Initiatives to Address Climate Change

JEI’s Recognition on Climate Change

The Paris Agreement adopted in 2015 set a long-term global goal of keeping the average global temperature rise well below 2°C, preferably to 1.5°C, compared with pre-industrial levels.
The IPCC (Intergovernmental Panel on Climate Change) Sixth Assessment Report (Working GroupⅠ) released in 2021 points out that there is no doubt that human activities are affecting global warming. It says that the global average temperature will continue to rise until at least the middle of this century, and is expected to exceed 1.5°C and 2°C by the end of the 21st century unless greenhouse gas emissions are substantially reduced in the next several decades.
In October 2020, Japan Excellent, Inc. (JEI) determined materiality (key issues) in an aim to contribute to the realization of a sustainable society as a corporate social responsibility based on its Sustainability Policy. And it established the “Promotion of measures against climate change through reduction of environmental burden, etc.” as one of the measures.
We recognize that addressing climate change is one of the most important social issues, and contributing to a decarbonized society is a social mission that leads to the sustainable growth of JEI over the medium to long term. Hence, in response to the acceleration of climate change measures in Japan and overseas, we set a medium-term target in October 2021 of reducing the CO₂ emission intensity by 46% by FY2030 (compared with the level of FY2013), and a long-term target in January 2023 of net zero CO₂ emissions by FY2050.

Announcement of Support of TCFD Recommendations (and Participation in TCFD Consortium)

Recognizing that climate change is a systemic risk in finance, investors and many other stakeholders are calling for the disclosure of information on climate-related risks and opportunities.
In June 2021, Japan Excellent Asset Management Co., Ltd. (JEAM), JEI’s asset management company, supported the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB), and joined the TCFD Consortium, which includes supporting companies in Japan.
Identifying, assessing, and managing the risks and opportunities posed by climate change and enhancing business resilience in line with the TCFD recommendations are essential to ensuring sustainable and stable earnings for JEI over the long term. JEI will promote the analysis, disclosure, and response to climate-related risks.
At the TCFD Consortium, companies and financial institutions that support the TCFD recommendations are working together to promote initiatives and to discuss them to connect the effective information disclosure by corporations and the disclosed information with appropriate investment decisions by financial institutions, etc. Through participating in the Consortium, we will promote dialogue with supporting companies and collect information on good practices, etc. and proceed with the disclosure of climate-related information in line with the TCFD recommendations.

Governance

We recognize that the issue of climate change has brought about dramatic changes in the natural environment and social structure, and has a serious impact on the management and business of JEAM and JEI as a whole. Hence, JEAM established the "Rules for Responding to Climate Change" and the "Implementation Guidelines for Responding to Climate Change" in October 2021. They stipulate basic policies and internal systems related to addressing climate change-related risks and opportunities and to business and strategic resilience to climate-related issues.
In order to promote sustainability initiatives at the organizational level, we have established a Sustainability Committee whose key members include the President and division managers (Directors). Initiatives including climate-related issues are supervised by the President, who is the chairman and serves as the Chief Executive Officer, while the division managers in charge of each issue are responsible for the implementation of initiatives.
At the Sustainability Committee, matters related to identification, assessment and management of climate-related risks and opportunities, progress in adaptation and mitigation efforts, and the setting of indicators and targets are reported to the Chief Executive Officer on a regular basis. The Chief Executive Officer makes final decisions after the participants in the Sustainability Committee deliberate and examine each agenda item.

Organization Chart

Strategy

JEAM announced its support for the TCFD recommendations in June 2021, and in December 2021, for the first time, members of the Sustainability Committee conducted a qualitative scenario analysis of climate-related risks and opportunities at JEI, which was approved by the Chief Executive Officer at the Sustainability Committee meeting held in January 2022.

1. Scope of scenario analysis

A scenario analysis was conducted, covering JEI’s real estate management, which is managed by JEAM.

2. Reference scenario

Climate change risks are broadly divided into transition risks and physical risks. In general, "transition risk" refers to business uncertainty arising from the transition of the socioeconomic system to low carbon and decarbonization, and "physical risk" refers to business uncertainty resulting from changes to conventional climate patterns and weather events as climate change progresses.

The scenarios referenced in this scenario analysis are as follows:

Risk	Information source	1.5～2°C scenario	4°C scenario
Transition risk	IEA (International Energy Agency) World Energy Outlook 2020	IEA NZE2050	IEA STEPS
Physical risk	IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report	IPCC RCP4.5	IPCC RCP8.5

3. World view

Each scenario assumes the following world view:

（1） World view under the 1.5～2°C scenario

（2） World view under the 4.0°C scenario

4. Financial impact assessment and response measures for risks and opportunities

In our qualitative analysis of climate-related risks and opportunities, we identified risks and opportunities in FY2021 and assessed their financial impact as follows. We also considered future countermeasures for each risk and opportunity. In FY2022, we conducted quantitative financial impact analysis of risks and opportunities identified and assessed above that are particularly important and calculable based on reference materials, etc.
Going forward, we will work to improve the resilience of our business by implementing environmental and energy-saving measures for the buildings we own, improving the efficiency of energy use, reducing CO2 emissions by further introducing renewable energy-derived electricity and CO2-free electricity, and conducting risk assessments through the use of hazard maps and others. In addition, we will further work to reflect the results of these scenario analyses in JEI's operational and financial plans.

<Qualitative financial impact analysis of identified climate-related risks and opportunities>

					4°C scenario			1.5～2°C scenario
					Financial impact			Financial impact
		Climate-related risks and opportunities	Financial impact on JEI	Countermeasures and risk management to be considered	Short term	Medium term	Long term	Short term	Medium term	Long term
Transition risk	Policy and Law	Increase in taxes on GHG emissions due to the introduction of carbon tax	Increased tax burden on properties associated with GHG emissions	・Reduction of CO2 emissions by switching to renewable energy-derived electricity and CO2-free electricity	Low	Low	Medium	Low	Medium	High
	Policy and Law	Strengthening of energy conservation standards for existing and new buildings	Increase in renovation costs and property acquisition costs related to addressing climate change	・Improving energy efficiency of existing properties through facility upgrades and renovations ・Replacement with and new acquisition of properties that have high environmental performance	Low	Low	Medium	Low	Medium	High
	Technology	Evolution and diffusion of renewable energy and energy-saving technologies	Increase in the cost of introducing new technologies to prevent equipment in the existing properties from becoming technologically obsolete	・Replacement with and new acquisition of properties that have the latest energy-saving facilities	Low	Low	Medium	Low	Medium	High
	Market	Introduction of environmental performance and disaster resilience standards for real estate appraisals	Decline in the fund's Net Asset Value (NAV)	・Increasing the ratio of DBJ Green Building Certification ・Improving energy efficiency and reducing CO2 emissions through facility upgrades and renovations ・Implementation of risk assessment using hazard maps, etc. ・Reducing the risk of property damage by making reinforcements as needed	Low	Medium	High	Low	Medium	High
		ESG evaluation of rating agencies and changes in investors’/lenders’ stance on ESG investment and lending	Increase in debt equity funding costs due to delays in addressing ESG and climate change	・Promotion of ESG and climate change measures and enhancement of disclosure ・Improved ESG appraisals by external organizations	Low	Medium	High	Medium	Medium	High
		Changes in tenant demand (choosing properties that are more climate resilient or avoiding properties that are not)	Decrease in revenue due to difficulty in acquiring new tenants	・Increasing the ratio of DBJ Green Building Certification ・Reduction of CO2 emissions by switching to renewable energy-derived electricity and CO2-free electricity ・Improving energy efficiency of existing properties through facility upgrades and renovations ・Reducing the risk of property damage by making reinforcements as needed	Low	Medium	High	Medium	Medium	High
	Reputation	Decline in brand value due to delayed response to climate change	Lower revenue and lower unit prices due to lower occupancy rates		Low	Medium	High	Medium	Medium	High
Physical risk	Acute	Increase in damage to properties due to storms and floods	Increase in repair and insurance costs and decrease in occupancy rates	・Implementation of risk assessment using hazard maps, etc. ・Holding properties in areas less affected by flood damage ・Reducing the risk of property damage by making reinforcements as needed	Medium	Medium	High	Medium	Medium	High
	Acute	Inundation due to inland flooding caused by concentrated heavy rain, flooding of nearby rivers, etc.			Medium	Medium	High	Medium	Medium	High
	Chronic	Inundation of property due to a rise in sea level, rainfall or changes in weather patterns	Incurring of costs for major renovation (raising) and reinforcement of inundation-resistant facilities		low	Medium	High	Low	Medium	Medium
	Chronic	Higher demand for air conditioning due to an increase in extreme climates such as extremely hot and extremely cold days	Increase in air conditioning operation, maintenance and repair costs	・Improving energy efficiency of existing properties through facility upgrades and renovations ・Expansion of green lease contracts and implementation of energy-saving measures in cooperation with tenants ・Promotion of greening in facilities	low	Medium	High	Low	Medium	Medium
Opportunities	Products and Services	Provision of facilities and services that reduce the risk of disasters such as floods	Increase in rent, and increase in revenue by attracting new tenants and continuing tenants	・Implementation of risk assessment using hazard maps, etc. ・Reducing the risk of incurring damage by making reinforcements as needed	Medium	Medium	High	Medium	Medium	High
	Products and Services	Attracting tenants and users by providing highly efficient and low-emission facilities and services		・Increasing the ratio of DBJ Green Building Certification ・Reduction of CO2 emissions by switching to renewable energy-derived electricity and CO2-free electricity ・Improving energy efficiency and reducing CO2 emissions through facility upgrades and renovations	Low	Medium	Medium	Medium	Medium	High
	market	Continued provision of rental properties in line with changes in tenant preferences and development of new customer segments			Low	Medium	Medium	Medium	Medium	High
	market	Responding to changes in the stance of lender debt equity investors on investing and lending due to the further progress in ESG investments	Diversification of funding methods and reduction of funding costs by responding to and appealing to investors who place importance on addressing ESG and climate change	・Promotion of ESG and climate change measures and enhancement of disclosure ・Reducing funding costs through further use of green finance and sustainability finance	Low	Medium	Medium	Medium	Medium	High

Assumed time horizons — Short term: to 2025; Medium term: to 2030; Long term: to 2050

<Quantitative financial analysis>

Impact of risks and opportunities on earnings (image)

Anticipated impact in each scenario

Assumed time horizons — Medium term: to 2030

Impact on earnings (estimate)

【4℃ scenario】

【1.5～2℃ scenario】

This estimate is analysis of part of the scope of business of JEI, and does not assess the overall impact. We will continue to consider further deepening analysis such as the approach to assumptions in estimated items and the expansion of estimated items based on policy trends in Japan and worldwide, etc.

This estimate is made by referring to various parameters such as scenarios and reference materials presented by major organizations based on the operating performance, etc. of JEI and the amount of financial impact is an annual basis, and no assurances are provided on the accuracy thereof. Furthermore, the assumed measures are estimated assumptions, and no plans or decisions have been made to execute them.

Risk Management

JEAM will manage climate-related risks and opportunities in order to mitigate material climate-related risks and realize opportunities through the following framework.

The Sustainability Committee will consider identifying and assessing climate-related risks once a year. To the extent possible, efforts will be made to evaluate the time horizon, possibility, and degree of impact of each risk and scenario. The person in charge of climate change action reports on the specific progress and results of risk assessment to the Sustainability Committee on a regular basis.
The Sustainability Committee shall, based on the results of a study on the possibility and the degree of impact of identified climate-related risks, discuss climate-related risks that should be addressed with priority and prioritize risk management responses. When climate-related opportunities are reported, they are also discussed and prioritized for business strategy.
The Chief Executive Officer on climate-related issues instructs the development of action plans for climate-related risks and opportunities that have been discussed by the Sustainability Committee and are of high priority in business and financial planning.
Depending on the content of the proposed measures, the designated department or person in charge will deliberate the measures at the meeting of the Sustainability Committee or other appropriate committee within the company and implement them.
For climate-related risks that are important to our business and financial plans, the Chief Executive Officer on climate-related issues will give out an instruction to consider the risks also in the existing company-wide risk management program (Integrated Risk Management), and we will integrate our risk identification, assessment and management processes.

Metrics and Targets

JEAM is working to improve environmental performance by setting environmental targets, implementing initiatives, and monitoring those initiatives with the aim of reducing climate-related risks and realizing opportunities.
The person in charge of addressing climate change or the person in charge of the department responsible for addressing climate change summarizes the progress of various efforts and KPIs at least once a year and reports them at the meeting of the Sustainability Committee.
The current applicable targets and results are as follows. Going forward, we will continue to regularly confirm that targets and KPIs are set and advanced appropriately for adaptation to and mitigation of climate change, and consider adding metrics as appropriate.

１．Target

CO₂ Emissions Reduction Target

Achieve 42% reduction in CO₂ emissions intensity (Scope 1 and Scope 2 ) by FY2030 compared with the FY2023 level
Net zero by FY2050

Energy Consumption Reduction Target

Achieve 7% or more reduction in energy consumption intensity by FY2030 compared with the FY2023 level

Water Consumption Reduction Target

No increase in water consumption intensity from the FY2023 level by FY2030

２．Environmental performance

				FY 2019	FY 2020	FY 2021	FY 2022	FY 2023
	Electricity	Total	(MWh)	73,866	65,751	63,239	60,845	59,986
	Electricity	Intensity	(kWh/㎡)	215.3	200.1	197.1	196.8	193.7
	Fuels	Total	(MWh)	22,921	20,038	23,312	18,632	16,546
	Fuels	Intensity	(kWh/㎡)	66.8	61.0	72.6	60.2	53.4
	District Heating&cooling	Total	(MWh)	25,907	23,503	23,983	24,131	25,815
	District Heating&cooling	Intensity	(kWh/㎡)	75.5	71.5	74.7	78.0	83.3
Total Energy Consumption		Total	(MWh)	122,695	109,293	110,536	103,609	102,347
Total Energy Consumption		Intensity	(kWh/㎡)	357.7	332.7	344.6	335.2	330.5
GHG emissions		Scope1	(t-CO₂)	4,089	3,577	4,164	2,934	2,349
		Scope2	(t-CO₂)	38,888	33,222	26,323	7,541	8,286
		Scope3	(t-CO₂)	-	-	-	4,507	6,290
		Total	(t-CO₂)	42,978	36,799	30,487	14,983	16,925
		Intensity	(t-CO₂/㎡)	0.13	0.11	0.09	0.04	0.05
Water use		Total	(1,000m³)	395	289	267	281	305
Water use		Intensity	(m³/㎡)	1.15	0.88	0.83	0.90	0.98
Wastes		Total	(t)	4,385	3,411	3,063	3,159	1,920

			Impacts in each scenario
Section		Items(Risks and Opportunities)	4°C scenario	1.5～2°C scenario
Transition risk	Policy and Law	Increase in taxes on GHG emissions due to the introduction of carbon tax	No increase in taxes on GHG emissions from properties (status quo)	Significantly increased tax burden on properties associated with GHG emissions (-)
	Policy and Law	Strengthening of energy conservation standards for existing and new buildings	・Increase in renovation costs to support energy saving (-) ・Decrease in utilities expenses and CO2 emissions through energy-saving renovations (+)	・Increase in renovation costs to support energy saving (-) ・Decrease in utilities expenses, CO2 emissions and carbon tax through energy-saving renovations (+)
	Technology	Evolution and diffusion of renewable energy and energy-saving technologies	Increase in the cost of introducing new technologies to prevent equipment in the existing properties from becoming technologically obsolete (-)	Increase in the cost of introducing new technologies to prevent equipment in the existing properties from becoming technologically obsolete (-)
	Market	Introduction of environmental performance and disaster resilience standards for real estate appraisals	Environmental certification has impact on real estate appraisals (+) (-)	Environmental certification has impact on real estate appraisals (+) (-)
		ESG evaluation of rating agencies and changes in investors’/lenders’ stance on ESG investment and lending	Increase in debt equity funding costs due to delays in addressing ESG and climate change (-)	Increase in debt equity funding costs due to delays in addressing ESG and climate change (-)
		Changes in tenant demand (choosing properties that are more climate resilient or avoiding properties that are not)	Decreased rent income in properties without environmental certification (-)	Decreased rent income in properties without environmental certification (-)
	Reputation	Decline in brand value due to delayed response to climate change	Lower revenue and lower unit prices due to lower occupancy rates (-)	Lower revenue and lower unit prices due to lower occupancy rates (-)
Physical risk	Acute	Increase in damage to properties due to storms and floods	Occurrence of repair costs and decrease in rent income (-) Large portion of loss covered by insurance (+)	Occurrence of repair costs and decrease in rent income (-) Large portion of loss covered by insurance (+)
	Acute	Inundation due to inland flooding caused by concentrated heavy rain, flooding of nearby rivers, etc.
	Chronic	Inundation of property due to a rise in sea level, rainfall or changes in weather patterns	Occurrence of costs for large-scale renovation (raising) and reinforcement of inundation-resistant facilities (-)	Occurrence of costs for large-scale renovation (raising) and reinforcement of inundation-resistant facilities (-)
	Chronic	Higher demand for air conditioning due to an increase in extreme climates such as extremely hot and extremely cold days	Increase in utilities expenses due to increased operation of air conditioning (-)	Increase in utilities expenses due to increased operation of air conditioning (-)
Opportunities	Products and Services	Provision of facilities and services that reduce the risk of disasters such as floods	Increased rent income in properties with environmental certification (+)	Increased rent income in properties with environmental certification(+)
	Products and Services	Attracting tenants and users by providing highly efficient and low-emission facilities and services
	Market	Continued provision of rental properties in line with changes in tenant preferences and development of new customer segments
	Market	Responding to changes in the stance of lender debt equity investors on investing and lending due to the further progress in ESG investments	Diversification of procurement methods and reduction of procurement costs by responding to and appealing to investors who place importance on addressing ESG and climate change (+)	Diversification of procurement methods and reduction of procurement costs by responding to and appealing to investors who place importance on addressing ESG and climate change (+)