at theproperty level. The Asset Management Team under the Investment Division of the AssetManager reviews and compiles the relevant data and materials at the portfolio level, and submit
them to Deloitte Tohmatsu Sustainability Co., Ltd., which in turn reviews and prepare theassurance report.

Limitations to methodologies and data
The primary limitation to the methodology or data source is the necessity of our reliance on thetenants and property management companies for raw data at the property level. Like many other real estate
investment corporations and asset managers, we rely on raw data provided by the tenants and property
management companies, and independent verification of accuracy of such raw data provided by the tenants
and property management companies presents challenges.
Data at the portfolio level are compiled internally at the Asset Manager. To ensure the accuracy ofcompiled data at the portfolio level, we have engaged an independent third-party accounting firm whichhas provided an assurance report regarding the accuracy and quality of certain parts of the compiled annual
data at the portfolio level in accordance with our own criteria and methodologies. However, the assurance
report does not provide independent verification of accuracy of raw data at the property level and thechallenges associated with our reliance on the tenant and property management companies for raw data at
the property level remain.
Limitations to the methodology and data are not expected to affect the attainment of theenvironmental or social characteristics promoted by NAF in any material way.
Due diligence
Prior to our investment in a property, the Asset Manager conducts due diligence on the property,
including not only profitability but also ESG-related features. With each acquisition opportunity, we
review findings of due diligence on the property and take into account the acquisition of environmental
certifications or future potential to obtain them and energy efficiency assessment.
Engagement policies
We do not generally consider investing in properties that are designated as contaminated areas that
require government notification under the Soil Contamination Countermeasures Act of Japan or that do not
otherwise meet our environmental standards based on their history of land usage and soil contaminationassessment by experts and examination of presence of harmful substances, unless appropriate measures aretaken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence
review, that any health or other ESG risk is limited. We also review whether the property we may acquireis compliant with applicable law.

When investing in properties using proceeds from our ESG financing, we do not consider
properties that do not meet the criteria under our Green Finance Framework and do not qualify as eligible
green assets for NAF’s investment. 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.
In addition, Mitsui Fudosan Residential Lease Co., Ltd., a property manager of NAF, includes
certain information sharing and cooperation clauses in its standard lease agreement that require the tenants
to make efforts and cooperate on environmental consideration.
Designated reference benchmark
NAF has no benchmark index designated as a reference benchmark to meet the environmental orsocial characteristics promoted by NAF.

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)
The Asset Manager has a remuneration policy in place which aims to support its strategy, values and longterm interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent
with the integration of sustainability risks as follows.
•

Employees of the Asset Manager receive monthly remuneration based on job rank, and an
employee’s job rank is determined through a performance evaluation (generally conducted once ayear) based on factors including individual performance, skills, ability, and in some cases,
contribution to sustainability targets.

•

Remuneration, methods of calculation and payment, timing of payment, and increases inremuneration are determined according to the Asset Manager’s compensation rules, which areestablished based on statutory requirements.

•

Employees receive remuneration that consists of monthly remuneration based on job rank, overtime
allowance, twice-a-year bonus, and other allowances.

•

Employees of the Asset Manager may receive twice-a-year bonuses, which are determined basedon economic and market circumstances as well as the company’s performance, including withrespect to sustainability targets.

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 plansconcerning 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 wereapproved by the Investment Committee, which includes the President and CEO of the Asset Manager, who
is a member of the Committee and the 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 theinvestment committee. The material ESG issues are subject to periodical review and update to reflectchanges 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 of identifying 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 such risks
Under this organizational structure, we have instituted a number of initiatives to promote theenvironmental and social characteristics. Such initiatives include climate change initiatives, initiatives forsaving energy and reducing CO2 emissions, and initiatives for employees’ initiatives.
In order to conduct sustainable asset management while maximizing the value of NAF’s
properties, we have taken into consideration ESG factors in our investment and asset management
processes. We also have established 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 ourinvestment 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 NAF 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 theassets in which NAF 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. More information, 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 inJapan and could affectthe value of NAF’s
portfolio.

Monitoring physicalrisks, identifying highrisk properties, andeither taking preventive
measures or disposingof them

Increased flood
countermeasure costs

Reflecting physical risk
information in theassessment processwhen acquiring newproperties
Damage to properties
from typhoons

Increased repair costs
and insurance
premiums

We assess such risk aslarge because typhoons
occur frequently inJapan and could affectthe value of NAF’s
portfolio.

Same as above

Flooding of lowelevation properties, etc.
due to rising sea level

Increased costs ofcountermeasures forhigh-water damage

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

Same as above

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

Increased air
conditioner
equipment
maintenance andoperation costs

We assess such risk aslarge because abnormal
weather is increasing
and could affect thevalue of NAF’s
portfolio.

Managing air
conditioner equipment
maintenance andoperation costs

Transition risks
The assets in which NAF 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 NAF 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 introductionof carbon tax

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

Setting GHG emission
intensity reduction
targets and disclosing
achievement status

Steep rise in current
electricity prices due
to carbon tax hikes

Considering energysaving upgrades forproperties
Procuring renewableenergyAcquiring ZEH (Note2) properties andconsidering retrofittingof existing properties

Sharing expertise
across the Mitsui
Fudosan Group

Tightening ofenvironmental standards

Increased procurement
and repair costs forbuildings andequipment

We assess such risk as
small because theeffects of suchincreased costs on
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 theeffects of suchincreased costs on
NAF’s portfolio would
be limited, and incertain cases, view
such risk as anopportunity to makeinvestments in cost
reduction.

Gathering information
about new technologies
and services andconsidering
implementation policy

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

Striving to gather
information on realestate assessment trends
and either improving
properties'
environmental
performance ordisposing of 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(stranding of assets)

Sharing expertise
across the Mitsui
Fudosan Group

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 climatechange unlikely toworsen financing
conditions.

Comprehensive
climate-related
financial information
disclosure
Ongoing
implementation ofgreen 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 because
disfavoring housings
due to poor
environmental
performance is limited
in rental 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 runningcosts due to steep risein energy prices
Increased renewableenergy costs due tochanging energy mix

Reduced brandreputation on financial
and capital markets

Decreased investment
unit value due toperceived passive
response to climatechangeWe assess such risk as
small because theeffects of suchincreased costs on
NAF’s portfolio would
be limited.

Purchasing renewableenergy (green power
certificates, etc.)

We assess such risk as
medium because
investors increasingly
are demanding more
active responses toenvironmental issues
and such perception
may turn away
environmentally
focused investors.

Maintaining brandimage by proactively
pursuing initiatives
aimed at a decarbonizedsociety and robustly
addressing climatechange