• July 05, 2023Statement on principal adverse impacts of investment decisions on sustainability factors PDF （208KB）

Product name: MIRAI Corporation

Legal entity identifier: 353800HQCYM7P10R9D93

MIRAI Corporation (“MIRAI”) 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"). MIRAI 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 Bussan & IDERA Partners Co., Ltd. (the “Asset Manager”), to manage and operate the properties in MIRAI’s portfolio. MIRAI and the Asset Manager are hereinafter referred to collectively as “we”, “us” or “our” unless noted otherwise. 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, which we use for the purpose of collecting and compiling ESG-related performance data, unless noted otherwise.

Summary

No sustainable investment objective	The financial products offered by MIRAI promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product	The Asset Manager aims to manage the portfolio of MIRAI (which means “future” in Japanese) to increase unitholder value while tackling environmental, social and governance (“ESG”) issues in pursuit of sustainable society. Accordingly, we implement various environmental or social initiatives, as further described below.
Investment strategy	MIRAI invests directly or indirectly through trust beneficiary interests in real estate. Therefore, due diligence (including the assessment of good governance practices) in relation to investee companies is not applicable. We aim to maximize investment opportunities by investing in a variety of asset categories, and to build a superior portfolio by carefully selecting investment targets mainly from properties in Japan’s three major metropolitan areas. The Asset Manager has established a Sustainability Policy, and has incorporated ESG factors into its assets investment and management decision-making processes so we can achieve healthy asset growth and stable distributions over the medium to long term. In particular, we pursue the following objectives in investment and management of MIRAI’s assets: (i) Conservation of the global environment through environmental management of properties; (ii) Consideration of environmental and social risks in asset management process; (iii) Cooperation with stakeholders; (iv) Initiatives for the employees; (v) Respect for human rights and diversity, equity and inclusion; (vi) ESG disclosure and transparency; (vii) Maintaining compliance; and (viii) Fiduciary duty and consideration of unitholders, each as further described below.
Proportion of investments	MIRAI offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of March 31, 2023, the percentage of the properties (including properties in which MIRAI holds co-ownership interests) in MIRAI’s portfolio which had obtained any environmental certification was 74.4%, based on total floor area.
Monitoring of environmental or social characteristics	In order to periodically monitor and track our performance on environmental or social characteristics, we use the initiatives and indicators such as (i) Environmental certification; (ii) Sustainability evaluation; (iii) Tracking environmental performance; and (iv) Social initiatives – employees, each as further described below.
Methodologies	The Asset Manager has established the Sustainability Committee to promote ESG initiatives in accordance with the Sustainability Policy. The Sustainability Committee is led by the Executive Vice President as the Sustainability Promotion Officer, attended by the Executive Directors, General Managers and Compliance Officer. As a general rule, regular meetings are held approximately once every 3 months to discuss specific ESG targets and measures, as well as various initiatives, while taking into account social conditions and the operating status of MIRAI. The Finance and Planning Division of the Asset Manager selects the project for which the funds will be used, and Sustainability Committee deliberates and confirms compliance with the eligibility criteria. Subsequently, the Boards of Directors of both MIRAI and the Asset Manager resolves the implementation of green finance in accordance with the rules of MIRAI and the Asset Manager. In addition, the Asset Manager has formulated an "Environmental Management System Operation Manual" and is promoting efforts necessary to continuously reduce environmental impact through an environmental management system (EMS) based on the PDCA cycle.
Data sources and processing	As further described below, the Asset Manager obtains certain ESG-related data from tenants, property management companies, third-party consulting firms and issuers of environmental certifications, depending on the type of data. In addition, the Asset Manager seeks to ensure data accuracy and quality by coordinating with relevant departments within the Asset Manager and obtaining an assurance report regarding certain ESG data from an independent third-party accounting firm.
Limitations to methodologies and data	As further described below, the primary limitation to the methodology or data source is the necessity of our reliance on the tenants and property management companies for raw data at the property level. Data at the portfolio level are compiled internally at the Asset Manager. To ensure the accuracy of compiled data at the portfolio level, we have engaged an independent third-party accounting firm which has provided an assurance report regarding the accuracy and quality of certain parts of the compiled annual data at the portfolio level, but the assurance report does not provide independent verification of accuracy of raw data at the property level and the challenges associated with our reliance on the tenant and property management companies for raw data at the property level remain. Limitations to the methodology and data are not expected to affect the attainment of the environmental or social characteristics promoted by MIRAI in any material way.
Due diligence	Prior to MIRAI’s investment in a property, the Asset Manager conducts due diligence on the property, including ESG due diligence, building review and regulatory environmental due diligence. As part of its due diligence at the time of asset acquisition, the Asset Manager conducts surveys on the history of use, usage and storage of hazardous substances such as asbestos and PCBs, geological conditions, land use history, soil contamination, impact to biodiversity, indoor air quality, and equipment and material’s impact on the environment, building safety and health, and reflects them in investment decision making process. After acquiring an asset, MIRAI investigates whether there are any violations of environmental laws and regulations through periodic legal inspections and third-party investigations (reacquisition of engineering reports, etc.) to ensure the ongoing legal compliance of the land and buildings.
Engagement policies	We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that appropriate measures have not been taken under the Soil Contamination Countermeasures Act or any other related laws and regulation based on their history of land usage and soil contamination assessment by experts and examination of presence of harmful substances. When investing in properties using proceeds from our Green Finance Framework, we do not consider properties that do not meet the criteria under our Green Finance Framework for our investment.
Designated reference benchmark	MIRAI has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by MIRAI.

No sustainable investment objective

The financial products offered by MIRAI promotes environmental or social characteristics, but does not have as its objective sustainable investment.

Environmental or social characteristics of the financial product

The Asset Manager aims to manage the portfolio of MIRAI (which means “future” in Japanese) to increase unitholder value while tackling environmental, social and governance (“ESG”) issues in pursuit of sustainable society. In 2021, the Asset Manager formulated a Sustainability Policy and will continue to strengthen ESG initiatives based on the policy.

We have implemented various environmental initiatives including the following.

• Environmental survey at the time of property acquisition. We retain third-party experts to conduct environmental surveys, as part of our due diligence review, when acquiring a property to confirm the presence or absence of hazardous substances such as asbestos and PCB, and soil contamination. Specifically, we obtain engineering reports, soil contamination risk assessments, and building structural design verification reports at the time of property acquisition. In addition, we periodically (approximately once every five years) re-acquire engineering reports and other documents to update our due diligence review.
• “Green Lease” provisions in agreements. We aim to include environmental provisions, which we refer to as “Green Lease” provisions, in our lease contracts with tenants. Our Green Lease provisions include clauses requiring our tenants to collaborate with us in implementing various environmental measures, including on energy savings efforts, disclosure of environmental data and educating employees on how to reduce their environmental burden. We strive to proactively increase the number of lease contracts that have Green Lease provisions by negotiating the inclusion of such provisions with new tenants or, at the time of lease renewal, with existing tenants. At Hotel Sunroute Niigata, we have executed a memorandum of understanding with a tenant pursuant to which we cooperate with the tenant to promote environmental measures, including sharing the cost of installing high-efficiency air conditioning and lighting equipment.

• Installation of environmentally friendly facilities. We aim to reduce energy consumption and contribute to low-carbon society by installing energy saving equipment such as LED lighting, efficient air conditioning equipment and graywater and rainwater collection and treatment facilities at MIRAI’s properties. We also promote environmentally friendly construction using public subsidies and other funds, such as capital investments that contribute to reducing electricity demand, projects to control carbon dioxide emissions, and promotion of energy-saving investments.

  We have implemented various social initiatives at MIRAI’s properties including the following.

• Connection with local community. We support local communities by actively participating in local events where MIRAI’s properties are located. For example, we hosted a kickoff press conference for a local basketball team and fans at one of MIRAI’s properties, Mi-Nara, in August 2022. In 2021 and 2022, we have provided some of the space in Mi-Nara as a COVID-19 vaccination venue, and from October 2021 to May 2023, we leased Smile Hotel Naha City Resort to Okinawa Prefecture as an accommodation and treatment facility for certain COVID-19 patients. In addition, in January 2022, at Mi-Nara, we launched the Mi-Nara MIRAI Project, which includes a series of events to promote the SDGs in cooperation with our tenants and the local community and other measures such as partial suspension of escalator operation to save energy and donation to a children’s cafeteria. We participated in “Cycle & Bus Ride” at Mi-Nara, a regional initiative promoting health improvement and environmentally friendly measures sponsored by a regional public transportation authority.
• Initiatives to enhance social welfare. We contribute to the enhancement of social welfare at MIRAI’s properties, for example, by having a nursery school for tenants’ employees at Mi-Nara and investing in a school property (Tokyo Eiseigakuen Senmongakko, a vocational school for medical staff).
• Consideration for safety and security of tenants. We maintain various facilities and conduct drills in preparation for large-scale disasters in cooperation with our tenants. We conduct disaster drills twice a year at MIRAI’s properties in order to assist tenants with their business continuity plans and in their expeditious return to normal operations after a disaster while minimizing the damage.
• Initiatives for employees. Based on the recognition that the health of its employees is important, the Asset Manager provides various benefits to support the work-life balance of its employees to create a work environment where each employee can work in good health and safety and with a peace of mind. These benefits include childcare leave, nursing care leave, volunteer leave, anniversary leave, and long service leave. We have also introduced a cumulative investment unit investment program that allows regular employees to acquire MIRAI investment units. We believe that this program incentivizes employees to contribute to our performance and medium- to long-term growth of unitholder value.
• Respect for human rights and diversity, equity and inclusion. We demonstrate deep respect for basic human rights in all of our business activities. We have a corporate culture that does not tolerate discrimination, including based on age, sex, origin and race or conduct that impairs the dignity of individuals, such as forced labor and harassment. In addition, the Asset Manager respects diversity, equity and inclusion and aims to foster an organizational culture that allows diverse backgrounds and values to be promoted. MIRAI and the Asset Manager have adopted sustainable procurement standards and a human rights policy established by Mitsui & Co., Ltd, the Asset Manger’s group company.

Investment strategy

MIRAI invests directly or indirectly through trust beneficiary interests 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.

• Basic strategy. We aim to maximize investment opportunities by investing in a variety of asset categories, and to build a superior portfolio by carefully selecting investment targets mainly from properties in Japan’s three major metropolitan areas, which are greater Tokyo (Tokyo, Kanagawa, Chiba and Saitama Prefectures), greater Osaka (Osaka, Kyoto, Hyogo, Nara, Wakayama and Shiga Prefectures) and greater Nagoya (Aichi, Mie and Gifu Prefectures). The Asset Manager has established a Sustainability Policy, and has incorporated ESG factors into its assets investment and management decision-making processes so we can achieve healthy asset growth and stable distributions over the medium to long term. We pursue the following objectives in particular.
  1. Conservation of the global environment through environmental management of properties. The Asset Manager aims to conserve the global environment by appropriately managing the environmental impact of MIRAI’s properties. The Asset Manager takes initiatives towards reduction of greenhouse gas emissions, efficient use of resources and energy, saving water and utilizing sustainable water sources, and reduction and proper disposal of waste, in addition to thoroughly ensuring adherence to environmental laws.
  2. Consideration of environmental and social risks in asset management process. As part of property due diligence review conducted before acquiring a property and property due diligence monitoring after the acquisition, the Asset Manager considers the property’s environmental and social risks such as soil contamination, impact to biodiversity, indoor air quality, environmental impact of material and equipment used at the property, building safety and the property’s impact on health. For example, we retain third-party experts to review a range of matters including environmental risk, PCBs and asbestos, soil contamination, conditions of facilities, other factors affecting human health such as exhaust air, seismic risk, flood risk and legal compliance.
  3. Cooperation with stakeholders. The Asset Manager aims to tackle environmental and social issues together with stakeholders, while striving to achieve efficient operation and tenant satisfaction and contributing to local communities through strong relationships with stakeholders such as tenants, local community members, property managers, operators and suppliers. For example, we distribute our Sustainability Guide to our tenants, seek their cooperation in our ESG initiatives, including for when they renovate space exclusively occupied by the tenants, and raise ESG awareness among tenants by displaying ESG-related videos and posters at MIRAI’s properties. In addition, we work with local governments and tenants to address issues in local communities, and provide space in some of MIRAI’s properties for COVID-19 vaccination sites or as treatment facilities for certain COVID-19 patients.
  4. Initiatives for the employees. The Asset Manager provides continuous education and career development opportunities for employees aiming to improve professional knowledge and capability, including with respect to sustainability and other ESG matters. Further, with the understanding that employees’ health is important to the Asset Manager, the Asset Manager aims to create an office environment where each employee can work in a healthy and safe manner.
  5. Respect for human rights and diversity, equity and inclusion. The Asset Manager respects basic human rights and labor rights, and does not tolerate human rights infringement such as forced labor, child labor, discrimination and harassment in its business activities. In addition, the Asset Manager respects diversity, equity and inclusion and aims to foster an organizational culture that allows diverse backgrounds and values to be promoted. We periodically provide training for all employees on compliance and harassment, as well as anger management training for management. We, as a Mitsui & Co., Ltd group member, comply with the Human Rights Policy published by Mitsui & Co., Ltd.
  6. ESG disclosure and transparency. In order to establish and strengthen mutual trust with stakeholders, the Asset Manager discloses ESG-related information proactively in a timely manner as appropriate. The Asset Manager also seeks evaluations by third-party experts to obtain environmental and other certifications.
  7. Maintaining compliance. The Asset Manager strictly enforces legal compliance, fair transactions, appropriate information management, prevention of corruption, and prevention of conflicts of interest. In addition, through management training and regular internal audit, the Asset Manager has established a strong risk management and compliance structure.
  8. Fiduciary duty and consideration of unitholders. As an asset management company of a listed investment corporation, the Asset Manager has a fiduciary duty to take appropriate actions to prevent conflicts of interest, maintain transparency in relations to related-party transactions, and engage in dialogue with our unitholders.
• Green finance framework. In order to conduct ESG-friendly management while maximizing the value of MIRAI’s properties, we have taken into consideration ESG factors in our investment and asset management processes. In particular, in 2021 we established a green finance framework (“Green Finance Framework”). Funds raised through green financing will be used for acquisition of green buildings or expenditures that meet the following eligibility criteria or the refinancing of green financing bonds. The Japan Credit Rating Agency (JCR) has evaluated the appropriateness of the framework and assigned it JCR’s highest rating, “Overall Evaluation: Green 1(F)”.
  1. Green Eligibility Criteria 1: Green building – Properties that have acquired or are expected to acquire certifications from third-party organizations by satisfying one of criteria (a) to (d) below.
     • 3-star or higher for the Development Bank of Japan’s (“DBJ”) Green Building certification
     • B+ or higher for the Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification
     • Silver level or higher for the Leadership in Energy and Environmental Design (“LEED”) certification
     • 3-star or higher for the Building Energy-efficiency Labeling System (“BELS”) certification
  2. Green Eligibility Criteria 2: Renovation. Renovation work for environmental improvements (which is expected to reduce consumption or emissions by 30% or more in comparison to before renovation).
• Reporting. We will disclose following information at least once a year regarding the management of procured funds and the environmental impact as long as there are any green bonds outstanding under the Green Finance Framework.
  • Reporting of the use of the funds
    • All the procured funds that are used for projects that meet eligibility criteria under the Green Finance Framework
    • The sum of green bonds outstanding does not exceed the upper limit of green finance
  • Impact Reporting – We will disclose following indicators to the extent practicable:
    • Acquisition of environmental certifications
    • Energy consumption
    • GHG emissions/ GHG emissions intensity
    • Water consumption
    • Waste consumption

MIRAI has established a governance structure that ensures conflicts of interest are handled fairly through the adoption of a system that requires significant transactions such as the acquisition of assets from interested parties to be reported to the Asset Manager’s Board of Directors and MIRAI’s Board of Directors via prior deliberation by the Asset Manager’s Compliance Officer and deliberation and resolution by the Compliance Committee and Investment Management Committee (provided, however, that the prior approval of MIRAI’s Board of Directors is required in the case of certain transactions with related parties defined in the Act on Investment Trusts and Investment Corporations of Japan).

In December 2021, MIRAI and the Asset Manager identified the material issues in the management of MIRAI’s portfolio in order to realize sustainable society in pursuit of our corporate social responsibility. We aim to increase mid-to long-term unitholder value while addressing the material issues and contributing to achievement of the Sustainable Development Goals (the “SDGs”). We followed the following process to identify our material issues.

• STEP 1: Selection of issues to be considered

  We selected sustainability issues by referring to the SDGs, various voluntarily published principles and guidelines, including SASB Standards and GRI Guidelines, and evaluation metrics used by ESG rating agencies (e.g., MSCI, FTSE). The Sustainability Accounting Standards Board, or SASB, a non-profit organization established in 2011 in San Francisco, has established disclosure standards for ESG factors that are expected to have a high financial impact in the future, to improve the quality of corporate disclosure and contribute to investors’ decision-making over the medium to long term. The Global Reporting Initiative, or GRI, a non-profit organization founded in 1997, provides a framework for companies to report on ESG-related impacts of their businesses and explain their contribution to sustainable development.

• STEP 2: Evaluation of importance

  We evaluated the importance of each issue based on its impact on our management and the expectations of our stakeholders.

• STEP 3: Identification of materiality

  The Sustainability Committee deliberated on and identified material issues, which were approved by the President of the Asset Manager.

Proportion of investments

MIRAI offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of March 31, 2023, the percentage of the properties (including properties in which MIRAI holds co-ownership interests) in MIRAI’s portfolio which had obtained any environmental certification was 74.4%, based on total floor area.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics we promote.

• Environmental certification. To track the environmental performance of MIRAI’s properties, we rely on environmental certifications issued by third-party organizations such as the DBJ Green Building certification, the CASBEE certification, the LEED certification, the BELS certification and other equivalent certifications. As noted above, with respect to DBJ certifications, we consider 3 stars or higher out of DBJ’s 5-star ranking system as eligible for our Green Finance Framework. With respect to CASBEE, we consider B+ Rank 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) as eligible for our Green Finance Framework. With respect to LEED certification, we consider Silver or higher out of LEED’s ranking system featuring Platinum, Gold, Silver and Certified as eligible for our Green Finance Framework. With respect to BELS certification, we consider 3 stars or higher out of BELS’ 5-star ranking system as eligible for our Green Finance Framework.
• Sustainability evaluation. GRESB is an annual benchmarking assessment to measure ESG integration of real estate companies and funds. It was founded by a group of major European pension funds that played leading roles in launching Principles for Responsible Investment (“PRI”). It is utilized by major institutional investors in Japan and overseas when selecting targets for investment. In 2022, MIRAI received 3 out of 5 Stars in GRESB Rating, which is based on GRESB Overall Score and its quintile position relative to global participants, and “Green Star” by achieving high performance both in the management component, which evaluate policies and organizational structure for ESG promotion, and the performance component, which assesses environmental performance and tenant engagement. In 2022, MIRAI also received the “B Level” for GRESB Public Disclosure, which assesses the breadth of ESG disclosure.
• Tracking environmental performance. The Asset Manager tracks and monitors energy consumption including gas/fuel consumption and electricity consumption, greenhouse gas (GHG) emissions, water consumption, and waste. We have set the following sustainability targets in order to appropriately identify and manage the environmental impact of real estate management and to conduct management that contributes to environmental conservation: reduce GHG emissions intensity of MIRAI’s portfolio by 5% (compared to the level in FY 2018) over five years starting from FY2021 to FY2025; and reduce energy consumption intensity of MIRAI’s portfolio by 5% (compared to the level in FY 2018) over five years starting from FY2021 to FY2025.
• Social initiatives – employees. Employee satisfaction surveys covering all employees are conducted once a year, and we work to create a pleasant working environment by making improvements based on the results. This survey evaluates matters related to work (workload, overtime hours, paid leave taken), management (quality of superiors’ instructions and guidance, ability to consult with superiors), labor environment (job relations, institutional support for childcare and nursing care), our mission and vision (views on corporate philosophy), compensation and benefits (salary, personnel evaluation system), and compliance. Evaluations, given once a year, include feedback on how the employees have performed against their goals and how they can achieve them. We also evaluate the employees’ ability to promote society and governance matters, and board members are also evaluated with respect to ESG criteria.

Methodologies

The Asset Manager has established the Sustainability Committee to promote ESG initiatives in accordance with the Sustainability Policy. The Sustainability Committee is led by the Executive Vice President as the Sustainability Promotion Officer, attended by the Executive Directors, General Managers and Compliance Officer. As a general rule, regular meetings are held approximately once every 3 months to discuss specific ESG targets and measures, as well as various initiatives, while taking into account social conditions and the operating status of MIRAI. The Finance and Planning Division of the Asset Manager selects the project for which the funds will be used, and Sustainability Committee deliberates and confirms compliance with the eligibility criteria. Subsequently, the Boards of Directors of both MIRAI and the Asset Manager resolves the implementation of green finance in accordance with the rules of MIRAI and the Asset Manager. In addition, the Asset Manager has formulated an “Environmental Management System Operation Manual” and is promoting efforts necessary to continuously reduce environmental impact through an environmental management system (EMS) based on the PDCA cycle.

• Environmental certification. After acquiring a property, we review environmental data and other performance data to determine the possibility of obtaining an environmental certification for the acquired property. When we plan to obtain an environmental certification for the acquired property, the Finance & Planning Division of the Asset Manager prepares, and the Sustainability Committee reviews and discusses, reports on relevant documents and supporting materials to be submitted to the third-party issuer of the relevant environmental certification, including prospects for the expected certification rank and expected percentage of the properties with environmental certification in MIRAI’s portfolio.
• Sustainability evaluation. The Finance & Planning Division of the Asset Manager oversees the assessment process for the GRESB Real Estate Assessment. The assessment process for the GRESB Real Estate Assessment involves submission of questionnaires by GRESB by July 1 of each year. The final results of the GRESB Real Estate Assessment are announced around October of the same year. The Financial & Planning Division oversees preparation of our responses to GRESB based on data as of the end of March of each year by engaging a third-party consulting firm. The participation in GRESB and our responses are reported to the Sustainability Committee. Based on the final results, the public disclosure report and other reports regarding the GRESB Real Estate Assessment issued by the GRESB secretariat, the Asset Manager analyzes the details of the final results, evaluates any room for future improvements and other data and formulates action plans for progressing sustainability and ESG targets. In addition, MIRAI’s GRESB rating and final results are reported to all of the divisions within the Asset Manager and disclosed on the website.
• Tracking environmental performance. The Investment & Asset Management Division and the Finance & Planning Division of the Asset Manager annually compiles and tracks data on energy consumption including gas/fuel consumption and electricity consumption, greenhouse gas (GHG) emissions, water consumption, and waste at the portfolio level. At the property level, the property management companies collect and report relevant data for each property once a year, which are reviewed and compiled by the Investment & Asset Management Division and the Finance & Planning Division of the Asset Manager. The compiled annual data is disclosed on the website and our annual Sustainability Report we publicly disclose.
• Social initiatives – employees. The Accounting & Administrative Division of the Asset Manager conducts employee satisfaction surveys once a year, and reviews and compiles the results. The General Manager of the Accounting & Administrative Division shares the results with all of the employees of the Asset Manager and formulates action plans for improving working environment. The date of surveys, response rate, and level of satisfaction is disclosed in our annual Sustainability Report.

Data sources and processing

We use the following data sources:

• Environmental certification. At the property level, the property management companies initially collect and report relevant environmental performance data and supporting materials for each property that we target for obtaining environmental certification prior to our engagement with the third-party issuer of the relevant environmental certification at the request of the Investment & Asset Management Division and the Finance & Planning Division of the Asset Manager. The Investment & Asset Management Division and the Finance & Planning Division of the Asset Manager reviews and compiles the relevant data and materials required by the third-party issuer of the relevant environmental certification. To ensure data quality, the Asset Manager also obtains an assurance report regarding certain parts of environmental performance data at the portfolio level from an independent third-party accounting firm.
• Sustainability evaluation. Before MIRAI submits the responses to the questionnaires of the GRESB Real Estate Assessment, the property management companies initially collect the environmental performance data and supporting materials used for the responses at the property level and the Finance & Planning Division of the Asset Manager reviews and compiles the relevant data and materials at the portfolio level with the assistance from a third-party consulting firm. To ensure data quality, the Asset Manager obtains an assurance report regarding certain parts of environmental performance data used for the GRESB Real Estate Assessment, from an independent third-party accounting firm.
• Tracking environmental performance. At the property level, the property management companies annually collects and reports data on energy consumption including gas/fuel consumption and electricity consumption, greenhouse gas (GHG) emissions, water consumption, and waste to the Asset Manager, which in turn confirms the accuracy of the reported data internally. At the portfolio level, the Investment & Asset Management Division and the Finance & Planning Division of the Asset Manager annually compiles and discloses the compiled annual data on the website and financial results-related documents we publicly disclose. To ensure the accuracy of the compiled data, the Asset Manager obtains an assurance report regarding certain parts of the compiled annual data on energy consumption from an independent third-party accounting firm.
• Social initiatives – employees. The Accounting & Administrative Division of the Asset Manager conducts employee satisfaction surveys and collects and compiles responses using an online platform. The General Manager of the Accounting & Administrative Division is primarily in charge of reviewing the results and evaluating potential issues and future improvements.

Limitations to methodologies and data

The primary limitation to the methodology or data source is the necessity of our reliance on the tenants and property management companies for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by the tenants and property management companies, and independent verification of accuracy of such raw data provided by the tenants and property management companies presents challenges. In addition, data at the property level provided by the tenants and property managers is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up to date.

Data at the portfolio level are compiled internally at the Asset Manager. To ensure the accuracy of compiled data at the portfolio level, we have engaged an independent third-party accounting firm which has provided an assurance report regarding the accuracy and quality of certain parts of the compiled annual data at the portfolio level in accordance with our own criteria and methodologies. However, the assurance report does not provide independent verification of accuracy of raw data at the property level and the challenges associated with our reliance on the tenant and property management companies for raw data at the property level remain.

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

Due diligence

Prior to MIRAI’s investment in a property, the Asset Manager conducts due diligence on the property, including ESG due diligence, building review and regulatory environmental due diligence. As part of its due diligence at the time of asset acquisition, the Asset Manager conducts surveys on the history of use, usage and storage of hazardous substances such as asbestos and PCBs, geological conditions, land use history, soil contamination, impact to biodiversity, indoor air quality, and equipment and material’s impact on the environment, building safety and health, and reflects them in investment decision making process. After acquiring an asset, MIRAI investigates whether there are any violations of environmental laws and regulations through periodic legal inspections and third-party investigations (reacquisition of engineering reports, etc.) to ensure the ongoing legal compliance of the land and buildings.

Engagement policies

We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that appropriate measures have not been taken under the Soil Contamination Countermeasures Act or any other related laws and regulation based on their history of land usage and soil contamination assessment by experts and examination of presence of harmful substances, unless we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property MIRAI may acquire is compliant with applicable law.

When investing in properties using proceeds from our Green Finance Framework, we do not consider properties that do not meet the criteria under our Green Finance Framework for our investment.

In addition, we aim to include Green Lease provisions in our lease contracts with tenants. Our Green Lease provisions include clauses requiring our tenants to collaborate with us in implementing various environmental measures, including on energy savings efforts, disclosure of environmental data and educating employees on how to reduce their environmental burden.

Designated reference benchmark

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

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

The Asset Manager has a remuneration policy in place which aims to support its strategy, values and long-term interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks, as follows:

• Employees of the Asset Manager receive remuneration according to their ability evaluations, which may include consideration of ESG factors.
• Remuneration, methods of calculation and payment, timing of payment, and increases or decreases in remuneration are determined according to compensation rules.
  • Monthly remuneration is composed of one twelfth of annual salary and allowances. Such remuneration is determined every June based on evaluations for the previous fiscal year (each ending as of March 31) and effective as of July 1 in the following fiscal year.
  • Monthly remuneration is composed of fixed position-based pay and allowances. Based on personnel evaluations for each fiscal year, employees may receive increases or decreases effective as of July 1 in the following fiscal year. Such increases or decreases will be set based on a pay table determined for each job category.
  • Bonuses are determined based on the employee’s contribution and company performance, which may include ESG considerations.

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

The Asset Manager has established the Sustainability Committee to promote ESG initiatives in accordance with the Sustainability Policy. The Sustainability Committee is led by the Executive Vice President as the Sustainability Promotion Officer, attended by the Executive Directors, General Managers and Compliance Officer. As a general rule, regular meetings are held approximately once every 3 months to discuss specific ESG targets and measures, as well as various initiatives, while taking into account social conditions and the operating status of MIRAI.

In order to realize sustainability in our asset management while maximizing MIRAI’s portfolio value, MIRAI and the Asset Manager (collectively, “we”) consider ESG factors in our investment and asset management processes. In particular, the Asset Manager has established the Green Finance Framework. The Finance and Planning Division of the Asset Manager selects the projects that are to be financed through our Green Finance Framework, and the Sustainability Committee reviews and confirms compliance with the eligibility criteria. Subsequently, the Asset Manager and the Boards of Directors of MIRAI resolve the implementation of green finance in accordance with our rules.

As stated above, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote ESG characteristics. Such initiatives include energy-saving initiatives and waste management initiatives.

While sustainability issues will severely impact our business activities, we believe that such issues may also become potential business opportunities to create new value for sustainable growth. Accordingly, we position our commitment to sustainability as a top priority in our management strategies. We also believe that integrating sustainability factors alongside traditional financial and operational metrics in our investment decision process helps us make a more holistic assessment of a property’s risks and opportunities and is commensurate with the pursuit of superior risk-adjusted returns.

The risk analysis was conducted based on scenarios of rising temperatures developed by international organizations such as the International Energy Agency (“IEA”) and the Intergovernmental Panel on Climate Change (“IPCC”) as information sources. The main information sources referred to are as follows.

	1.5℃ Temperature Increase Scenario	4℃ Temperature Increase Scenario
Transition risks	IEA NZE2050	IEA STEPS
Physical risks	IPCC RCP 2.6	IPCC RCP 8.5

Physical risks

The assets in which MIRAI invests are exposed to physical climate risks. These can manifest themselves through, for example, floods, storms, heatwaves and limited access to natural resources. This can potentially lead to reduction in value of the assets in which MIRAI invests. Specifically for MIRAI, the following risks are particularly relevant. More information can be found on the website: https://3476.jp/en/esg/climate.html

Elements related to real estate management	Financial impacts	Our Understanding				Risk management, response measures, initiatives, etc.
		4℃ Scenario		1.5℃ Scenario
		Medium-term	Long-term	Medium-term	Long-term
Increase in typhoons, torrential rains, floods, and inundation damage	Increase in repair expenses and property insurance premiums Decline in asset value Decline in occupancy rate	Medium	Large	Small	Small	Evaluation in the due diligence process Maintenance of disaster prevention equipment Reinforcement of BCP
Progressive sea-level rise	Large-scale renovation costs (e.g., elevating structures, etc.) Compensation for damages to tenants	Medium	Large	Small	Small	Evaluation in the due diligence process Maintenance of disaster prevention equipment
Occurrence of extreme weather conditions (e.g., extremely hot or extremely cold days)	Increase in HVAC-related costs (e.g., longer operating hours, repair costs, etc.) Decrease in operational efficiency of related businesses (PMs, BMs, construction companies, etc.)	Medium	Medium	Small	Small	Installation of high-efficiency air-conditioning systems Installation of equipment for businesses Implementation of systematic process management

• The medium-term assumes a period of 4-10 years, and beyond that is considered as the long-term. This analysis used scenarios and objective forecast data presented by third-party specialized organizations at the time as reference, and was performed based on the status of MIRAI's portfolio. However, it involves uncertainties of known risks, unknown risks and other factors, and consequently, not does not guarantee of the accuracy or safety of the information.

Transition risks

The assets in which MIRAI invests are exposed to transition risks. These can manifest themselves through, for example, changes in regulations, technical developments and/or social developments. Such developments may result in reduction in value of the assets in which MIRAI invests. Specifically, the following transition risks are relevant for MIRAI and its assets. More information can be found on the website: https://3476.jp/en/esg/climate.html

Elements related to real estate management	Financial impacts	Our Understanding				Risk management, response measures, initiatives, etc.
		4℃ Scenario		1.5℃ Scenario
		Medium-term	Long-term	Medium-term	Long-term
Introduction of carbon taxes and GHG emission regulation	Increased tax burden on GHG emissions Increased regulatory compliance costs (e.g., renovation work and credit purchase costs)	Small	Small	Medium	Large	Set targets for reduction of energy consumption Increase ratio of properties with high environmental performance Introduction of renewable energy
Strengthening energy conservation standards	Increased regulatory compliance costs (e.g., renovation work, fines for exceeding standards, etc.)	Small	Small	Small	Medium	Implementation of planned equipment retrofitting Increase ratio of properties with high environmental performance Introduction of renewable energy
Stricter reporting requirements for energy-related and GHG-related data and expansion and mandating of disclosure systems	Increased regulatory compliance costs (e.g., outsourcing costs to outside experts, environmental certification costs, etc.)	Small	Small	Small	Small	Streamlining of data aggregation and reporting operations Periodic confirmation of the latest laws and ordinances Improvement and maintenance of operational systems
Evolution of energy-saving technologies / Penetration of renewable energy	Increased cost of energy-saving measures and introduction of renewable energy Decline in tenant/investor demand due to delay in response Rising utility costs (including procurement costs for renewable energy)	Small	Small	Medium	Medium	Implementation of planned equipment retrofitting Comparison of environmental performance at the time of construction Smooth out costs through fixed contracts
Reflecting environmental performance in real estate appraisal values	Decline in asset value Decrease in unit price	Small	Small	Medium	Large	Continuous information exchange with appraisal firms Increase ratio of properties with high environmental performance Implement equipment retrofitting that lead to improved environmental performance
Deterioration in financing conditions due to delays in response to climate change	Rising financing costs	Small	Small	Medium	Medium	Implementation of green finance Disclosure of environmental performance, etc. Acquisition third-party certifications, etc. Strengthen engagement with investors
Changing tenant needs for environmental performance	Decrease in rental income due to difficulty in tenant leasing Increase in environmental performance improvement costs (e.g., certification costs, renovation work, etc.)	Small	Small	Medium	Large	Implement equipment renewals that lead to improved environmental performance Acquisition of third-party certifications, etc. Reinforcement of BCP
Decrease in brand value due to delays in addressing climate change	Decrease in unit price	Small	Small	Small	Medium	Disclosure of environmental performance, etc. Acquisition of third-party certification, etc.

• The medium-term assumes a period of 4-10 years, and beyond that is considered as the long-term. This analysis used scenarios and objective forecast data presented by third-party specialized organizations at the time as reference, and was performed based on the status of MIRAI's portfolio. However, it involves uncertainties of known risks, unknown risks and other factors, and consequently, not does not guarantee of the accuracy or safety of the information.

Social and governance risks

The assets in which MIRAI invests are exposed to social and governance risks, as follows.

Risks related to infectious diseases: Spread of infectious diseases and/or pandemic may hinder the operation of our properties by our tenants, which in turn may adversely affect profitability of MIRAI’s portfolio. We plan to address this risk by adopting countermeasures such as increased cleaning and sanitization, implemented on-site by our building managers.

Risks related to low birth rate and aging population in Japan: The continuing low birth rate and aging population in Japan may decrease available pool of workers and staffs who are able to manage and operate MIRAI’s properties. We plan to address this risk by introducing management systems designed to incorporate automation into certain aspects of operations and improving operational efficiency.