Recognition of Climate Change Issues by Mitsui & Co., Realty Management and by Mitsui & Co., Private REIT

The Paris Agreement, adopted in 2015 at the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), is a framework under which all parties, regardless of whether they are developed or developing countries, participate in efforts to reduce greenhouse gas emissions (GHG emissions) and address other climate change issues. The agreement sets the common long-term goals of curtailing the increase in the global average temperature to less than 2 degrees Celsius (and pursues efforts to limit the increase to 1.5 degrees Celsius) compared to pre-industrial levels and achieving a balance between anthropogenic GHG emissions and removals through absorption, and all parties are required to establish and submit reduction targets in the second half of the 21st century. In response, many countries, regions, and industries are strengthening their efforts and regulations to reduce GHG emissions. Going forward, the societies and economies are expected to transition further towards decarbonization, and measures to this end are likely to include the establishment of new frameworks and even more stringent emission regulations to reduce GHG emissions.

As indicated in the IPCC Sixth Assessment Report*, the progression of climate change since the latter half of the 20th century is a scientific fact, and the risk of natural disasters such as typhoons and torrential rains, and the rise in global sea levels is actually increasing due to worsening climate change.

Mitsui & Co., Realty Management Ltd. (hereinafter referred to as the “Company”) and the investment corporations that entrust Mitsui & Co., Realty Management with asset management (hereinafter referred to as the “Investment Corporation”) recognize that climate change is an important (material) issue that will cause dramatic changes in the natural environment and social structure and will closely relate to the Company’s business activities. We recognize that identifying, assessing, and managing the risks and opportunities posed by climate change and enhancing the resilience of our business are essential to ensure sustainable and stable earnings for the Company and the Investment Corporation over the long term.

(note)	Sixth report by the United Nations Intergovernmental Panel on Climate Change, released in 2023

Endorsement of TCFD

In March 2023, the Company announced its endorsement of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board to promote disclosure of information on climate-related issues. The TCFD has published recommendations for companies on understanding and disclosing information regarding governance, strategy, risk management, and metrics and targets. In line with the recommendations, the Company and the Investment Corporation are promoting the assessment and management of climate-related risks and opportunities related to the Investment Corporation’s business and the disclosure of climate-related information to stakeholders.

Governance

The Sustainability Promotion Council (chaired by the Chief Sustainability Officer, and with final decision-making authority resting with the President & CEO) is taking the lead in promoting sustainability initiatives, including efforts to address climate change. The council is composed of the President, the Chief Sustainability Officer, the General Manager of the REIT Division, the General Manager of the Fund Division, the General Manager of the Data Center Business Division, the General Manager of the Fund Management Division and observers including compliance officers. After deliberation and consideration by the council, matters such as identification and assessment of climate change impacts, management of risks and opportunities, progress in adaptation and mitigation efforts, and establishment of metrics and targets are reported to the Company's Board of Directors in accordance with the Company's internal rules. Control and oversight of climate change-related efforts are provided through these processes.

Strategy

The strategy applies to all properties owned by the Investment Corporation.

Referenced External Scenarios

Risk analyses were conducted using scenarios of projected temperature increases developed by the International Energy Agency (IEA) and the UN Intergovernmental Panel on Climate Change (IPCC) as sources of information.

	1.5℃ Scenario	4℃ Scenario
Transition risks	IEA NZE2050	IEA STEPS
Physical risks	IPCC SSP1-1.9	IPCC SSP5-8.5

The World as Envisioned Under Each Scenario

Under each scenario, the world is envisioned as follows.

1.5°C Scenario
A world in which social policies, emission regulations, technology investments, and other initiatives aimed at decarbonization are more advanced than they are today, so as to achieve global net-zero emissions. (A scenario with relatively low physical risk and high transition risk)

4°C Scenario
A world in which adequate climate change mitigation measures are not realized, GHG emissions continue to increase, and physical risks from weather-related disasters rise significantly. (A scenario with relatively high physical risk and low transition risk)

Identifying Risks and Opportunities, response measures

Based on analyses of the two scenarios, the Company has identified risks and opportunities and evaluated their impact on the business as follows.

		Related to real estate management	Financial impact on the Fund	Timeline assumptions	Measures to address risks and opportunities		Financial impacts
							4℃ Scenario		2/1.5℃ Scenario
							Medium term	Long term	Medium term	Long term
Transition risks	Policies & Regulations	Introduction of a carbon tax and tightening of GHG emission regulations Tightening of energy conservation standards	Increase in tax on GHG emissions from properties Increase in costs to retrofit properties for energy efficiency improvements and, in some cases, imposition of fines	Medium term	Monitoring progress of GHG reduction targets and energy consumption reduction targets Promotion of energy-saving renovations at owned properties Implementation of energy conservation awareness activities aimed at tenants and others Investment in properties with higher environmental performance and replacement of properties with lower environmental performance		Small	Small	Medium	Large
		Enhancement or mandating of property performance indication (labeling) systems through building certification, etc.	Increase in cost burden for certification, etc.	Medium term	Monitoring and disclosing the progress towards achieving environmental certification targets Encouragement towards acquiring environmental certifications		Small	Small	Medium	Large
	Technology	Advancement and wider adoption of renewable energy and energy-saving technologies	Increase in costs to introduce new technologies	Medium term	Systematic introduction of equipment, etc. for renewable electricity generation and energy conservation		Small	Medium	Medium	Large
	Market	Introduction of environmental performance and other criteria into real estate appraisals	Decrease in values of properties with high environmental impact	Medium term	Gathering information on trends regarding the real estate appraisal system Promotion of energy-saving renovations at owned properties		Small	Medium	Medium	Medium
		Rise in utility costs (including for externally procured renewable energy)	Increase in business expenses	Short term	Implementation of energy-saving renovation work at owned properties Give consideration to the installation of photovoltaic power generation equipment on building rooftops		Small	Small	Medium	Large
		Changes in demands by tenants/occupants	Decrease in property occupancy rate and rental income due to difficulty in acquiring new tenants/occupants and decline in retention rates	Short term	Informing tenants and others that the property is designed with environmental performance and resilience in mind Implementation of tenant satisfaction surveys on a regular basis to understand tenant needs		Medium	Medium	Medium	Medium
	Reputation	Weakening of brand value	Decrease in investment opportunities and investment amounts committed by investors	Short term	Further strengthening climate change initiatives and carry out continuous information disclosure		Small	Medium	Medium	Large
Physical risks	Acute	Increase in flood damage due to typhoons and torrential rains Increase in inundation damage due to the rise in sea levels	Increase in repair and insurance costs, lost business opportunities, and decline in occupancy rates in the case of prolonged impact	Short term	Implementation of periodic climate change-related risk assessments during property management Implementation of preventive construction and equipment installation to address disaster risks Formulation of BCP plans and implementation of disaster drills Investigation and assessment of flood risks and other conditions during due diligence when considering new investments Appropriate fire damage insurance coverage		Medium	Large	Small	Small
	Chronic		Manifestation of costs for large-scale renovation (increasing the height of a property)	Long term			Medium	Large	Small	Medium
		Increase in demand for air conditioning	Increase in costs for air conditioning operation, maintenance, and repair due to more frequent extreme weather conditions, such as extremely hot or extremely cold days	Short term	Installation of air conditioning equipment with high energy-saving performance		Large	Large	Medium	Medium
Business opportunities	Energy source	Adoption of renewable energy	Decrease in costs for externally procured utility services	Short term	Investment in properties with structures suitable for the installation of solar power generation equipment Implementation of activities to promote engagement with tenants Utilization of electricity generated on site by tenants		Small	Small	Medium	Medium
	Market	Increase in demand for properties with high environmental and disaster prevention performance	Increase in income achieved by raising rents and attracting new tenants/occupants	Medium term	Encouragement towards acquisition of certification, such as one for green building Implementation of tenant satisfaction surveys on a regular basis to understand tenant needs Implementation of disaster prevention work at existing properties		Small	Medium	Small	Medium
		Expansion of investor base	Increase in financing amounts and decrease in financing costs as a result of addressing and appealing to investors who place importance on environmental issues	Short term	Continuous and proactive implementation of explanations and disclosures of climate change initiatives		Small	Small	Medium	Medium
		Incorporation of climate considerations into banks’ lending decisions	Containment of financing costs	Short term	Continuous and proactive implementation of explanations and disclosures of climate change initiatives Utilization of green loans and other types of loans		Small	Small	Small	Small

(note)	Timeline assumptions:Medium term to 2030 and long term to 2050

Risk Management

The Company’s process for managing climate change-related risks is as follows.

① Process for identifying and assessing risks and opportunities

Once a year, the Chief Sustainability Officer forms a climate-related working group to identify and assess climate-related risks to the Company and the Investment Corporation. Among the members of the working group, the Secretariat of the Sustainability Promotion Council plays a fundamental role. The group identifies transition risks, physical risks, and the presence or absence of business opportunities.
In identifying risks, the working group attempts, to the extent possible, to evaluate the timeline (timing of risk materialization and duration), certainty (likelihood of risk materialization), and impact (financial impact on the Investment Corporation) of each risk and scenario. If, in the process of risk identification, themes or elements that could become business opportunities are identified, they are recorded separately from the risks, and their feasibility and other factors are discussed.
The Chief Sustainability Officer regularly reports to the council on the progress and results of the working group’s risk identification activities. Based on the results of the study and other information on climate-related risks identified by the working group, the council discusses climate-related risks that should be prioritized for action and prioritizes risk management responses.

② Process for managing risk

The person with final decision-making authority designates the organizational unit or person in charge to address the highest priority climate-related risks and opportunities discussed by the council and directs the development of a plan of action to address these risks and opportunities. The proposed measures are then then be discussed and implemented by the council.

Metrics and Targets

The Investment Corporation has established key performance indicators (KPIs) and targets to manage and monitor risks and opportunities. The indicators and targets, and actual levels are as follows.

＜Environmental Certification＞

• Aim to increase the percentage of properties (based on the total floor area), excluding land with leasehold interest, that have acquired environmental certification to 50% by FY2025 and maintain this level.

＜GHG emission reduction target＞

• Aim to reduce the GHG emissions intensity (Scope1 + Scope2 (market basis)) of the Fund's portfolio from the base year to the target year as follows

6% reduction by FY2030 (base year: 2020)

The target year for the long-term goal is 2030 (February 2030 to January 2031), the base year is 2020 (February 2020 to January 2021), and the first year of the target period is 2024 (February 2024 to January 2025).

＜GHG emissions volume＞

	Unit	FY2020(base year)
GHG emissions	t-CO2	9,758
Scope1	t-CO2	23
Scope2 (market basis)	t-CO2	2,449
Scope3（Category13）	t-CO2	7,284
Intensity （Scope1 + Scope2）	t-CO2/㎡	0.0160
Intensity （Scope1 + Scope2 + Scope3）	t-CO2/㎡	0.0629

(note)	The figures are as far as the Investment Corporation is able to ascertain. Intensity is calculated by multiplying the total floor area in proportion to the investment corporation's ownership interest by the average occupancy rate for each fiscal year (a simple average of the occupancy rate at the end of each month).