Approach to Sustainability Sustainability Related Disclosure

No sustainable investment objective

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

Environmental or social characteristics of the financial product

Our investment target consists of residential assets located in a broad range of Japan's regional cities, through which we will provide residents with a safe, secure, and comfortable living environment. We make efficient use of funds raised from the capital markets to make investments that encourage regional revitalization. We provide support to local governments that are adopting unique and innovative measures to create an attractive environment, valuable services, and employment opportunities based on their communities' unique characteristics. Our ultimate mission is to help revitalize Japan's economy starting with its regional cities.

The Asset Manager has established a sustainability policy and is implementing initiatives described below based on the recognition that environmental, social and governance (“ESG”) considerations and initiatives that promote sustainability in asset management will serve to maximize the interest of investors over the medium to long term.

• Reducing carbon emissions through pursuit of energy efficiency. We aim to reduce carbon emissions by implementing power saving and energy efficiency measures in our operations as well as installing energy efficient equipment. We are working to achieve low or zero carbonization in our portfolio through the use of renewable energy and other approaches. We also post posters to promote energy efficiency at the properties certified as “Green Buildings”.
• Saving water and waste. We aim to save water by installing water-saving washbasins, hot water supply rooms and toilets at the properties certified as “Green Buildings” under the DBJ Green Building Certification, CASBEE Certification and BELS Certification (described in further detail below). We post posters to promote food loss reduction and waste segregation at various properties. We also make available our energy conservation guides at all of our properties and hand-deliver them to new tenants.
• Green lease clauses. We enter into green leases to reduce our environmental burden in collaboration with property managers and tenants. Green lease clauses include the following provisions: (i) The lessor and lessee cooperate with each other to reduce their environmental impact, including by reducing water and energy consumption and waste disposal; (ii) the tenant agrees that lessor or its agent may periodically check the meters in its unit for the purpose of ascertaining and reducing consumption of electricity, water, gas and kerosene in the property; (iii) the lessor collects feedback from tenants to improve the comfort of their space; and (iv) if there is life-saving or disaster equipment in the property, the lessor agrees to allow the use of such equipment by the tenant, roommates and neighbors in the event of a disaster.
• Forest Stewardship Council (“FSC”)-certified paper and vegetable ink. FSC certification is an international system that identifies forest products produced from materials that meet the FSC's standards created to promote sustainable forest utilization and conservation. The paper and ink we use for asset management reports and other materials distributed to unitholders are FSC-certified.
• Initiatives for the Asset Manager's employees. The Asset Manager implemented the following initiatives to help its employees develop and acquire relevant expertise and knowledge and build a pleasant work environment where they can perform at their best.
  • Promotion of qualifications: We support employees seeking any of 24 qualifications we recognize, such as by covering fees for exam preparation courses, exam fees, and registration and other expenses to maintain qualifications. These qualifications include the Certified Master of the Association for Estate Securitization Association (“ARES”), real estate appraiser, certified public accountant, and chief real estate transaction manager.
  • Training support: We organize monthly training sessions covering a range of topics such as drafting contracts, use of social media, ESG, addressing compliance violations and prevention of internal fraud.
  • Periodic physical exams: Employees may receive annual physical exams at the expense of the Asset Manager.
  • Promotion of work-life balance: We not only comply with the Labor Standards Act of Japan, but also provide additional benefits, such as giving 5 extra days of paid leave in addition to the legal minimum, a staggered workday (giving employees the flexibility to work during their preferred hours), and assistance with remote working. Our executives and employees can borrow laptop computers, smartphones, and mobile routers, and a non-territorial office system was introduced in our office. We have also established telecommuting rules to allow employees to improve work-life balance by skipping the daily commute to the office and giving employees more time for our personal lives.
  • A “Samty Asset Hotline”. We have established internal (Compliance Team) as well as external (outsourced) contact points for whistle-blowing in accordance with our Internal Reporting System Rules. The CEO is responsible for the overall management of the whistle-blowing system, and the Senior Compliance Officer is responsible for the overall operation of the system.
• Initiatives for unitholders/Information disclosure.
  • We facilitate communication with our unitholders by holding meetings to provide management updates and participating in investor relations events hosted by securities companies or other organizations.
  • We make appropriate disclosures, including on our website, that are reader-friendly. We emphasize timely disclosure of both financial and non-financial information, including information on environmental or social aspects with respect to properties, in Japanese and English.

Investment strategy

We directly or indirectly through trust beneficiary interests invest in real estate. Therefore, investment strategy and due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment strategy and due diligence policies as described below are related to real estate assets.

We invest primarily in residences. With respect to social and environmental risk assessment of each property, we receive a range of reports from independent experts on building safety, soil contamination, energy supply, natural disaster risk such as floods and waste management, such as real estate appraisal reports, building diagnosis reports, earthquake risk reports, soil contamination investigation reports, environmental investigation reports, and reports related to structural calculation review. The report is taken into account when deciding on an investment, and if the results are adverse, the investment can be foregone.

In order to conduct sustainable asset management while maximizing the value of our properties, we have taken into consideration ESG factors in our investment and asset management processes.

Proportion of investments

As of January 31, 2024, 31.05% of the properties in the portfolio, including properties in which we hold quasi co-ownership interests, were Green Buildings (including properties with expired certifications unless there is reason to believe that such properties are no longer environmentally friendly to the same degree as Green Buildings), and 68.95% were not, based on gross floor area. We will continue our efforts to increase the percentage of Green Buildings.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the E/S characteristics we promote, and the Asset Manager also considers these indicators on an ongoing basis when conducting the due diligence review of target assets to be invested in.

• GRESB Real Estate Assessment. GRESB is an annual benchmarking assessment to measure the ESG integration of real estate companies and funds, as well as the name of the organization which runs the assessment. It was founded in 2009 by a group of major European pension funds who played leading roles in launching the Principles for Responsible Investment (PRI). We received a “2 Star” in GRESB rating in the 2023 GRESB Real Estate Assessment, which is based on GRESB Overall Score and its quintile position relative to global participants. In addition, in October 2023, we were awarded “Green Star” for having received high marks for our environmental and sustainability efforts.
• Environmental certification of our properties. To track the environmental performance of our properties, we rely on the following environmental 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 sufficient environmental certification if it received 3 stars or higher out of DBJ's 5-star ranking system.
  • 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 three stars or higher out of five stars.
  • CASBEE Certification. CASBEE (Comprehensive Assessment System for Built Environment Efficiency) is a method for evaluating and rating the environmental performance of buildings. The system rates the overall environmental performance of buildings from the following perspectives: the reduction of environmental loads such as conservation of energy and resources as well as the quality of a building including interior comfort and scenic aesthetics. The system rankings are rated in four scales: “Rank S”, “Rank A”, “Rank B+”, and “Rank B” for buildings with one or more years old after completion.
• GHG reduction targets: The Asset Manager established the following greenhouse gas (“GHG”) emission reduction policy on April 1, 2022, as part of its efforts to reduce GHG emissions:
  • As our long-term target, we aim to achieve net zero emissions by 2050;
  • As our mid-term target, we aim to reduce annual GHG emissions from our portfolio (t-CO2e) by 50% on a gross basis by 2030 compared to the level in 2020;
  • The Sustainability Officer is responsible for allocating appropriate internal resources to implement this policy and achieve the foregoing goals; and
  • The Sustainability Officer provides periodic reports on the implementation of this policy and progress made against the targets at meetings, required under the Asset Manager's Rules for Sustainability Promotion System, which are held at least once every six months.
• Energy-saving targets: The Asset Manager established its energy-saving policy on April 1, 2022, as part of its efforts to save energy:
  • Our basic target is to achieve an annual total energy data capture rate (%) of 100% of our portfolio;
  • Our target is to reduce the annual total energy consumption intensity in the owner-controlled area by 5% (average 1% per year) between 2020 and 2025;
  • The Sustainability Officer is responsible for allocating appropriate internal resources to implement this policy and achieve the foregoing goals; and
  • The Sustainability Officer reports on the implementation of this policy and progress made against the targets at meetings, required under the Rules for Sustainability Promotion System, which are held at least once every six months.

Methodologies

We proactively implement ESG initiatives. In general, every three months, the Sustainability Promotion Committee, which is chaired by the Asset Manager's CEO and additionally includes the Senior General Managers of the Investment Management Division, Financial & Planning Division, Asset Management Division, Finance & Accounting Division and Engineering Management Division, reviews progress made against targets, which are related to environmental or social characteristics and are binding, comparing and analyzing against the previous year.

• GRESB Real Estate Assessment. The Sustainability Promotion Committee was established to share information on sustainability issues and measures, including GRESB, in accordance with the Materiality EMS Operation Manual. Personnel from various departments engaged in REIT management report on various measures. In principle, regular meetings are held at least once every three months, and the Chief Executive Officer reports on matters and measures formulated at these meetings to the Board of Directors at least once every six months.
• Environmental certification of our properties. When considering acquisition of environmental certification, the Residential REIT Asset Management Department, which is in charge of asset management of properties, selects properties and shares information with the REIT Investor Relations, Finance & Planning Department, which is in charge of investor relations. The Residential REIT Asset Management Department is responsible for monitoring after acquisition. With regard to the reporting on matters related to environmental certification, the Residential REIT Asset Management Department is responsible for the respective properties, and the REIT Investor Relations, Finance & Planning Department is responsible for disclosure of certification status, etc. and investor relations. After the acquisition of the property, we are continuously promoting various environment/social initiatives. In terms of the environment, we are promoting measures such as the use of LED lighting, the introduction of renewable energy power plans and EV charging facilities in common areas,and the installation of water-saving faucets and other environmentally friendly housing facilities in private areas. On the social front, we are promoting measures to provide residents with a safe and secure living space, such as the installation of disaster-support vending machines, AEDs, disaster prevention cabinets, and disaster prevention posters showing evacuation routes, as well as measures to improve living convenience, such as the installation of delivery boxes, the introduction of delivery drop-off service, free internet, car and bicycle sharing service, and conducting tenant satisfaction surveys.
• GHG reduction and energy-saving targets. Under the leadership of the Residential REIT Asset Management Department, working with the property management companies, energy consumption is measured and managed in a private cloud system, and reported at regular meetings. Currently, only data regarding common areas is collected monthly and compiled once a year. This is the responsibility of the Residential REIT Asset Management Department, working with the property management companies. To ensure the accuracy of the data, the collected and compiled figures are verified by a third party.

Data sources and processing

We use the following data sources:

• GRESB Real Estate Assessment. Personnel from various departments engaged in REIT management collect and report the relevant data to the Sustainability Promotion Committee. We are promoting the measurement of energy consumption of the properties we own and obtaining third-party verification to ensure the accuracy of the data.
• Environmental certification of our properties. When considering acquisition of environmental certification, the Residential REIT Asset Management Department selects properties and shares information with the REIT Investor Relations, Finance & Planning Department. The Residential REIT Asset Management Department is responsible for monitoring after acquisition. With regard to the reporting on matters related to Green environmental certification, the Residential REIT Asset Management Department is responsible for the respective properties, and the REIT Investor Relations, Finance & Planning Department is responsible for disclosure of certification status, etc. and investor relations.
• GHG reduction and Energy-saving targets. Under the leadership of the Residential REIT Asset Management Department, working with the property management companies, energy consumption is measured and managed in a private cloud system, and reported at regular meetings. Currently, only data regarding common areas is collected monthly and compiled once a year. To ensure the accuracy of the data, the collected and compiled figures are verified by a third party.

Limitations to methodologies and data

The primary limitation to the methodology or data source is the necessity of our reliance on the 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 property management companies.

Data at the property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third-party organization.

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

Due diligence

With respect to social and environmental risk assessment of each property, we receive a range of reports from disinterested experts on building safety, soil contamination, energy supply, natural disaster risk such as floods and waste management, such as real estate appraisal reports, building diagnosis reports, earthquake risk reports, soil contamination investigation reports, environmental investigation reports, and reports related to structural calculation review.

Engagement policies

We invest primarily in residences. As noted above, with respect to social and environmental risk assessment of each property, we receive a range of reports from independent experts on building safety, soil contamination, energy supply, natural disaster risk such as floods and waste management, such as real estate appraisal reports, building diagnosis reports, earthquake risk reports, soil contamination investigation reports, environmental investigation reports, and reports related to structural calculation review. The report is taken into account when deciding on an investment, and if the results are adverse, the investment can be foregone.

We collect on an ongoing basis select information on our existing portfolio regarding the principal adverse impact indicators, including exposure to fossil fuels through investment assets, exposure to energy-inefficient investment assets and energy consumption intensity. We aim to manage the risk connected to principal adverse impacts from our investment decisions in several ways, including general screening criteria and due diligence.

• Exposure to fossil fuels through assets. We do not invest in real estate assets involved in the extraction, storage, transport or manufacture of fossil fuels.
• Exposure to energy-inefficient investment assets. We consider properties other than Green Buildings to be energy-inefficient. As described in more detail above, we implement appropriate measures to reduce the environmental impact of these properties, including by obtaining environmental certifications.
• GHG emissions. GHG emissions generated by properties are measured annually and reported to the Asset Manager.
• Energy consumption intensity. The amount of the energy consumption of common areas of our properties per square meter is measured annually and reported to the Asset Manager.

Designated reference benchmark

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