Initiatives for Climate Change

Awareness of Climate-Related Issues and Support for Task Force on Climate-related Financial Disclosures (TCFD) Recommendations

Hulic REIT Management recognizes that climate change is a critical issue causing dramatic changes in the natural environment and social structure that has a major impact on the company’s management and its business as a whole. It believes that increasing the resilience of its business, particularly by identifying, assessing, and managing climate-related risks and opportunities, is indispensable to securing sustainable, stable profits for Hulic Reit in the long term.
Based on this mindset, Hulic REIT Management announced its support for the TCFD recommendations in July 2021, and both Hulic Reit and Hulic REIT Management are engaged in analyzing risks and opportunities resulting from adaptation to climate change and actively disclosing related initiatives based on the four areas proposed in the TCFD recommendations (governance, strategy, risk management, and metrics and targets).

Governance

Hulic REIT Management has established the governance structure shown below in its Climate Change and Resilience Policy for the purpose of handling climate change-related risks and opportunities involving Hulic Reit and Hulic REIT Management.

Internal Climate-Related Structure

Climate-Related Issue Supervisor :
President & CEO (Sustainability Supervisor)
Executive Officer for Climate-Related Issue Planning :
General Manager of Finance and Planning Department (Executive Officer for Sustainability Planning)
Executive Officer for Climate-Related Issue Investment and Management :
General Manager of Asset Management Department (Executive Officer for Sustainability Investment and Management)
On the Sustainability Committee, the executive officers periodically report to the supervisor about matters concerning the handling of climate change, such as identifying and assessing the impact of climate change, managing risks and opportunities, the progress status of adaptation and mitigation initiatives, and establishing metrics and targets (KPIs).
The supervisor makes decisions about various issues after they have been discussed and considered by the attendees of Sustainability Committee meetings.
The Sustainability Committee reports fourth a year to the Board of Directors about matters discussed in relation to handling climate change, and it is supervised by the Board of Directors.

In addition to the above, Hulic REIT Management has established an effective, reliable promotion structure by incorporating sustainability factors into annual performance assessments in the personnel reviews for all its officers and employees.

Strategy

Purpose of Scenario Analysis

Hulic Reit and Hulic REIT Management aim to reduce Hulic Reit’s business-related risks, realize opportunities to create value, and ensure sustainable, stable profits in the long term by recognizing the impact of climate-related risks via scenario analysis and considering countermeasures for them.

Adopted Scenarios

To conduct the scenario analysis, we adopted a 1.5°C/2°C scenario, which assumes a transition to a decarbonized society, and a 4°C scenario, in which economic activities are prioritized.

1.5°C/2°C Scenario

The 1.5°C/2°C scenario assumes a future in which social policies, emission restrictions, technological investments, etc. for the purpose of decarbonization will progress beyond the current level, with the aim of achieving the Paris Agreement’s targets, and considers the Carbon Risk Real Estate Monitor (CRREM) 2 and 1.5 scenarios and the International Energy Agency (IEA) Sustainable Development Scenario and Beyond 2°C Scenario (B2DS).

4°C Scenario

The 4°C scenario assumes a future in which adequate climate change mitigation measures are not achieved, GHG emissions continue to increase, and physical risks due to climatic disasters increase significantly. It was considered while referring to the Intergovernmental Panel on Climate Change (IPCC)’s RCP 8.5 scenario.

Identification of Risks/Opportunities and Financial Impacts Based on Scenario Analysis

In 2022, Hulic Reit and Hulic REIT Management conducted a scenario analysis of the financial impacts of Hulic Reit’s climate-related risks and opportunities in both the 1.5°C /2°C scenario and 4°C scenario. The main climate-related risks and opportunities that were identified are shown below.

Main Risks/Opportunities			Impact on Business			Timeframe	Strategy (Countermeasures)
Main Risks/Opportunities			Summary	1.5°C/2°C Scenario	4°C Scenario	Timeframe	Strategy (Countermeasures)
Transition risks	Policy and legal	Increased operating costs due to introduction of carbon tax	Taxes will be imposed based on our GHG emissions, increasing operating costs	Large	Large	Medium- to long-term	• Pursuing initiatives aimed at reducing GHG emissions by adopting photovoltaic equipment, natural ventilation systems, and natural lighting systems
		Increased costs to adapt to the introduction of ZEB/environmental construction regulations	Adaptation costs will increase, such as converting to high-efficiency lighting when introducing ZEB	Medium	Small	Medium- to long-term	• Pursuing ZEB adaptation work • Reducing long-term utility costs
		Increased burden/ penalty risks due to disclosure requirements/ tighter regulations	Costs of implementing disclosure and certification expenses will increase due to tighter regulations	Small	Small	Medium- to long-term	• Strengthening compliance with climate change-related regulations • Strengthening initiative-related disclosure to stakeholders such as investors
	Reputation	Decreased competitiveness due to less favorable assessment from customers	Rental income will decrease due to tenants staying away from buildings with poor environmental performance	Large	Small	Short-term Medium- to long-term	• Improving the green building certification acquisition rate • Pursuing conversion to electricity from renewable energy
	Reputation	Decreased competitiveness due to less favorable assessment from investors	As ESG investment becomes more mainstream, if our climate change response is slow, it will encourage environmentally conscious investors to avoid investing in us	Large	Small	Short-term Medium- to long-term	• Improving the green building certification acquisition rate • Pursuing initiatives aimed at reaching GHG emission reduction targets
Physical risks	Acute	Increased damage due to more severe wind and rain	If water damage occurs in buildings in high flood risk areas, asset values will decrease and substantial repair costs will be incurred	Small	Small	Medium- to long-term	• Enhancing BCP implementation • Considering wind and water damage risks when acquiring properties
	Chronic	Increased operating costs due to higher average temperatures	Due to rising average temperatures, A/C costs will increase, especially in summer	Small	Small	Medium- to long-term	• Reducing utility costs by adopting photovoltaic equipment, natural ventilation systems, and greening systems
	Chronic	Increased insurance premiums due to environmental changes	If climate change-related disasters in Japan continue to increase, insurance premiums will rise	Small	Small	Short-term Medium- to long-term	• Conducting periodic disaster risk assessments • Enhancing BCP implementation
Opportunities	Products and services	Increased demand for environmentally certified/low-carbon buildings and real estate	Rental income will increase due to increased demand for environmentally certified buildings and buildings with excellent environmental performance	Large	Small	Short-term Medium- to long-term	• Improving the green building certification acquisition rate • Promoting conversion to electricity from renewable energy sources
	Markets	Decreased financing costs due to obtaining favorable assessment from investors	It is possible that our own energy-saving activities will increase asset values and have a positive impact on financing costs due to being recognized by investors	Small	Small	Short-term Medium- to long-term	• Improving the green building certification acquisition rate • Promoting green finance
	Markets	Increased opportunities to use public-institution incentives	Subsidies will be issued by public institutions to promote the transition to ZEB. The promotion of green finance will also lead to more new investors	Large	Large	Medium- to long-term	• Promoting initiatives to keep us ahead of other companies in the field with regard to ZEB transition and green finance (timing, proportion of properties, total amount)
	Energy sources	Reduction of running costs due to introduction of energy-recycling/ saving technologies	Running costs will decrease in the medium/long-term due to introduction of high-efficiency lighting and A/C	Large	Large	Short-term Medium- to long-term	• Reducing long-term utility costs by introducing LED lighting, photovoltaic equipment, underground spring water, etc.

*Short-term = the next 3 years, medium-term = the next 10 years, long-term = the next 30 years

Risk Management

Hulic REIT Management has established the following management process for factors relating to main climate-related risks and opportunities that have been identified, and it is working to reduce said risks and realize said opportunities.

The supervisor indicates main high-priority climate-related risks and opportunities that have been discussed by the Sustainability Committee to the applicable departments or staff and instructs them to formulate appropriate countermeasures.
The countermeasures formulated by the designated departments or staff are implemented in accordance with the specified details, following discussion by the Sustainability Committee or other appropriate internal bodies such as various committees.
The supervisor issues instructions so that main high-priority climate-related risks and opportunities discussed by the Sustainability Committee are considered in existing company-wide risk management programs, with the aim of consolidating risk identification, assessment, and management processes.

Metrics and Targets (KPIs)

Please look at “Environmental, Social and Governance Initiatives”.

Performance

Please look at “Environmental, Social and Governance Initiatives”.