Environmental Initiatives

• Climate Change
• Target on energy consumption etc.,
• Example of environmental initiatives
• Stakeholder engagement to improve property performance

Improving the environmental performance of the properties we manage is one of our social missions. We will lower the environmental impact and make contribution to environmental sustainability by constantly reducing the negative environmental impact of these properties, such as energy consumption, CO2 emissions, water consumption and the generation of waste materials. We also have activities for the proper management of hazardous substances and reduction in their use.

Climate Change

Climate Change  Global warming, as the main factor for a climate change, has been the primal topic at international meetings so far and in 2015 Paris Agreement has adopted a new framework in 18 years since Kyoto Protocol. In this agreement, one of the goals is to keep the increase in global average temperature to well below 2℃, preferably to 1.5℃, compared to pre-industrial levels. In addition, at COP26 in 2021, the Glasgow Climate Pact was agreed that the 1.5℃ target remains in sight and scales up action on dealing with climate impacts., Kenedix recognizes that efforts to climate change is the most important issue for our business activities and properties under management.

Support for TCFD recommendations

 

Strategy

■Scenerio Analysis

The Asset Management Company conducted a scenario analysis based on multiple world outlook in order to understand the risks and opportunities that climate change may pose to the Investment Corporations it manages in the future, and to proactively consider and respond to these risks and opportunities. World outlook of each scenario is provided below. The analysis was conducted with reference to future climate projections and energy trends published by international organizations.

(Major reference sources)

	Transition risks	Physical risks
4℃ Scenario	IEA (International Energy Agency) World Energy Outlook 2020 STEPS	IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report RCP8.5
1.5℃ Scenario	IEA (International Energy Agency) NZE2050	IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report RCP2.6

■Financial Impact based on Scenerio Analysis

The Asset Management Company examined the medium-term(2030) and long-term(2050) impacts of the risks, opportunities, and financial impacts for the Investment Corporation it manages for each of world outlook in the 4℃ and 1.5℃ scenario described above. The summary of the evaluation is as follows.

Risks and Opportunities			Financial impact					Measures to address risks and opportunities
	Category	Factor		4℃ Scenario		1.5℃ Scenario
				Medium term	Long term	Medium term	Long term
Transition Risks and Opportunities	Policy and legal	CO2 emission regulation Introduction of CO2 emission regulations as a measure to comply with international frameworks incur costs and risks related to CO2 emissions.	Increase in costs to improve energy efficiency of existing properties	Low	Low	Low	Mid	Improvement of energy-saving in existing properties Establishment of GHG reduction targets
		Carbon tax The introduction of carbon tax as a measure to comply with international frameworks incur costs and risks related to CO2 emissions.	Increase in carbon tax costs	Low	Low	Mid	High	Introduction of renewable energy Acquisition of non-fossil certificates, etc.
			Increase in acquisition costs of non-fossil certificates, etc.	Low	Low	Mid	Mid
	Technology	Advancement of energy-saving and renewable energy technologies Further technology advancement will result in lower installation costs and effective achievement of energy-saving and renewable energy.	Increase in costs due to introduction of new technology	Low	Low	Low	Mid	Energy-saving in existing properties
			Decrease in utility costs due to energy-saving, introduction of renewable energy, conversion to ZEB/ZEH, etc.	Low	Low	Low	Mid	Acquisition of ZEB/ZEH properties Conversion of existing properties to ZEB/ZEH
	Markets	Evaluation by investors and financial institutions Investors and financial institutions will value improvement of the environmental performance of properties.	Increase in financing costs due to low valuation	Low	Low	Low	Low	Energy-saving in existing properties Acquisition of environmental certifications Improvement of engagement with investors and financial institutions Utilization of green finance
			Decrease in financing costs due to high valuation	Low	Low	Low	Low
		Focus on environmental certification Environmental certification will be required for portfolio evaluation by investors and financial institutions as well as property selection by tenants.	Increase in cost of actions to improve evaluation	Low	Low	Low	Low	Acquisition of environmental certifications
			Increase in acquisition costs of environmental certifications	Low	Low	Low	Low
	Reputation	Tenant behavior change due to environmental orientation Environmental performance of properties will become valued due to regulation compliance and changing preferences.	Low environmental performance properties becoming stranded	Low	Low	Mid	Mid	Energy-saving in existing properties Acquisition of environmental certifications Engagement
			Maintain and improve occupancy rates by improving environmental performance	Low	Low	Mid	Mid
		Tenant behavior change due to disaster-prevention orientation Disaster prevention aspect of properties will become valued due to increasing disasters caused by rising temperatures and sea level.	Low resilience properties becoming stranded	Mid	Mid	Low	Low	Due diligence on acquisition Flood risk analysis of properties Improvement of resilience Engagement
			Maintain and improve occupancy rates by improving resilience measures	Mid	Mid	Low	Low
Physical Risks and Opportunities	Acute	Intensification of heavy rains and torrential rains The frequency of property damage will increase due to severe wind and extreme flood.	Increase in disaster recovery costs	Mid	Mid	Low	Low
			Decrease in rental income during the recovery period	Mid	Mid	Low	Low
	Chronic	Rise in sea level Chronic rise in sea level.	Increase in costs to cope with sea level rise	Low	Low	Low	Low
		Rise in average temperature Chronic rise in average temperatures.	Increase in utility costs during summer	Low	Low	Low	Low	Energy-saving in existing properties

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The financial impact (low, mid, or high) of each scenario is formulated through discussions based on qualitative and quantitative perspectives at the Asset Management Company. The red color of the financial impact in each scenario represents risk items, and the green color represents opportunity items. This evaluation will continue to be reviewed and updated as necessary based on new external and internal factors that have arisen and close examination of the quantitative impact.

■Risk Management
Each REIT Department of the Asset Management Company and the Sustainability Committee identifies and evaluates the sustainability and ESG-related risks of the Investment Corporation and the Asset Management Company. These sustainability and ESG-related risks are managed on a daily basis by each department in charge, and important risks are periodically analyzed and reviewed by the Sustainability Committee under the supervision of the chairperson of the Sustainability Committee, and are managed appropriately. In addition, these risks are integrated into the overall risk management of the organization by sharing them with related parties as necessary.

Metrics and Targets

■Metrics and Targets related to Climate Change
Reduction of energy consumption and CO2 emissions is one of our material issues. The Asset Management Company and the Investment Corporation are making a contribution to environmental sustainability by using our business activities and property management operations in continuously cutting energy consumption and CO2 emissions in order to lower our environmental impact. 
The Investment Corporation sets reduction targets related to climate change and conducts ongoing monitoring and promotes initiatives that lead to a reduction in environmental impact. As a result of the scenario analysis, the Investment Corporation and the Asset Management Company are currently in the process of redefining the targets.

Energy Consumption（per unit）	Reduce the energy intensity by 5% (an annual average rate of 1%) or more in five years based on FY2018
Water Use（per unit）	Not increase water use in five years based on FY2018

Performance

■GHG Emission (CO2 Emission)

	FY 2015 （Baseline）	FY 2017	FY 2018	FY 2019	FY 2020	FY 2021
Total（t)	4,737	4,796	4,814	5,573	5,306	5,299
Intensity (t/㎡)	0.00570	0.00551	0.00509	0.00560	0.00520	0.00506

（Note1）The above data are for common areas of residential properties. 
（Note2）GHG emission figures are calculated by the Asset Management Company using the substitute value of emissions coefficient for each electric power supplier announced by Ministry of the Environment.

Example of environmental initiatives

■Installation of LED Lights in Common Area

KDR is making various efforts to conserve energy from the viewpoint of environmental consideration and cost reduction. One of our efforts is to reduce the cost of replacing light bulbs and electricity consumption by changing the lighting fixtures in common areas to LEDs as appropriate.

■Sharing vehicle ports

A portion of the property grounds is leased for electric bicycle, electric motorcycle, and electric kickboard sharing ports to provide services to residents and the surrounding community and reduce environmental impact.

 

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■Remote Surveillance of Road Heating

 

■Installing Secure Lockers for Deliveries

 

■Outlets for recharging electric cars

■Use of digital signage to supply information

Investments in Mixed or Multi-use property

The Investment corporation invests in 28 Mixed or Multi-use properties (Residential 21 props and Healthcare 7 props, equivalent to 16% of portfolio as at June 2022). Investing in the properties hosting supermarket, convenience store or clinic contribute to reduce environmental impact by reducing walking distance to the property, to activate local community and to improve health for residents or neighbors. Investment in the property that promote to use public transportation and reduce CO2 emissions：Number of properties within a 10-minute walk to the nearest station 81%.


Examples of Mixed or Multi-use property：

Stakeholder engagement to improve property performance

As KDR and KFM are continuously making effort to realize sustainable environment, we think it is crucial to cooperate with our tenants who constantly use the properties. KDR and KFM are aiming to cooperate by taking initiatives to raise awareness and promoting green lease that allow both owner and tenant to share economic merit to achieve sustainable environment.Kenedix Group has identified “tenant engagement to improve environmental performance” as material topic and been making contribution through promoting tenant cooperation and cooperating with other stakeholders such as property management companies who actually manage the building and KFM employees who manages the properties.

■Cooperation with Property Management Company
KDR and KFM are engaging with property management companies to share our vision, policies of sustainability and when making contract with a new tenant, property management company explains these ideas to tenants to achieve their cooperation.

■Promoting Lease Agreement with Clause for Environmental Cooperation
KDR has promoted including clause to cooperate to improve environmental performance of the property, comfort and productivity of our tenant into its base contract, etc.

■Education to Employees on Green Building
KFM provides annual sustainability training by external specialist to improve awareness and knowledge on green building for its employees. Also, it encourages our employees to acquire qualifications related to green building.