Product Name: Japan Excellent, Inc.

Japan Excellent, Inc. (“JEI”) promotes environmental and social characteristics, but does not have as its objective a sustainable investment within the meaning of Article 9(1) of Regulation (EU) 2019/2088 (“SFDR”). JEI has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on Japan Excellent Asset Management Co., Ltd. (the “Asset Manager”) to manage and operate the properties in its portfolio. JEI and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our”. We have no reference benchmark designated for the purposes of attaining the environmental or social characteristics promoted by our investment units. In addition, any fiscal year or FY hereinafter refers to the fiscal year beginning on April 1 of such year and ending on March 31 of the following year and any fiscal period hereinafter refers to the 6-month fiscal periods ending June 30 and December 31 of each year.

Summary

No sustainable investment objective	The financial products offered by JEI promote environmental and social characteristics, but do not have as their objective sustainable investment.
Environmental or social characteristics of the financial product	In recognition of the importance of considering the environmental, social and governance (“ESG”) effects of our real estate investment management business, we established a Sustainability Policy in 2015. Consistent with this policy, we implement a number of environmental initiatives, including the reduction of energy consumption, greenhouse gas emissions, and water use, promotion of “greening” of our buildings, and support for third-party principles such as the Principles for Responsible Investment. We also implement various social initiatives, such as improving tenant satisfaction, earthquake preparedness and building safety, and support for employees.
Investment strategy	The governance policies adopted by us take into account sustainability in our investment process. This includes due diligence to ensure compliance with applicable environmental laws and certifications and selection of properties in accordance with our sustainability finance and green finance frameworks (as detailed below). The Asset Manager’s Sustainability Committee also examines and reports on various initiatives taken based on the Sustainability Policy and monitors targets, measures and plans adopted by the Sustainability Committee.
Proportion of investments	As of the end of the fiscal period ended December 31, 2024, 88.3% of the properties in our portfolio were Eligible Green Assets, which are properties that have acquired one of (i) DBJ Green Building Certification or (ii) CASBEE for Real Estate certification (see below for details on each certification), and 11.7% of the properties in our portfolio were nonqualified assets, in each case based on total leasable floor area.
Monitoring of environmental or social characteristics	We use a variety of indicators to measure the attainment of environmental and social characteristics we promote. For our climate change initiatives, we establish targets for and track progress toward reductions in CO2 emissions, energy consumption, and water use. We also implement sustainable procurement initiatives to assess the commitment of our suppliers to sustainable practices and require our suppliers to cooperate in promoting the Asset Manager’s sustainability efforts. We also engage in initiatives to support local community activities and collaborate with property managers and tenants to ensure their commitment to sustainable practices. Finally, we actively to seek to acquire sustainability certifications (such as DBJ Green Building Certification and CASBEE Real Estate Certification) each year to increase the credibility and objectivity of our efforts to reduce the environmental impact of our properties.
Methodologies	The Asset Manager’s Sustainability Committee has identified as set of sustainability issues based on their materiality and assesses risks arising from and opportunities to address such issues. This includes monitoring environmental data related to our climate change initiatives, tracking measures related to sustainability certifications, evaluating property managers and collecting data through tenant satisfaction surveys, reviewing information related to our suppliers, and collecting information related to local community initiatives.
Data sources and processing	We collect data related to our sustainability initiatives from a variety of sources. For our climate change initiatives, we evaluate data such as CO2 emissions, energy consumption, water consumption, and waste recycling rates. This data is subject to third-party assurances on an annual basis. Regarding sustainability certifications, once a year our responsible departments respond to a questionnaire and these responses are evaluated by an external consulting company. We also carry out an annual survey of property management companies and check the sustainability initiatives of our business partners through public information and surveys. To measure the success of our social initiatives, we regularly collect feedback from tenants and employees.
Limitations to methodologies and data	The primary limitation to methodologies and data is the necessity of reliance on tenants and property management companies for raw data at the property level. Therefore, the accuracy of data will not always be fully ensured. Data at the portfolio level is compiled 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 the data; however, the assurance report does not provide independent verification of accuracy of raw data at the property level.
Due diligence	When acquiring a property, we conduct on-site inspections and also investigate soil contamination, toxic substances such as asbestos and PCBs, the risk of natural disasters and whether the property has green building certifications such as CASBEE Real Estate certification and DBJ Green Building certifications. We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.
Engagement policies	As discussed in detail above, JEI invests only in properties that have been subjected to ESG-related due diligence such as investigations for soil contamination, toxic substances such as asbestos and PCBs, the risk of natural disasters and whether the property has green building certifications. When investing in undeveloped land, because development activities can have an impact on the natural environment and ecosystems, we only invest in properties that have acquired or have the potential to acquire a green building certificate. Furthermore, we have established a sustainability finance framework and green finance framework to conduct sustainability or green financing.
Designated reference benchmark	JEI has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by JEI.

No sustainable investment objective

The financial products offered by JEI promote environmental and social characteristics, but do not have as their objective sustainable investment.

Environmental or social characteristics of the financial product

In recognition of the importance of considering the environmental, social and governance (“ESG”) effects of our real estate investment management business, we believe that it is our social responsibility to work toward reducing our environmental impact and collaborate with stakeholders to realize a sustainable society. We have established a Sustainability Policy in 2015 and manage our portfolio based on this policy.

We implement various environmental initiatives including the following:

• Reduction of energy consumption. We will contribute to energy-saving by improving operations to increase energy efficiency and promoting introduction of energy-saving equipment such as LED lighting and energy-efficient air-conditioning systems at our properties.
• Reduction of greenhouse gas emissions. We have established a target of 46% reduction of CO2 emissions intensity by FY2030 (compared to FY2013 levels) and a target of net zero CO2 emissions by FY2050. We have been working to reduce CO2 emissions by expanding the installation of CO2-free electricity, including renewable energy. We will continue to take steps to achieve our targets, including further installation of CO2-free electricity in buildings, introduction of equipment with high energy-saving performance and LED lighting in private and common areas of our buildings.
• Reduction of water use. We are working to reduce water consumption by installing water-saving equipment when we replace toilets. In addition, some of our properties are equipped to recycle rainwater or used water to reduce the use of tap water.
• Effective utilization of resources. We will contribute to the realization of a recycling-oriented society through initiatives to save water and promote the 3Rs (reduce, reuse, recycle) for reducing waste.
• Promotion of “greening”. We are proactive in “greening” our properties. Planting on rooftops has a heat shielding effect, reducing the heat load inside the building and reducing the power consumption of the air-conditioning system. It also creates an environment where small birds and insects can fly in and congregate, thereby restoring the ecosystem and helping to preserve biodiversity.
• Green Lease provisions. As a rule, we include green lease clauses in all new lease agreements. The green lease clauses stipulate that the parties shall work together to improve environmental performance, share energy consumption data and take environmental considerations into account when carrying out renovation work.
• Collaboration with outside parties. We will facilitate communication with local communities, while collaborating with tenants and property managers to reduce our environmental impact.
• Information disclosure. We will proactively disclose information on our sustainability policy and related initiatives to unitholders, tenants, business partners and other related parties.
• Expression of support for third-party principles.

• Principles for Responsible Investment (“PRI”). PRI are six principles, backed by an international network of investors devoted to their realization, promoted by the United Nations Environment Programme Finance Initiative (UNEP FI) and the United Nations Global Compact (UNGC). PRI advocates the incorporation of ESG perspectives into investment decision-making processes with the aim of improving beneficiaries’ long-term investment performance and more effectively fulfilling fiduciary responsibilities. The Asset Manager endorses the basic philosophy of PRI and, in July 2020, became a signatory.
• Task Force on Climate-related Financial Disclosures (“TCFD”). In June 2021, the Asset Manager expressed support for TCFD and became a member of the TCFD Consortium (composed of Japanese companies and organizations that support TCFD). TCFD was established to promote proactive climate change-related disclosures and other relevant matters.
• Principles for Financial Action for the 21st Century (PFA21). In June 2021, the Asset Manager became a signatory to the Principles for Financial Action for the 21st Century, which were established in October 2011 as guidelines for financial institutions seeking to fulfill their responsibilities to make society sustainable.

We implement various social initiatives at our properties including the following:

• Improving tenant satisfaction. We conduct regular satisfaction surveys of tenants and office workers and utilize the survey results to improve the operation and management of the property and increase tenant satisfaction.
• Earthquake preparedness and building safety. JEI has building a system to minimize damage and ensure rapid recovery from natural disasters from the perspective of a business continuity plan. In addition, as a condition for selecting properties, under the Asset Management Guidelines, JEI stipulates that the properties shall meet the new seismic resistance standard or an equivalent level or higher. For all properties under consideration for acquisition, an evaluation of seismic resistance by a professionally competent third-party organization is carried out in advance.
• Initiatives for local communities. We support local activities by providing space for various events, such as periodic concerts in the common areas of our office buildings and activities of the UN refugee agency. Akasaka Intercity AIR also has a full range of facilities to support office workers, visitors and local residents, including childcare facilities, a clinic and a large green space. It also serves as a local disaster prevention center, with an emergency generator providing power for up to 200 hours and an earthquake-resistant structure.
• Support for employees. Once a year, we conduct an employee satisfaction survey of all our employees to monitor their satisfaction levels. The results of the survey are reported to management and feedback is provided to employees. Based on the results, the action plans are formulated and implemented to improve the working environment.
• Employee education. We will educate our employees to be environmentally-conscious through educational activities such as ESG training to promote sustainability initiatives.

Investment strategy

Because we invest directly or indirectly through trust beneficiary interests in real estate and real estate-related assets, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. Therefore, we have opted to provide information on the governance policies adopted by us. The investment policies as described below are related to real estate and real estate-related assets.

We take into account sustainability in our investment process as follows:

• Investment policy. We primarily invest in office buildings located in major metropolitan areas and conduct portfolio management in a manner that encourages stability and increased revenues by selectively acquiring properties. Our investment policy is to create a portfolio that is 90% office buildings (based on purchase price).
• Due diligence. When acquiring a property, we conduct on-site inspections and also investigate soil contamination, toxic substances such as asbestos and PCBs, the risk of natural disasters and whether the property has green building certifications such as Comprehensive System for Building Environmental Efficiency Real Estate Certification (“CASBEE” Real Estate Certification) and Development Bank of Japan Green Building Certifications (“DBJ” Green Building Certifications). We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.
• Selection of properties. An investment decision is made upon comprehensively reviewing a number of factors, including the property’s scale, specifications, profitability and risks, after gaining an understanding of locational characteristics and relevant real estate market trends. In this decision process, we evaluate environmental issues discovered through due diligence review. When investing in undeveloped land, in light of the fact that development activities can have an impact on the natural environment and ecosystems, we only invest in properties that have acquired or have the potential to acquire a green building certificate, such as CASBEE for New Construction. Furthermore, we have established a sustainability finance framework and green finance framework to conduct sustainability or green financing. The net proceeds from green financing are used as follows.

• Sustainability Finance Framework. Sustainability finance refers to financing with loans or bonds to acquire Eligible Sustainability Projects (as defined below) and is generally in accordance with the principles stipulated by the International Capital Markets Association (ICMA). Proceeds obtained through sustainability finance are allocated as funds for acquiring Eligible Sustainability Projects or funds for refinancing or redemption of existing bonds issued to acquire Eligible Sustainability Projects.

・ Eligible Sustainability Projects. Eligible Sustainability Projects shall be projects selected by the Asset Manager’s Sustainability Committee that meet the following criteria: (i) properties that have received one of DBJ Green Building certification (3-star rating or better) or CASBEE Real Estate certification (B+ ranking or better) within the three years prior to the financing date or are expected to acquire it within the remaining term of the loan or bond, and (ii) properties that meet or exceed a given standard with respect to community disaster prevention, childcare support or socio-economic advancement and empowerment that help to address social issues.

• Green Finance Framework. Green finance refers to financing with loans obtained or securities issued for the purpose of acquiring assets needed for green projects (environmentally friendly investments and/or projects). In general, green finance is conducted in accordance with the Green Bond Principles stipulated by the International Capital Markets Association. Proceeds obtained through green finance are allocated as funds for acquiring Eligible Green Projects (as defined below), funds for repayment of loans obtained to acquire Eligible Green Projects, or funds for redemption of bonds (including Green Bonds). In addition, proceeds obtained through green finance are allocated to renovations which aim to reduce a property’s GHG emissions or energy consumption by 20% or more, or to obtain green building certifications.

・ Eligible Green Projects. Eligible Green Projects shall be assets (other than Eligible Sustainability Projects) that have received one of DBJ Green Building certification (3-star rating or better) or CASBEE Real Estate certification (B+ ranking or better) within the three years prior to the green finance issuance date or are expected to acquire it. Eligible Green Projects are selected by the Asset Manger’s Sustainability Committee.

The Asset Manager’s Sustainability Committee is comprised of the President and division managers. The Sustainability Committee examines and reports on various initiatives taken based on the Sustainability Policy. The Committee generally meets four times a year and determines targets, measures, overall plan and other significant matters related to sustainability. Moreover, the Sustainability Committee periodically monitors the progress towards targets, measures and plans adopted by the Sustainability Committee.

Proportion of investments

As of the end of the fiscal period ended December 31, 2024, 88.3% of the properties in our portfolio were Eligible Green Assets, which are properties that have acquired one of (i) DBJ Green Building Certification or (ii) CASBEE for Real Estate certification, and 11.7% of the properties in our portfolio were nonqualified assets, in each case based on total leasable floor area.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics we promote.

• Climate change initiatives

• Reduction of CO2 emissions. We aim to achieve a 46% reduction in CO2 emissions (intensity) from our portfolio by FY2030, compared to FY2013 levels. In addition, in January 2023, we set a new CO2 emissions goal of achieving net zero CO2 emissions by FY2050. To reduce CO2 emissions, we have made and will continue to switch to renewable energy-based electricity and CO2 free electricity at our properties.
• Reduction of energy consumption. We aim to achieve an annual 1% reduction in energy consumption (intensity) from our portfolio. In addition, we aim to reduce our average energy consumption intensity rate between FY2020 and FY2024 by at least 5% compared to the average energy consumption intensity rate between FY2015 and FY2019. As part of our efforts to save energy, we are pursuing initiatives based on improved operating methods for air-conditioning, lighting, and other systems. In addition, we continuously monitor the amount of energy consumption at properties in our portfolio to assess progress toward achieving the target and, for properties in our portfolio with low energy efficiency, we make improvements to the management and/or renovate equipment, in order to achieve the consistent reduction in energy consumption of our portfolio.
• Water saving initiatives. We aim to achieve an annual reduction in water consumption (intensity) for our portfolio of 1% per year. In addition, we aim to reduce our average water consumption rate from FY2020 to FY2024 by at least 5% compared to the average water consumption rate from FY2015 to FY2019. We also conduct renovations at our portfolio properties in a structured way, by installing environmentally-friendly equipment.
• Waste management initiatives. In collaboration with tenants and cleaning companies, we are proactively working to establish thorough waste-sorting rules and enhance recycling, with the aim of reducing waste. We made efforts to reduce the waste amount by segregating waste and promoting recycling. As a part of this engagement, we distribute a “Recycling Guide,” which explains the 3Rs (Reduce, Reuse and Recycle) and rules on segregating waste, to our tenants.

• Sustainability certifications. The Asset Manager’s Sustainability Committee established an overall sustainability initiative plan, under which we seek to systematically acquire certifications each year to increase the credibility and objectivity of our efforts to reduce the environmental burden of our properties and increase our mid and long-term value. We aim to maintain the ratio of green building certified properties at 90% or more (floor area basis).

• DBJ Green Building Certification. To promote environmental performance, security measures and disaster prevention measures of properties meeting the expectations of stakeholders connected with real estate, the DBJ Green Building Certification system assesses and certifies buildings using a scoring model developed by the DBJ.
• CASBEE Real Estate Certification. CASBEE is a system established under the leadership of Japan’s Ministry of Land, Infrastructure, Transport and Tourism for the purpose of recognizing and assessing well-managed properties with significant environmental benefits.
• Building-housing Energy-efficiency Labeling System (BELS) Assessment. The BELS system was created for the purpose of implementing accurate evaluation and labeling of nonresidential buildings’ energy-efficiency performance by third-party organizations based on the evaluation guidelines for energy-efficiency labeling for non-residential buildings by the Ministry of Land, Infrastructure, Transport and Tourism of Japan in October 2013.
• Offices Taking Excellent Specific Global Warming Countermeasures. An Office Taking Excellent Specific Global Warming Countermeasures is awarded by the Tokyo metropolitan government to an office that has adopted exceptional global warming countermeasures. The designation is granted to large-scale offices that meet standards specified by the Tokyo metropolitan government based on their systems to promote CO2 reduction, building and facility performance, office and facility operation and management. Among our properties, AKASAKA INTERCITY AIR had been certified as a “Top Level Office”.

• GRESB Real Estate Assessment and Rating. Established by European pension fund groups, the GRESB is a benchmark for measuring real estate companies’ and institutional investors’ commitment to sustainability. Leading European, U.S., and Asian institutional investors use this benchmark in selecting investment targets. In GRESB Real Estate Assessment, we have acquired a “Green Star” every year since 2015, which is the highest rating and is given based on evaluation of the management component, which evaluates policies and organizational structure for ESG promotion, and the performance component, which assesses environmental performance and tenant engagement of properties owned. We include an inquiry to our tenant satisfaction survey on “net promoter score,” which rates the likelihood that tenants would promote the leased properties to others. The net promoter score is one of the GRESB assessment items. We can utilize the survey result on this item to improve tenant satisfaction level towards their leasing properties.
• Collaboration with property managers and tenants.

• Property managers. When selecting property managers, we assess their sustainability-related initiatives, and obtain their agreement to cooperate with our sustainability policies. We monitor property managers’ compliance with sustainability requirements on an annual basis.
• Tenants. We inform our tenants of our commitment to sustainability and provide them with guidelines for renovation intended to reduce its environmental impact and/or promote healthy and comfortable renovation work. When distributing these guidelines, we explain to our tenants our commitment to sustainability and ask them to cooperate with our energy saving efforts.
• Tenant satisfaction survey. We conduct periodic satisfaction surveys with tenants and office workers, and use the survey results to increase tenant satisfaction through improved property operation and management.
• Promotion of green leases. As a general rule, newly signed lease agreements with JEI contain green lease clauses, which aim to reduce our environmental burden in collaboration with tenants. Green lease clauses stipulate that tenants must work in collaboration with us to improve environmental performance, share energy consumption data and factor in environmental considerations when performing renovation work. We proactively included green lease provisions in lease agreements with our tenants.
• Promotion of “greening”. We are proactively engaged in efforts to “green” our properties. For instance, at Akasaka Intercity AIR, we have created an urban cool spot and a relaxing space open to the community through the development of an extensive green space with a greening ratio of over 50% and green paths integrated with the surrounding area. We also promote the acquisition of environmentally-friendly properties. BIZCORE AKASAKA-MITSUKE and BIZCORE JIMBOCHO, and BIZCORE SHIBUYA acquired from and developed by NIPPON STEEL KOWA ESTATE CO., LTD., our major sponsor, contribute to increasing in tenant satisfaction level because they provide rooftop garden, a place for refreshment.

• Sustainable procurement initiatives. The Sustainability Procurement Policy was established to promote ESG-related engagement within the whole value chain involving our portfolio and specify criteria to select and assess goods and services we purchase. To select suppliers, the Asset Manager considers the following matters in addition to quality, price, credibility and services offered by reviewing public information and other information provided by suppliers:

• Commitment to sustainability. The Asset Manager considers whether a supplier (i) has established rules of corporate ethics, (ii) respects human rights and diversity, (iii) has established an appropriate work environment including with respect to time management and holidays, (iv) takes care of employees’ health and comfort, (v) engages local communities, and (vi) has a disaster risk management system.
• Cooperation in promoting the Asset Manager’s sustainability efforts. In addition, the Asset Manager requires a supplier to engage in (i) energy-saving and greenhouse gas emission reduction efforts, (ii) appropriate water and waste management and recycling efforts, and (iii) cooperative efforts with stakeholders such as tenants and local communities.

• Social Initiatives.

• Initiatives for local communities. We support community activities, such as concerts and other events involving local communities, by providing space in the common areas of our office building. Akasaka Intercity AIR houses a wide range of facilities to support office workers, visitors, and local residents, including a daycare, clinic, and large green space. It also plays a role as a community disaster-prevention facility, thanks to an emergency generator that will supply back-up power for up to 200 hours and a robust vibration control system.
• Initiatives for employees. All employees set annual goals following discussion with their supervisors (including ESG-related goals), and at the end of the year, a meeting is held to appraise their performance against the goals. Performance appraisals are reflected in the employees’ salaries and bonuses. We have established a transparent performance appraisal system based on regular evaluation and feedback. We have developed benefit programs such as flexible working hours, including for part-time and contract workers, to support healthy work-life balance as well as measures to prevent long working hours. We have established grievance procedures under which employees may anonymously report workplace-related complaints such as harassment.

Methodologies

The Asset Manager’s Sustainability Committee has identified a set of key sustainability issues based on their materiality, which include promotion of measures against climate change through reduction of our environmental burden and enhancement of tenant satisfaction, and assesses risks and opportunities to address such issues. By addressing these key issues, we aim to contribute to the realization of Sustainable Development Goals (“SDGs”) and JEI’s medium- to long-term growth.

• Climate change initiatives. As described above, the Asset Manager has established various portfolio-level environmental targets in order to mitigate climate-related risks and to take advantage of climate-related opportunities. The progress for each relevant environmental target and related initiatives is tracked by monitoring the relevant environmental data. The implementation progress and results of environmental initiatives are reported to the responsible Departments, which in turn resolve related issues and implement measure to improve such environmental initiatives.
• Sustainability certifications. We use environmental certifications, which are issued by third-party organizations and generally cover a broader scope of sustainability and ESG-related items than those evaluated for our due diligence prior to acquisition of a property. For a property that has not acquired any environmental certification, the Asset Manager considers potential measures to meet the standards for obtaining applicable environmental certifications for the property.
• GRESB Real Estate Assessment and Rating. To better assess JEI’s attainment of environmental and/or social characteristics, we participate in the GRESB Real Estate Assessment, which generally covers a broader scope of sustainability and ESG-related items than those evaluated for our due diligence prior to acquisition of a property. The results of the assessment are reported to the Sustainability Committee where issues are shared and measures are taken to improve the evaluation in the following fiscal year and beyond.
• Collaboration with property managers and tenants. We collaborate with property managers and our tenants to promote ESG-related items. The Asset Manager monitors the status of such initiatives by evaluating property managers annually and work on tenants distributing guidelines to explain to our commitment to sustainability and ask them to cooperate with our energy saving efforts.
• Sustainable procurement initiatives. As described above, the Asset Manager established the Sustainability Procurement Policy to promote ESG-related engagement within the whole value chain involving our portfolio and specify criteria to select and assess goods and services we purchase. Based on the Sustainability Procurement Policy, the Asset Manager reviews public information and other information provided by suppliers.
• Social initiatives. As described above, we aim to fulfill our social responsibilities by various initiatives for local communities such as support for community activities by providing spaces in office building common areas. The Asset Manager collects the information regarding tenants and local communities to monitor and assess the status of such initiatives. In addition, recognizing its employees as its most important management resources, the Asset Manager undertakes several efforts to develop its employees’ talents including interviews and annual employee satisfaction surveys.

Data sources and processing

We use the following data sources:

• Climate change initiatives. Environmental data such as CO2 emissions, energy consumption and water consumption are collected and calculated monthly by the Real Estate Engineering Department and reported at the Sustainability Committee, once every three months in general. As for waste recycling rates, they are also compiled on an annual basis by the Real Estate Management Department. The data compiled on an annual basis is subject to third-party assurance by EY Ernst & Young ShinNihon LLC in June each year, enhancing the transparency of the environmental information disclosure data.
• Sustainability certifications. The Asset Manager’s Sustainability Committee creates an overall sustainability initiative plan to promote in a systematic manner the acquisition of environmental performance certification. Based on this plan, the Real Estate Engineering Department is working on obtaining each certification and assessment, and reports on the status of these efforts at the Sustainability Committee once every three months. The Property Engineering Department requests an external consulting company to prepare the necessary documents for evaluation and certification, and then submits the application to the applying organization.
• GRESB Real Estate Assessment and Rating. Once a year, the Corporate Planning Department, Business Planning Department, Real Estate Management Department, Real Estate Investment Department, and Real Estate Engineering Department share the responsibility for responding to the GRESB questionnaire. The Corporate Planning Department compiles the responses and submits the questionnaire to an external consulting company, while receiving consulting on how to respond to the report. The evaluation results are analyzed and the status of consideration and implementation of responses to the results are reported at the Sustainability Committee.
• Collaboration with property managers and tenants. For collaboration with property management companies, the Real Estate Management Department carries out an annual assessment of the property management companies. This allows the property management company's sustainability compliance to be monitored. The results reported to the Sustainability Committee. Regarding collaboration with tenants, the Real Estate Management Department conducts tenant satisfaction surveys. The results of the survey and the actions to be taken based on the survey results are reported to the Sustainability Committee every three months. In addition, the Asset Manager promotes green leasing to tenants, data on which is collected and calculated once a month by the Real Estate Management Department and reported to the Sustainability Committee every three months.
• Sustainable Procurement Initiatives. As for the sustainable procurement initiatives, the Real Estate Engineering Department checks and monitors the sustainability initiatives of its business partners through public information and surveys.
• Social initiatives. Information on tenants and local communities is provided by the property managers to the Real Estate Management Department. The Real Estate Management Department regularly checks the status of initiatives at the properties and reports for the Sustainability Committee every three months. As for initiatives for employees, interviews are held every year between employees and their evaluators, and they set sustainability-related targets. At the end of the year, personnel evaluations are carried out after a review interview, and the results are given to the employee. We have established a transparent personnel evaluation system based on regular evaluation measurement and feedback. The status of the reflection of sustainability factors in employee performance evaluations is reported once a year at the Sustainability Committee. Other human resources-related data is compiled on an annual basis by the Business Planning Department.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on tenants 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. In addition, data at the property level provided by the property management companies are generally verified at most once every three months. Therefore, the accuracy of data cannot always be fully ensured.

Data at the portfolio level is compiled 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 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 the challenges associated with our reliance on the tenants for raw data at the property level remain.

Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by JEI in any material way.

Due diligence

When acquiring a property, we conduct on-site inspections and also investigate soil contamination, toxic substances such as asbestos and PCBs, the risk of natural disasters and whether the property has green building certifications such as CASBEE Real Estate certification and DBJ Green Building certifications. We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.

Engagement policies

As discussed in detail above, JEI invests only in properties that have been subjected to ESG-related due diligence such as investigations for soil contamination, toxic substances such as asbestos and PCBs, the risk of natural disasters and whether the property has green building certifications such as CASBEE Real Estate certification and DBJ Green Building certifications. In an investment decision, we evaluate environmental issues discovered through due diligence review. When investing in undeveloped land, in light of the fact that development activities can have an impact on the natural environment and ecosystems, we only invest in properties that have acquired or have the potential to acquire a green building certificate, such as CASBEE for New Construction. Furthermore, we have established a sustainability finance framework and green finance framework to conduct sustainability or green financing.

Designated reference benchmark

JEI has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by JEI.

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 long-term interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks as follows.

• Remuneration, methods of calculation and payment, timing of payment and increases or decreases in remuneration are determined according to compensation rules of the Asset Manager.
• Monthly remuneration is determined by taking into account such factors as the individual employee’s skills, experience and assigned duties. The individual employee’s remuneration may be increased or decreased by considering such factors as the individual employee’s ability, performance, including the contribution to sustainability targets, and change in the employee’s title.
• Bonuses may be paid based on the individual employee’s performance, including the contribution to sustainability target.

INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISIONS, AND THE IMPACT OF SUCH RISKS ON THE RETURNS OF JEI (SFDR ARTICLE 6 DISCLOSURE)

JEI and the Asset Manager address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.

The Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that our investment strategy is sustainable. With each acquisition opportunity, JEI and the Asset Manager review ESG-related due diligence findings and risk assessments. These findings and assessments are required to be considered by the Asset Manager’s Compliance Committee, Investment Committee and Board of Directors before a final decision is made on the investment.

As part of due diligence review, prior to investment in a property, the Asset Manager conducts due diligence on the property, including an environment assessment and an evaluation of earthquake resistance and probable maximum loss. The Asset Manager also reviews each property’s green building certification and environmental performance including CO2 emissions at the time of acquisition. In addition to the review of environmental issues discovered through due diligence review, we evaluate risks associated with climate change and environmental issues.

Furthermore, the Asset Manager tracks sustainability measures including climate change initiatives, water-saving initiatives and waste management initiatives.

As a result of the growing interest in ESG factors among our investors and other stakeholders, we believe that insufficient engagement in ESG-related issues could materially adversely impact our reputation, business activities and our unit price. Having established the Sustainability Policy, we will take ESG factors into serious consideration when investing in new properties and managing our portfolio in accordance with such policy. We believe that our ongoing ESG initiatives will contribute to our sustainable growth and improve unitholders’ value while mitigating such ESG-related risks. In addition, we believe that such initiatives also contribute to reduction of the environmental impact of Japan’s overall economy while contributing to local communities and regional economies and at the same time generate sustainable growth in returns.

The following table presents the key climate-related risks that may have a financial impact on JEIʼs real estate investment management business and the initiatives that we have taken to address those risks.

Risk Category		Risk and Opportunity Factors	Identified Risks (Financial Impacts)	Initiatives
Transition	Political and legal	Imposition of tax on GHG emission by introducing carbon tax	• Increased tax burden due to GHG emission from properties	• Reduction of CO2 emission by introducing renewable energy and CO2 free energy
		Enhancement of energy-saving standards for existing and new properties	Increased renovation costs and property acquisition costs	• Increase in energy efficiency of existing properties through renewals and renovations • Replacement with or acquisition of high-environmental performance properties
	Technology	Evolution and growth of renewable energy and energy-saving technologies	Increased costs for new technologies introduced to prevent obsolescence	• Replacement with or acquisition of properties with latest energy-saving facilities
	Market	Introduction of standards such as environmental performance and disaster resilience in real estate appraisals	• Decrease in NAV (Net Asset Value) of funds	• Promotion of acquisition of DBJ Green Building Certification • Increase of energy efficiency and reduction of CO2 emission through renewals and renovations • Risk assessment using hazard maps • Decrease of disaster risk by enhancing properties as necessary
		ESG evaluation by rating agencies, and changed ESG investment policies of investors and lenders	Increased debt and equity procurement costs due to delayed response to ESG and climate change	• Promotion of measures towards ESG and climate change, and enhancement of disclosures • More ESG evaluations by external agencies
		Change in tenants’ demand (e.g., greater preference towards eco-friendly properties and against other properties)	Decreased rent revenues due to difficulty of finding new tenants	• Promotion of acquisition of DBJ Green Certifications • Reduction of CO2 emission by introducing renewable energy and CO2 free energy • Increase of energy efficiency at existing properties through renewals and renovations • Decrease of disaster risk by enhancing properties as necessary
	Reputation	Decrease in brand value due to delayed response to climate change	Decreased rent revenue due to decreases in occupancy rates, and decreased investment unit price
Physical	Acute	Increased number of properties damaged by wind such as typhoon	Increase in repair cost and insurance cost, and decline in occupancy rate	• Risk assessment using hazard maps • Acquiring properties located in areas with less flood risks • Decrease in disaster risk by enhancing properties as necessary
		Water immersion due to flood caused by heavy rains
	Chronic	Water immersion of properties due to increase in sea level and meteorological pattern changes	Major upgrade cost and cost of flood-resistant facilities
		Increase in demand for air conditioning due to increase of extreme weather such as extreme heat and extreme cold	Increased cost of operation, maintenance and repair of air conditioning	• Increase energy efficiency through renewals and renovations • Increase in number of green lease agreements, and promotion of energy-saving measures through cooperation with tenants • Promotion of facility greening
Opportunity	Products and services	Provision of facilities and services that mitigate disaster risks, such as flood risks	Rent increase, and increase of revenue by attracting new tenants and keeping existing tenants	• Risk assessment using hazard maps • Decrease of disaster risk by enhancing properties as necessary
		Appeal to tenants and users by providing high-efficiency and low-emission facilities and services		• Promotion of acquisition of DBJ Green Certifications • Reduction of CO2 emission by introducing renewable energy and CO2 free energy • Increase of energy efficiency and reduction of CO2 emission through renewals and renovations
	Market	Continued leasing following changes in tenants’ preferences, and development of new tenants
		Response to changes in investment policies of lender, debt and equity investors in line with promotion of ESG investments	Diversification of procurement methods and reduction of procurement costs in response to investors and lenders who emphasize ESG and climate change measures	• Promotion of measures towards ESG and climate change, and enhancement of disclosures • Reduction of procurement costs by further utilization of green financing and sustainability financing

Principal Adverse Impact Statement