Frontier Real Estate Investment Corporation

05/31/2023 | Press release | Distributed by Public on 05/30/2023 18:35

Updated: SFDR Sustainability-Related Disclosures

SUSTAINABILITY-RELATED DISCLOSURES

Product Name: Frontier Real Estate Investment Corporation

Frontier Real Estate Investment Corporation ("FRI") promotes environmental or social characteristics, but does not have as its objective a sustainable investment within the meaning of Article 9(1) of Regulation (EU) 2019/2088 ("SFDR"). FRI has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on Mitsui Fudosan Frontier REIT Management Inc. ("Asset Manager"), to manage and operate the properties in our portfolio. FRI and the Asset Manager are hereinafter referred to collectively as "we," "us" or "our." References to "fiscal year" or "FY" are to the 12 months began or beginning April 1 of the year specified in line with the fiscal year of the Asset Manager, unless noted otherwise.

Summary

No sustainable investment objective The financial products offered by FRI promote environmental or social characteristics, but do not have as their objective sustainable investment.
Environmental or social characteristics of the financial product The Asset Manager closely monitors the impact of FRI's portfolio and its management and operations on environmental or social factors such as reducing carbon emissions through pursuit of energy efficiency, conserving water and other natural resources while reducing waste, reducing hazardous substances in the interest of health and safety, cooperation and coexistence with local communities, collaboration with Mitsui Fudosan group companies and tenants, initiatives for local communities, engaging with our employees, earning the trust of investors and enhance corporate governance structure.
Investment strategy We invest primarily in properties for suburban retail facilities and urban retail facilities. In selecting a property, we consider its purchase price, projected earnings, location characteristics, environment, future prospects, facility size, building condition, earthquake resistance, rights on properties, tenants' credit, sales generated by tenants, lease agreements, building management and other factors, including its medium to long-term competitive advantages and ability to generate stable earnings.
In September 2021, we strengthened our funding base through the establishment of a Green Finance Framework, which allows us to expand our investor base to include those interested in ESG investment and financing and further promote our sustainability.
On an annual basis, we disclose on our website the status of allocations (including allocated and unallocated amounts for each category that meets the eligibility criteria under our Green Finance Framework). In addition, we disclose on our website reports on environmental improvements and social benefits from green finance annually.
In addition to the selection criteria such as quality, price, creditworthiness and services, we also consider the sustainability initiatives of service providers (e.g., market researchers, engineering firms, real estate appraisers and service control managers) as one of the selection criteria.
Proportion of investments FRI offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of December 31, 2022, 83.4% of the properties in the portfolio, including properties in which we hold quasi co-ownership interests, were Green Buildings, and 16.6% were not, based on gross floor area (including properties with expired certifications unless there is reason to believe that such properties are no longer environmentally friendly to the same degree as Green Buildings). We will continue our efforts to maintain the percentage of Eligible Green Assets and to increase the percentage of Green Buildings.
Monitoring of environmental or social characteristics We use the following indicators to measure the attainment of the E/S characteristics we promote; (i) Environmental certification of our properties under our Green Finance Framework; (ii) Assessment to measure our E/S achievement; and (iii) Carbon reduction targets.
Methodologies To ensure the efficacy of its sustainability initiatives, the Asset Manager has established a Sustainability Committee as well as a Sustainability Secretariat to examine sustainability matters prior to their consideration by the committee. The Sustainability Committee is chaired by the Chief Executive Officer and Representative Director, and its other members are general managers of the Investment Division, the Finance Division, and the Planning and Administration Division. The Sustainability Secretariat is composed of the Secretariat Manager, who is appointed by the committee, and at least one person from each division (Investment Division, Finance Division and Planning and Administrative Division). Details on the indicators above are described below.
Data sources and processing As further described below, the Asset Manager obtains certain ESG related data from third-party organizations that issue environmental certifications, tenants, etc. The Asset Manager seeks to ensure data accuracy and quality coordinating with relevant departments and a third-party organization.
Limitations to methodologies and data The primary limitation to methodologies and data is the necessity of reliance on tenants for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the tenants. In addition, data at the property level provided by the tenants is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up-to-date.
Data at the property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the basic environmental data is guaranteed by a third-party organization.
Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by FRI in any material way.
Due diligence Prior to our investment in a property, the Asset Manager conducts due diligence review of the property, including environment assessment and evaluation of risks related to building safety, natural disasters, future prospects, and location. As a result of due diligence review, if there is a risk of a negative environmental impact, such as due to soil contaminants or other harmful substances or noncompliance with law aimed at reducing energy consumption or greenhouse gas emissions, we will take measures to avoid or mitigate the risk by postponing the acquisition of the property or requiring the seller to undertake improvement.
Engagement policies We and the Asset Manager share Mitsui Fudosan group's ESG management principles and are proactively implementing ESG initiatives. Our Green Finance Framework, which involves determination of whether a target property qualifies as an Eligible Asset, serves as one such initiative. The criteria for eligibility are discussed by the Sustainability Committee, which is chaired by the Chief Executive Officer and Representative Director of the Asset Manager, and decided by the authority of the Chief Executive Officer and Representative Director.
We use the indicators to measure the attainment of the E/S characteristics we promote, and the Asset Manager also uses these indicators on an ongoing basis when conducting the due diligence review of target assets.
Designated reference benchmark FRI has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by FRI.

No sustainable investment objective

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

Environmental or social characteristics of the financial product

To ensure that the world and society in which we live remain environmentally sound and that our business continues to grow sustainably, FRI, which holds and manages retail facilities, and the Asset Manager are pursuing efforts to reduce our environmental impact, including CO₂ emissions.
Mitsui Fudosan group, to which the Asset Manager belongs, has established and pursued the following three principles under its group vision of "& Earth" to achieve social/economic development while preserving the global environment: (i) the principle for environmental initiatives involving reduction of the impact of products and services on the environment, enhancement of safety, security, and comfort while ensuring sustainability and pursuing collaboration and cooperation with various stakeholders; (ii) the principle for social initiatives in the four core areas of global environment, local communities, culture and education, and international exchange; and (iii) the principle for governance initiatives to improve the soundness, transparency and efficiency of our management to gain the stakeholders' trust. The Asset Manager, as part of Mitsui Fudosan group, will make efforts to pursue the above principles while seeking stable earnings over the medium to long term and maximizing unitholder value. We recognize the need to operate real estate business in harmony with society, economy, and earth, as well as the need to reduce our environmental burden, develop sustainable relationships with our stakeholders and develop a governance framework so that our investors will feel confident that their investment in us will continue rewarding them over the long term. After considering the role that we should play in our relationships with our stakeholders, we have adopted a sustainability policy with the following key elements.

  • Reducing carbon emissions through pursuit of energy efficiency.We aim to reduce carbon emissions by implementing power saving and energy efficiency measures in our operations as well as installing energy efficient equipment. We are working to achieve low and non-carbonization in our portfolio through the use of renewable energy and other approaches. We have installed LED lighting at VIORO, AEON Mall Ibaraki, BRANCH Hakata Papillon Garden, AEON STYLE Shinagawa Seaside, Mitsui Shopping Park LaLagarden KASUKABE, Rakuhoku HANKYU SQUARE, You Me Town Hiroshima, Shimura Shopping Center, Ikebukuro GLOBE, TENJIN216 and Takeshita-dori Square, and wind power generators and electric vehicle charging stations at LaLaport IWATA and LaLaport SHIN-MISATO, and green walls at LaLaport SHIN-MISATO.
  • Conserving water and other natural resources while reducing waste.We aim to introduce high-efficiency fixtures to conserve water and promote 3Rs, i.e., reduce, reuse, recycle, to realize resource-saving and recycle-oriented society. We have installed water-saving toilets and water-saving spigots at BRANCH Hakata Papillon Garden and AEON STYLE Shinagawa Seaside.
  • Reducing hazardous substances in the interest of health and safety.We aim to reduce hazardous substances and other environmental pollutants in the operation of our retail portfolio, properly manage our properties to ensure that they meet a certain environmental quality and promote efforts to enhance the health, safety and hygiene of our tenants' employees and visitors to our properties. We have installed equipment such as temperature scanners and hand sanitizers as measures against COVID-19 at LaLaport SHIN-MISATO and Mitsui Outlet Park IRUMA. At Mitsui Outlet Park IRUMA and LaLaport IWATA, we store disaster relief supplies for tenant employees and others stranded in disasters as well as emergency communications equipment.
  • Cooperation and coexistence with local communities.We aim to operate each of our retail facilities as a "core of local community" that serves as a place of interaction and information exchange, thereby contribute to regional vitalization. In spring and autumn every year, Mitsui Fudosan group organizes the &EARTH Clothing Support project, inviting the public to donate at its retail facilities unneeded clothing, which is then distributed to people in need through the NPO Japan Relief Clothing Center. The Asset Manager employees participate in the project.
  • Collaboration with Mitsui Fudosan group companies and tenants.We strive to create comfortable and environmentally-conscious retail space, collaborating with Mitsui Fudosan group companies and our tenants, to achieve a high level of satisfaction and enhance sustainability awareness among visitors to our properties. We hold various social events for visitors to Mitsui Outlet Park IRUMA including events promoting environmental awareness and disaster prevention. In addition, we consider ESG factors in selecting property managers and other suppliers of goods and services, and also require them to operate their businesses in a sustainable manner.
  • Initiatives for local communities.With respect to LaLaport IWATA, we concluded an agreement with Iwata City to provide space within the parking lot to serve as a temporary storage location for emergency provisions in the event of a largescale disaster such as an earthquake, tsunami, major storm, or flood.
  • Engaging with our employees.The Asset Manager has made efforts to increase the environmental awareness and literacy of its employees through training programs, including environmental seminars, and to achieve work-life balance by supporting workstyle diversity. Moreover, we strive to increase employee engagement by improving the workplace environment and creating opportunities for active internal communication. We encourage employees to attend sustainability-related seminars and reimburse fees paid for approved seminars.
    • Childcare and caregiving support.To support executives and other employees in managing their work and childcare or caregiving, the Asset Manager has established policies on childcare leave, sick child leave, and childcare reduced working hours, as well as leave and reduced working hours for caregivers.
    • Employee satisfaction.The Asset Manager regularly conducts internal and external surveys on sustainability awareness and actions relevant to our local communities and strives to improve its policies and work environments based on the results.
  • Earning the trust of investors.We disclose non-financial information, including ESG-related information, in addition to financial information in a timely and adequate manner. We also disclose any ESG-related certification received from third-party evaluators and ESG reports on our website. Going forward, we will make an effort to update it regularly.
  • Enhance corporate governance structure.We conduct compliance training to increase compliance awareness among our employees. Also, we disclose our decision-making process in the interest of transparency and to promote compliance. The following bodies within the Asset Manager have responsibilities to promote compliance:
    • Board of Directors:Make decisions on basic matters related to compliance promotion;
    • Compliance Committee:Deliberate on and make decisions related to business execution from the perspective of ensuring compliance;
    • Compliance Division:(i) Planning, drafting proposals and implementation related to overall compliance; and (ii) provide opinions and guidance related to divisions' operations from the perspective of ensuring compliance; and
    • Each division's compliance officer:Promote compliance within each division's operations.
    We seek to increase the diversity among the members of our Board of Directors and raise awareness among the Asset Manager's employees regarding the importance of compliance and risk management. In April 2020, we increased the number of our supervisory directors to four to further strengthen our governance and compliance.

Investment strategy

We directly or indirectly through trust beneficiary interests invest in real estate. Therefore, due diligence (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment and due diligence policies as described below are related to real estate and real estate-related assets.

We invest primarily in properties for suburban retail facilities and urban retail facilities. In selecting a property, we consider its purchase price, projected earnings, location characteristics, environment, future prospects, facility size, building condition, earthquake resistance, rights on properties, tenants' credit, sales generated by tenants, lease agreements, building management and other factors, including its medium to long-term competitive advantages and ability to generate stable earnings.

In September 2021, we strengthened our funding base through the establishment of a Green Finance Framework, which allows us to expand our investor base to include those interested in ESG investment and financing and further promote our sustainability. We issued our first green bond on October 29, 2021 and our first green loan on June 23, 2022 under this framework, which is subject to the following requirements.

  • Eligibility criteria.The proceeds are allocated towards the acquisition of or repair work on "Eligible Green Assets" (which meet the following eligible green project criteria) and towards refinancing of those funds.
    • Eligible green project criteria.Assets that have received or are expected to receive any of the following certifications from a third-party certification program.
      • DBJ Green Building Certification: 3 stars or higher (top 3 certification levels)
      • CASBEE Certification: B+ or higher (top 3 certification levels)
      • BELS Certification: 3 or more (top 3 certification levels)
      • LEED Certification: Silver, Gold or Platinum (top 3 certification levels)
    • Repair work.Any of following repair work:
      • Repair work carried out to improve the rank in certifications above by one rank or more and to renew or acquire environmental certification
      • Repair work to facilities and other aimed at making beneficial improvements for the environment, such as improving energy efficiency and water consumption performance (work resulting in a 30% or more improvement in performance)
  • Management of proceeds.The proceeds from green financing are promptly or swiftly used to acquire Eligible Green Assets, to repay loans used to acquire Eligible Green Assets, or to redeem investment corporation bonds issued to acquire Eligible Green Assets. The maximum amount (i.e., the eligible green liability amount) that may be raised by green financing at any given time is the total acquisition cost for the Eligible Green Assets held by FRI, multiplied by the most recent fiscal period-end LTV, and any unallocated proceeds are managed so that they do not cause the maximum amount to be exceeded.
  • Third-party eligibility assessment.The JCR Green Finance Framework Evaluation is the evaluation of our Green Finance Framework conducted by Japan Credit Rating Agency, Ltd. (JCR). JCR evaluates whether any given project conducted in accordance with our Green Finance Framework may be deemed to be a green project as well as our management/operations and transparency. Our Green Finance Framework was assigned "Green 1 (F)," the highest evaluation grade in the JCR Green Finance Framework Evaluation by JCR.

On an annual basis, we disclose on our website the status of allocations (including allocated and unallocated amounts for each category that meets the eligibility criteria under our Green Finance Framework). In addition, we disclose on our website reports on environmental improvements and social benefits from green finance annually as follows.

  • Reporting on status of financing allocations
    The properties eligible for allocations will be disclosed on our website, by press release or other means at the time of financing. When a property eligible for allocation is sold, it will be disclosed by press release that the property received green financing. As long as there are unallocated proceeds from green financing, the following information as of June 30 every year will be disclosed on our website.
    • total acquisition cost for Eligible Green Assets
    • LTV
    • eligible green liability amount
    • unallocated proceeds from green financing
  • Reporting on the effect of environmental improvements
    As long as there are unallocated proceeds from green financing, the following information will be disclosed on our website every year.
    • status of the acquisition of green building certification (number of properties, gross floor area, percentage acquired based on gross floor area)
    • name of each property eligible as a green asset, type of green building certification, evaluation and date certification was acquired (renewed)
    • details of repair work and target properties if financing is allocated to repair work (name, quantitative indicators related to environment before and after repair work, or type of green building certification and evaluation before and after repair work)

In addition to the selection criteria such as quality, price, creditworthiness and services, we also consider the sustainability initiatives of service providers (e.g., market researchers, engineering firms, real estate appraisers and service control managers) as one of the selection criteria.

We consider the following sustainability factors in particular with respect to service providers:

  • Environmental policy
    • Establishment of an environmental policy (sustainability policy);
    • Establishment of environmental targets;
    • Establishment of a framework to achieve the targets (e.g., introduction of an environmental management system);
    • Training for employees on environmental considerations; and
    • Sustainability considerations in the selection of subcontractors.
  • Initiatives for stakeholders
    • Establishment of an appropriate working environment that respects the safety and health of employees, including appropriate management of working hours;
    • Respect for the human rights of employees and promoting diversity initiatives for diversity and work-life balance;
    • Establishment of a framework and policies related to corporate ethics, including prevention of fraud and corruption; and
    • Prohibition of business that may harm, or contribute to harming, the health, welfare or safety of the local community.
  • Environmental disclosure
    • Proactive website disclosure of environmental policies and approaches.
      The Asset Manager regularly monitors each service provider's compliance with the above criteria.

Proportion of investments

FRI offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of December 31, 2022, 83.4% of the properties in the portfolio, including properties in which we hold quasi co-ownership interests, were Green Buildings, and 16.6% were not, based on gross floor area (including properties with expired certifications unless there is reason to believe that such properties are no longer environmentally friendly to the same degree as Green Buildings). We will continue our efforts to maintain the percentage of Eligible Green Assets and to increase the percentage of Green Buildings.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the E/S characteristics we promote, and the Asset Manager also uses these indicators on an ongoing basis when conducting the due diligence review of target assets.

  • Environmental certification of our properties under our Green Finance Framework.We established our Green Finance Framework in September 2021. To track the environmental performance of our properties for purposes of our Green Finance Framework, we rely on "Green Building" certifications.
    • DBJ Green Building Certification.The DBJ Green Building Certification is certification developed by Development Bank of Japan Inc. (DBJ) to identify and certify real estate properties that satisfy various social needs including environmental quality. We consider a property to have sufficient environmental certification if it received 3 stars or higher out of DBJ's 5-star ranking system.
    • CASBEE.The Comprehensive Assessment System for Built Environment Efficiency (CASBEE) is a system for comprehensively assessing and ranking the environmental performance of buildings with regard to aspects such as the enhancement of environmental quality and performance, including with respect to energy saving and use of materials and equipment with a lower environmental burden, which considers indoor comfort and landscape. We consider a property to have sufficient environmental certification if it received Rank B+ 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).
    • BELS Certification.The Building-Housing Energy-efficiency Labeling System (BELS) is a third-party certification system to rate houses and buildings based on energy saving performance in accordance with the Act on Improving Energy Consumption Performance for Architectural Structures of Japan. We consider a property to have sufficient environmental certification if it received three stars or higher.
    • LEED Certification.Leadership in Energy & Environmental Design (LEED) is an environmental performance rating system for architecture and urban environment, developed and operated by the non-profit U.S. Green Building Council (USGBC) and reviewed for certification by the Green Building Certification Inc. (GBCI). In order to receive LEED certification, a company must meet several prerequisites for green building and earn a certain number of points. The level of certification will be determined depending on points earned. We consider a property to have sufficient environmental certification if it received Silver Rank or higher.
  • Assessment to measure our E/S achievement:We also use the assessments below to measure our attainment of E/S characteristics.
    • GRESB Real Estate Assessment.GRESB is an industry-driven organization established by European pension funds committed to assessing the sustainability performance of real estate portfolios (public and private) around the globe. In the GRESB real estate evaluation conducted in 2022, we received "4 Stars" and "Green Star" for the eighth consecutive year. In addition, we received an "A" rating, the highest level, in the GRESB disclosure evaluation.
    • SMBC Environmental Assessment.The SMBC Environmental Assessment Loan is a loan provided by Sumitomo Mitsui Banking Corporation based on environmental assessment conducted by the Japan Research Institute, Limited, which reviews the borrower's environmental management comprehensively based on four criteria: (i) awareness of environmental load; (ii) extent of environmental conservation measures and results; (iii) its environmental management system; and (iv) initiatives for environmental communication and environmental business. We were the first J-REIT to receive this assessment on August 29, 2017.
  • Carbon reduction targets:The Asset Manager has established energy conservation guidelines, greenhouse gas ("GHG") emissions reduction guidelines, water efficiency guidelines and waste management guidelines in February 2015, as part of its efforts to reduce carbon emissions, water consumption and waste. Through the update on February 15, 2023, we have set the following targets:
    • Energy consumption.Pursuant to the Energy Conservation Act (Act on the Rational Use of Energy), the basic target has been set for reducing the basic unit of energy consumption by 1% annually on average over the medium to long term for the entire portfolio and individual properties.
    • GHG emissions.Achieve 30% reduction in 2030 compared with the base year (FY2019) for GHG emitted as part of the operations of shopping centers (SC) owned (total of scopes 1-3; per-unit basis).
    • Water consumption.For water consumption on a per-unit basis of the portfolio as a whole not to exceed the base year (FY2019).
    • Waste recycling rate.Cooperate with tenants to conduct initiatives to improve the recycling rate.

Methodologies

To ensure the efficacy of its sustainability initiatives, the Asset Manager has established a Sustainability Committee as well as a Sustainability Secretariat to examine sustainability matters prior to their consideration by the committee. The Sustainability Committee is chaired by the Chief Executive Officer and Representative Director, and its other members are general managers of the Investment Division, the Finance Division, and the Planning and Administration Division. The Sustainability Secretariat is composed of the Secretariat Manager, who is appointed by the committee, and at least one person from each division (Investment Division, Finance Division and Planning and Administrative Division).

  • Environmental certification of our properties under our Green Finance Framework.We select properties for the environmental certifications considering their impact on our overall portfolio. The Asset Manager communicates directly with the certification organizations in the process of obtaining the certifications. The Investment Division is responsible for making decisions to obtain the certifications. At the beginning of each fiscal year, the Investment Division selects properties targeted to obtain the certifications and reports to the Sustainability Committee. The Investment Division also reports to the Sustainability Committee on the progress of obtaining the certifications.
  • Assessment to measure our E/S achievement.The Sustainability Secretariat members collect and compile information from each department within the Asset Manager to prepare responses to questionnaires in the GRESB evaluation process. Prior to submitting the responses to GRESB, they are also reviewed by a consultant. The evaluation results are reported to the Sustainability Committee and the Board of Directors of the Asset Manager and FRI.
  • Carbon reduction targets.We monitor the reduction of energy consumption, GHG emissions, and water consumption, as well as the improvement of waste recycling rates, by reporting such basic environmental data compiled by the Investment Division to the Sustainability Committee once a year, in principle.

Data sources and processing

We use the following data sources:

  • Environmental certification of our properties under our Green Finance Framework.The Asset Manager submits the data necessary for obtaining the environmental certifications to the certification organizations. Regarding the basic environmental data such as electricity consumption, water consumption, etc., we use data compiled by a consultant for each property.
  • Assessment to measure our E/S achievement.The basic environmental data such as energy consumption, water consumption, and GHG emissions are collected by a consultant from each tenant. The contents of the basic environmental data are guaranteed by a third-party organization.
  • Carbon reduction targets.The Investment Division of the Asset Manager engages a consultant to collect basic environmental data from each tenant, including energy consumption, water consumption, GHG emissions and waste recycling rates, etc. The contents of the basic environmental data are guaranteed by a third-party organization.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on tenants for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the tenants. In addition, data at the property level provided by the tenants is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up-to-date.

Data at the property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the basic environmental data is guaranteed by a third-party organization.

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

Due diligence

Prior to our investment in a property, the Asset Manager conducts due diligence review of the property, including environment assessment and evaluation of risks related to building safety, natural disasters, future prospects, and location. As a result of due diligence review, if there is a risk of a negative environmental impact, such as due to soil contaminants or other harmful substances or noncompliance with law aimed at reducing energy consumption or greenhouse gas emissions, we will take measures to avoid or mitigate the risk by postponing the acquisition of the property or requiring the seller to undertake improvement.

Engagement policies

We and the Asset Manager share Mitsui Fudosan group's ESG management principles and are proactively implementing ESG initiatives. Our Green Finance Framework, which involves determination of whether a target property qualifies as an Eligible Asset, serves as one such initiative. The criteria for eligibility are discussed by the Sustainability Committee, which is chaired by the Chief Executive Officer and Representative Director of the Asset Manager, and decided by the authority of the Chief Executive Officer and Representative Director.

As stated above, we use the indicators to measure the attainment of the E/S characteristics we promote, and the Asset Manager also uses these indicators on an ongoing basis when conducting the due diligence review of target assets.

Designated reference benchmark

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

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

As described in further detail above, the Sustainability Promotion Committee generally meets at least four times a year to deliberate on sustainability policy, short-and medium-term goals, including key performance indicators (KPIs) used to measure progress, based on the relevant risks and opportunities as well as to implement and manage measures and plans. In addition, when conducting green financing, the Sustainability Promotion Committee assesses whether projects eligible for use of proceeds are eligible for use in green finance or sustainability finance through our Green Finance Framework.

Also as described above, we have instituted a number of initiatives to promote E/S characteristics. Such initiatives include initiatives for saving and reducing energy consumption, local community initiatives, and initiatives for employees and tenants.

Prior to investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance.

To ensure that the world and society in which we live every day remain environmentally sound and that our business continues to grow sustainably, we are pursuing measures to reduce our environmental impact, leading to a reduction in CO₂ emissions. We strive to achieve our mission of building sustainable relationships with all stakeholders and raising the medium and long-term value for unitholders by further augmenting its initiatives aimed at addressing ESG issues in real-estate investment management going forward, and disclosing its results appropriately.

Physical risks

The assets in which FRI invests are exposed to physical climate risks, which can materialize through, for example, floods, storms, heat and limited access to natural resources and could cause the value of FRI's assets to decline. Specifically for FRI, the following risks are particularly relevant.

  • Flood and typhoon risks:Flooding or a major typhoon will likely have a negative effect on the value of FRI's assets. Consequences may include loss of business opportunities due to suspension of public transportation, loss of business opportunities due to flooding of buildings and increases in repair costs and property insurance premiums. We address these risks by reviewing hazard maps and potential consequences to inundated properties. We view these risks as medium-level risks; although the possibility that the frequency of these occurrences will worsen is high due to climate change, we expect any adverse financial impact to be small because we only have a few properties that are exposed to the risk of inundation through typhoons and floods.

Transition risks

The assets in which FRI invests are exposed to transition risks, which can materialize through, for example, changes in regulations, technical developments and/or social developments and cause the value of FRI's assets to decline. Specifically for FRI, the following risks are relevant.

  • General transition risk:FRI invests in primarily in properties for suburban retail facilities and urban retail facilities. New government policies, technical developments and/or changes in consumer preferences may affect the businesses of the tenants of our properties. Such developments may result in, among other things, increasing regulatory costs. We address this risk by collecting CO₂ emission and other sustainability data from our portfolio and fostering sustainability awareness among tenants. We consider increased carbon taxes, carbon credit purchase costs and costs to retrofit properties with environmentally-friendly equipment and facilities as a high-level risk and increased costs to acquire and maintain environmental certifications as a medium-level risk.
  • Risk of stranded assets:Some of our assets may fail to meet requirements imposed by the government or other sustainability standards. These assets could become stranded, i.e. assets that lose their value and/or are no longer marketable or readily marketable because they are subject to significant legal restrictions or social developments. We address this risk by obtaining third-party Green Building and other certifications for environmental performance and monitoring the risks on an ongoing basis. We rate this risk as a medium-level risk because many of FRI's properties are certified as Green Buildings, although properties with poor environmental performance are at a risk of suffering lower occupancy rates.