• Statement on principal adverse impacts of investment decisions on sustainability factorsPDF376KB
• Promotion of environmental and/or social characteristics – SFDR Article 8 Pre-contractual DisclosurePDF589KB

Product Name: HEIWA REAL ESTATE REIT, Inc.

Legal Entity Identifier: 3538003GH25628YW4R98

HEIWA REAL ESTATE REIT, Inc. (“HEIWA REIT”) 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”). HEIWA REIT 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 HEIWA REAL ESTATE Asset Management CO., LTD. (the “Asset Management Company”), to manage and operate the properties in HEIWA REIT’s portfolio. HEIWA REIT and the Asset Management Company 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 Management Company, unless noted otherwise.

Summary

No sustainable investment objective

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

Environmental or social characteristics of the financial product

HEIWA REIT and the Asset Management Company place a strong emphasis on promoting environmental or social characteristics. We have integrated the sustainability goals and initiatives of the Heiwa Real Estate Group, to which the Asset Management Company belongs, into our business practices, including the ESG Policy of the Heiwa Real Estate Group (the “Heiwa Group ESG Policy”), which summarizes the Heiwa Real Estate Group’s commitment to integrating ESG considerations into the corporate management to contribute to the development of a sustainable society and increase long-term corporate value. The key aspects of the Heiwa Group ESG Policy are (i) realizing sustainable urban development with safety and security, (ii) contributing to local communities, (iii) creating a rewarding work environment, (iv) strengthening corporate governance, (v) sustainability-related education and awareness building and (vi) facilitating communications.

Integrating the Heiwa Group ESG Policy, we view ESG initiatives as key to continuously enhancing HEIWA REIT’s value, and the Asset Management Company has the Asset Management Company has formulated the Sustainability Promotion Rules with the aim of establishing various initiatives related to sustainability, and setting forth basic policies concerning its internal structure, collaboration with external parties and information disclosure related to promotion of sustainability. In addition, the Asset Management Company has established sustainability targets to mitigate its and HEIWA REIT’s environmental burden in collaboration with stakeholders.

The highlights of our initiatives with environmental or social characteristics are as follows.

• Environmental management and performance targets. As described in detail under “—Monitoring of environmental or social characteristics”, we endeavor to promote efficient use of natural resources and energy and reduction of environmental impact of the properties in HEIWA REIT’s portfolio by actively tracking and monitoring environmental performance data and setting performance targets.
• Announcement of support for the TCFD recommendations and participation in the TCFD Consortium. In December 2015, the Financial Stability Board established the Task Force on Climate-related Financial Disclosures (“TCFD”) to develop recommendations for more effective climate-related disclosures. In December 2021, the Asset Management Company expressed support for the TCFD recommendations in order to clarify the policy and system on initiatives to address climate-related issues and to promote expansion of the disclosure of the content of such initiatives, and also joined the TCFD Consortium, a group of domestic companies that support TCFD recommendations. In addition, starting in 2021, we have disclosed the climate change-related disclosures recommended by TCFD on the website after identifying and analyzing climate change-related risks and opportunities in alignment with the TCFD’s recommendations.
• Realization of low-carbon society. As part of our initiatives to contribution to realization of low-carbon society, we have introduced an initiative to increase the use of renewable energy-sourced electricity at the properties in HEIWA REIT’s portfolio. In addition, we have installed electric power measurement systems in HEIWA REIT’s residential properties to better monitor the electricity usage by tenants and LED lighting in common areas of the office buildings and residential properties as well as rental units of the residential properties in order to reduce electricity consumption.
• Cooperation with tenants on environmental issues. We aim to include energy conservation provisions, which we refer to as “Green Lease” provisions, in lease agreement with HEIWA REIT’s tenants. Our Green Lease provisions include clauses requiring tenants to collaborate with us in implementing various environmental measures, including on energy savings efforts, benefiting tenant with reduced utilities expenses.

Investment strategy

HEIWA REIT invests primarily in office buildings and residences within the 23 wards of Tokyo, which HEIWA REIT refers to as “Primary Investment Area”. In principle, HEIWA REIT’s portfolio consists of office buildings and residences, each making up 50% of the portfolio based on acquisition price. It is also HEIWA REIT’s policy for properties to be primarily located in the Primary Investment Area, but HEIWA REIT may invest in properties located in major urban areas of Tokyo and Kanagawa, Chiba and Saitama Prefectures other than the Primary Investment Area as well as other major urban areas in Japan.

HEIWA REIT invests only in properties that have been subjected to the Asset Management Company’s comprehensive due diligence review, including an environmental assessment and an evaluation of risks related to building safety, soil contamination, flooding, earthquakes. HEIWA REIT makes decisions on the basis of this due diligence review, and may reject a potential investment opportunity at the conclusion of the due diligence review based on environmental factors. When investing in properties using proceed from the Green Finance Framework, HEIWA REIT rules out properties that do not meet the criteria under the Green Finance Framework described below.

Green Finance Framework

In addition, in order to ensure that our investment and asset management are sustainable while maximizing the value of HEIWA REIT’s portfolio real estate assets, ESG factors are given significant consideration in our investment selection and asset management processes. For example, HEIWA REIT has established a debt-based green finance framework (the “Green Finance Framework”) based on our commitment to use funds financed through green financing to acquire or renovate “Eligible Green Assets”, which are properties or renovations that meet the eligibility criteria described below. Green financing under the Green Finance Framework consists of green loans and green bonds where proceeds are used to acquire or renovate Eligible Green Assets or refinance loans or bonds financed for such acquisition or renovate. We believe that using such green financing for the acquisitions of Eligible Green Assets, which we believe can serve society as infrastructure assets, will contribute to the betterment of society and the environment.

• Eligibility criteria – acquisition.
  
  Properties for which any of the following environmental certifications has been or will be obtained or renewed:

  Third-party environmental certification	Minimum eligibility criteria
  DBJ Green Building Certification	Three or more stars
  CASBEE for Real Estate Certification	B+ rank or higher
  BELS Certification	FY2016 Standard: Three or more stars(1) FY2024 Standard: Level 4 or higher(2)
  Leadership in Energy and Environmental Design (“LEED”) Certification	Silver or higher(3)

  Notes:

  • (1) Buildings must be eligible, i.e. in case of logistics facilities, BEI must be 0.75 or below.
  • (2) For residences with and without renewable energy facilities, Level 3 or higher is eligible.
  • (3) For LEED BD+C, version 4.0 or later applies.
• Eligibility criteria – renovation.
  
  Renovation that meets one of the following requirements and that has completed or will be completed within three years from the closing date of the green bond or the green loan, as the case may be:
  • Renovation work intended to reduce CO₂ emissions, energy consumption, water consumption and/or waste generated by more than 30%
  • Renovation work intended to improve the number of stars or the grade/rank by one or more for any of DBJ Green Building Certification, CASBEE for Real Estate Certification, BELS Certification or LEED Certification.
• Eligibility criteria – renewable energy.
  
  Introduction or acquisition of facilities for renewable energy generation:
  
  We publish the procurement and allocation status of the proceeds from financing under the Green Finance Framework on the website at least once a year. If there are unappropriated funds at the time of issuing of green bonds or borrowing of green loans, we disclose an appropriation plan on the website. In addition, if a property for which the proceeds were intended to be used has been sold and will therefore no longer be subject such proceeds to, we will disclose that in a press release and on the website.
  
  When investing in properties using proceed from the Green Finance Framework, HEIWA REIT rules out properties that do not meet the criteria under the Green Finance Framework.

Proportion of investments

The financial products offered by HEIWA REIT promote environmental or social characteristics, but do not have as their objective sustainable investment. However, as of May 31, 2024, 37.2% of HEIWA REIT’s properties received at least one Green Building Certification (as defined below), and 62.8% did not, in each case based on gross floor area.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics HEIWA REIT promotes.

• Portfolio-level sustainability assessment. HEIWA REIT participates in the annual sustainability assessment by the Global Real Estate Sustainability Benchmark (“GRESB”). GRESB is a benchmark system established in 2009 by major European pension funds that played leading roles in launching Principles for Responsible Investment (“PRI”). GRESB is designed to evaluate ESG considerations and sustainability performance and management of real estate portfolios of real estate companies and funds around the globe. GRESB Real Estate Assessment features a five-star ranking system based on a participant’s GRESB Overall Score and its quintile position relative to other participants around the globe, and also awards “Green Star” designation for companies that achieve high performance in the management component (i.e., policies and organization structure) and the performance component (i.e., tenant engagement and environmental performance) of the sustainability assessment. In addition. GRESM Public Disclosure evaluates the quality of ESG and related information disclosure. HEIWA REIT received “2 Stars” in the 2023 GRESB Real Estate Assessment and the “Green Start” designation in 2023 for the seventh consecutive year. In the 2023 GRESB Public Disclosure, HEIWA REIT received “A Level”, the highest rating in the assessment.
• Property-level environmental certification. To track the environmental performance of individual properties, we rely on the following environmental certifications issued by third-party organizations (collectively, “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 a sufficient level of environmental certification if it received two stars or higher out of DBJ Green Building Certification’s five-star ranking system.
  • CASBEE Certification. 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 A or higher out of the CASBEE ranking system featuring Rank S, Rank A, Rank B+ and Rank B.
  • 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 two stars or higher out of BELS’ five-star ranking system.
  • SMBC Sustainable Building Assessment Loan. Developed by Sumitomo Mitsui Banking Corporation (“SMBC”) and Woonerf Inc., SMBC Sustainable Building Assessment Loan involves assessment of environmental performance of buildings and contribution to sustainability in management and operation of buildings.
• Tracking portfolio-level environmental performance of portfolio and setting performance targets. The Asset Management Company tracks and monitors environmental performance of HEIWA REIT’s portfolio and discloses annual data and performance targets on HEIWA REIT’s website:
  https://www.heiwa-re.co.jp/en/sustainability/environment/index.html.
  • Energy consumption and performance targets. The Asset Management Company monitors and tracks energy consumption and energy consumption intensity based on gross floor area of HEIWA REIT’s portfolio. We have set performance targets of (i) reducing energy consumption intensity of HEIWA REIT’s portfolio by at least 1% year on year and (ii) reducing energy consumption intensity of HEIWA REIT’s portfolio by annual average of at least 1% over a five-year period.
  • Greenhouse gas emissions and performance targets. The Asset Management Company monitors and tracks Scope 1, Scope 2 and Scope 3 greenhouse gas (“GHG”) emissions, as well as GHG emissions intensity based on gross floor area, of HEIWA REIT’s portfolio. We have set performance targets of (i) reducing Scope 1 and Scope 2 GHG emissions by 90% by FY2030 from the base level in FY2018 (3,628 t-CO₂) and (ii) achieving net zero GHG emissions by FY2050.
  • Water consumption and performance targets. The Asset Management Company monitors and tracks water consumption and water consumption intensity based on gross floor area of HEIWA REIT’s portfolio. We have set a performance target of not increasing water consumption intensity of HEIWA REIT’s portfolio.
  • Waste management and performance targets. The Asset Management Company monitors and tracks total amount of waste generated from HEIWA REIT’s portfolio and recycling rate of waste generated. We have set a performance target of increasing recycling rate of waste generated from HEIWA REIT’s portfolio year on year.
• Social initiatives – tenants. We conduct surveys on a regular basis to measure satisfaction amongst our tenants. These surveys are conducted either in person or in the form of a questionnaire. These surveys help formulate future measures that will help improve tenant health, safety and comfort, and enhance HEIWA REIT’s tenants’ satisfaction.
• Social initiatives – local communities. We assess our performance in this area by looking at the frequency with which we implement and participate in community service programs and activities such as community clean -up events, cultural events and use of HEIWA REIT’s properties and resources thereof in case of disaster to support local communities.
• Social initiatives – the Asset Management Company’s employees. The Asset Management Company conducts a survey to measure employee satisfaction on an annual basis and sets performance targets for promoting diversity, equity and inclusion (“DEI”) such as increasing utilization rate of paid leaves taken by all employees to over 70% and achieving a participation rate of 100% for DEI training. In addition, the Asset Management Company provides a customizable employee welfare plan called “Cafeteria Plan” in which an employee can create a customized welfare plan from a suite of welfare services and benefits, such as cost reimbursement for acquisition or maintenance of various qualifications and licenses, financial support for improvement in quality of life such as gym membership and entertainment venues, and financial support for medical check-ups and vaccinations, tailored to his or her needs. The Asset Management Company also provides anti-harassment trainings at least once a year on (i) the types of actions that would constitute workplace harassment and (ii) reporting policies for harassment, in order to foster a safe and comfortable work environment for the employees, and has established both internal and external (an outside law firm) hotlines for reporting incidents of workplace harassment.
  The Asset Management Company also monitors and tracks various employee data, including, but not limited to, percentage of women in managerial positions, number of employees who are 65-year-old or older, number of employees with disabilities and utilization of paid leaves and childcare leaves, and discloses annual data on the website:
  https://www.heiwa-re.co.jp/en/sustainability/society/contribution.html

Methodologies

The Asset Management Company has established the “Sustainability Promotion Guidelines” with the aim of setting out various policies related to sustainability, internal governance systems, basic policies on collaboration with external stakeholders and polices on related information disclosure. In accordance with the Sustainability Promotion Guidelines, the Asset Management Company has established the “Sustainability Promotion Committee” as its decision-making body for promoting sustainability and implementing related policies. The members of the Sustainability Promotion Committee are the President & CEO acting as the Chief Sustainability Officer, the Head of the Business Planning Division acting as the Executive Sustainability Officer, the Head of the Investment Management Division, the Head of the Compliance & Risk Management Office, the Head of the Real Estate Investment Department, the Head of the Office Asset Management Department, the Head of the Residence Asset Management Department, the Head of the Planning & Finance Department and the Head of the Business Management Department. The Sustainability Promotion Committee meets at least once every three months to discuss and formulate various policies, goals and measures related to sustainability, and also reports on these policies, goals and measures to the Board of Directors of HEIWA REIT. In addition, the Sustainability Promotion Committee discusses any outstanding issues or points for improvement regarding the sustainability-related goals or targets and, in principle, incorporate them into the goals or targets for the following period, and appropriate follow-up is carried out on an ongoing basis.

• Portfolio-level sustainability assessment. We conduct a comprehensive sustainability performance check of HEIWA REIT, its portfolio and the asset management thereof through the annual sustainability assessment by GRESB. After receiving the assessment by GRESB, we hold a review meeting with external consultants to discuss revisions to the policies and guidelines, including the introduction of new measures and initiatives in order to improve the assessment result going forward. The Sustainability Promotion Committee in turn discusses the matters raised in the review meeting and implement the necessary measures and initiatives in accordance with the priorities of the agenda items as resolved by the Sustainability Promotion Committee.
• Property-level environmental certification. To track the environmental performance of the buildings in HEIWA REIT’s properties, we rely on the environmental certifications, such as the Green Building Certifications, issued by various third-party organizations. The Asset Management Company has contracted with a third-party consulting firm to receive support in obtaining such Green Building Certifications. The Planning & Finance Department requests a provisional evaluation from the consulting firm for properties that we are considering obtaining an environmental certification. Based on the results of the provisional evaluation, the department in charge of sustainability discusses with the Office Asset Management Department (for office properties) or the Residence Asset Management Department (for residential properties) to select properties with a high probability of obtaining such environmental certification and proceeds with the necessary application procedures. In addition, the Planning & Finance Department publicly discloses information on new and renewed environmental certifications. The status of environmental certification acquisition is also reported to the Sustainability Promotion Committee, and then to the Board of Directors of the Asset Management Company and the Board of Directors of HEIWA REIT.
• Environmental performance data and targets. In addition to and as part of the evaluation metrics used for the portfolio-level GRESB assessment and property-level environmental certifications mentioned above, the Asset Management Company tracks and monitors environmental performance data of HEIWA REIT’s portfolio, such as energy consumption, GHG emissions, water consumption and waste management, and discloses annual data and performance targets on HEIWA REIT’s website. The Sustainability Promotion Committee consults with external consultants, checks the progress of the performance targets and revises or establishes new targets based on the performance.
• Social initiatives – tenants. For residential properties, we utilize resident-only websites for emergency contact information and a Q&A about the facilities. We also conduct tenant satisfaction surveys on a regular basis and, based on the survey results, we consider various measures and initiatives, including any renovation works, to improve the housing facilities that match the lifestyles of residents.
  For office properties, we conduct tenant surveys on a regular basis, usually at least once every three years, to identify areas for improvement in management, and formulate repair plans that will lead to increased tenant satisfaction. In addition, based on the survey results, we consider various measures and initiatives, including any renovation works, to improve the office facilities that match the needs of office tenants. We also work with property and building management companies to respond immediately to any tenant complaints or other issues regarding building management. We also distribute a sustainability guide to tenants to raise awareness of our ESG initiatives.
• Social initiatives – the Asset Management Company’s employees. We conduct annual employee satisfaction surveys, of which results are disclosed to all employees. In addition to the annual employee satisfaction surveys, as a way of building a good relationship with employees, the Asset Management Company holds annual interviews with superiors to check on employees’ satisfaction with the work environment and to discuss any requests or suggestions for improving the work environment. The Asset Management Company also uses the surveys and interviews as a tool for detecting workplace harassment.

Data sources and processing

We use the following data sources:

• Portfolio-level sustainability assessment. The Planning & Finance Department takes the lead in collecting data for the GRESB questionnaire through analysis of electricity, gas and water consumption data aggregation system and interviews with the Office Asset Management Department (for office properties) and the Residence Asset Management Department (for residential properties) as well as the property management companies that we use. The Planning & Finance Department also compiles the data and prepares the responses based on consultation with external consultants. The final responses to the GRESB questionnaire are not only approved internally by the Sustainability Promotion Committee, but also by external consultants and third-party assurance organizations before being submitted to GRESB.
• Property-level environmental certification. In principle, the application process for obtaining and renewing environmental certifications for properties owned by HEIWA REIT is outsourced to a third-party consulting firm. With the support of the consulting firm, the Office Asset Management Department (for office properties) and the Residence Asset Management Department (for residential properties) collect the relevant data required for certification applications and prepares supporting materials. The Planning & Finance Department manages the expiration dates of environmental certifications for existing properties and considers renewing certifications before they expire or switching to other certifications. After consulting the Office Asset Management Department (for office properties) and the Residence Asset Management Department (for residential properties) regarding the selection of properties and the number of properties to be targeted, the Planning & Finance Department considers acquiring new certifications and reports its recommendations to the Sustainability Promotion Committee.
• Environmental performance data and targets. Raw environmental performance data for each property, such as electricity, gas and water consumption, is collected by the property management companies, which in turn upload them to our dedicated data aggregation system. The Planning & Finance Department compiles the property-level raw data input from the property management companies on our data aggregation system into portfolio-level data on a monthly basis. In addition, GHG emissions data is first calculated by our data aggregation system and reviewed and complied by the Planning & Finance Department before they, along with electricity, gas and water consumption data, are submitted to the third-party assurance organization for verification of the accuracy and quality of compiled data. The Planning & Finance Department reports the compiled portfolio-level data to the Sustainability Promotion Committee on a quarterly basis.
• Social initiatives – tenants. The Office Asset Management Department (for office properties) and the Residence Asset Management Department (for residential properties) are charge of conducting satisfaction surveys. The tenants provide their responses to the surveys directly by accessing dedicated survey websites. The Office Asset Management Department (for office properties) and the Residence Asset Management Department (for residential properties) compile the respective responses and reports the respective survey results to the meetings attended by the President & CEO, the Planning & Finance Department and other relevant officers and senior managers.
• Social initiatives – the Asset Management Company’s employees. The Business Administration Department collects the annual employee satisfaction survey results and reports them to the Board of Directors of the Asset Management Company which analyzes and discusses the survey results and feasibility of any measures or initiatives based on the survey results and analysis thereof. The Business Administration Department takes the lead in implementing appropriate measures or initiatives if determined to be feasible.

Limitations to methodologies and data

The primary limitation to the methodology or data source is the necessity of our reliance on the 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 and property management companies, and independent verification of accuracy of such raw data provided by the property management companies presents challenges.

Data at the portfolio level are compiled internally at the Asset Management Company using the data aggregation system. To ensure the accuracy of certain compiled environmental performance data such as GHG emissions, energy consumption and water consumption, we have retained a third-party assurance organization to verify the accuracy and quality of compiled data at the portfolio level in accordance with our own criteria and methodologies. However, the verification process does not provide independent verification of accuracy of raw data at the property level provided by the property management companies and the challenges associated with our reliance on the 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 HEIWA REIT in any material way.

Due diligence

Prior to our investment in a property, the Asset Management Company conducts comprehensive due diligence review of the property, including an environmental assessment and an evaluation of risks related to building safety, soil contamination, flooding, earthquakes. HEIWA REIT makes decisions on the basis of this due diligence review, and may reject a potential investment opportunity at the conclusion of the due diligence review based on environmental factors. The Asset Management Company’s investment decision-making process also involves assessment of whether the property has been granted environmental certifications or its capability of being granted such certifications.

Engagement policies

Tenants. When appropriate, we aim to include energy conservation provisions, which we refer to as “Green Lease” provisions, in lease agreement with HEIWA REIT’s tenants. Our Green Lease provisions include clauses requiring tenants to collaborate with us in implementing various environmental measures, including on energy savings efforts, benefiting tenant with reduced utilities expenses.

Property management companies. When selecting a property management company, we consider the property management company’s ESG-related performance by quantifying and evaluating the property management company’s ESG-related performance as part of our annual evaluation of the property management company. In addition, we conduct annual ESG trainings provided by third-party experts at the property management companies that manage HEIWA REIT’s properties.

Designated reference benchmark

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

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

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

• Remuneration, methods of calculation and payment, timing of payment and increases or decreases in remuneration are determined according to compensation rules of the Asset Management Company.
• Monthly remuneration is determined by taking into account such factors as the individual employee’s skills, experience and performance assigned duties, which may include sustainability-related activities depending on the nature of the assignment and/or position of the employee.
• Bonuses may be paid based on the individual employee’s performance, including sustainability-related assignments if applicable, and financial results of the Asset Management Company.

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

HEIWA REIT and the Asset Management Company address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.

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

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.

Risk Analysis

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.

Transition risks

The assets in which HEIWA REIT 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 HEIWA REIT invests. Specifically, the following transition risks are relevant for HEIWA REIT and its assets. More information can be found on the website:
https://www.heiwa-re.co.jp/en/sustainability/environment/climate.html.

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Physical risks

The assets in which HEIWA REIT invests are exposed to physical climate risks. These can manifest themselves through, for example, typhoons, floods, storms, heatwaves and limited access to natural resources. Such developments may result in reduction in value of the assets in which HEIWA REIT invests. Specifically, the following physical risks are relevant for HEIWA REIT and its assets. More information can be found on the website:
https://www.heiwa-re.co.jp/en/sustainability/environment/climate.html.

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