Environment Climate Change Action
Our Understanding of Climate Change
Increased industrial activity has led to the emission of large amounts of carbon dioxide and other greenhouse gases, resulting in the progression of global warming.
In addition, climate change caused by global warming has led to more severe and frequent weather disasters such as torrential rains, heat waves, and droughts, making measures to address climate change an urgent issue.
In 2015, the Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC) adopted the Paris Agreement, which aims to limit the global average temperature increase to well below 2°C versus before the Industrial Revolution, while pursuing efforts to keep the global average temperature rise below 1.5°C.
Moreover, the advance of climate change is a scientifically established fact, as indicated by the Intergovernmental Panel on Climate Change (IPCC) and other reputable scientific bodies.
Progressive climate change threatens to bring dramatic changes to the natural environment and social structures, presenting issues that will have a significant impact on the overall management and business of Samty Residential and the Asset Management Company
These two entities recognize that identifying, assessing, and managing the risks and opportunities posed by climate change to enhance business resilience is essential to ensure sustainable and stable earnings over the long term.
Declaration of Support for the TCFD Recommendations and Participation in the TCFD Consortium
In August 2023, the Asset Management Company declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in its efforts to promote disclosure of information regarding climate-related issues.
In addition to this endorsement, the Asset Management Company also joined the TCFD Consortium, an organization of endorsing companies in Japan.
The Asset Management Company works to assess climate-related risks and opportunities in line with the four frameworks recommended by the TCFD Recommendations: Governance, Strategy, Risk Management, and Metrics and Targets, and will take appropriate measures and promote proactive information disclosure.
(Note)Starting in 2024, the International Sustainability Standards Board (ISSB) of the IFRS Foundation has taken over the monitoring of corporate climate-related disclosure from the TCFD.
Governance
In order to address climate-related risks and opportunities relevant to Samty Residential and the Asset Management Company, the governance structure for climate-related issues is defined as follows.
Matters discussed at regular meetings in accordance with the Rules on Sustainability Promotion System shall be decided by the Chief Sustainability Officer or the Board of Directors.
| Chief Sustainability Officer | Representative Director |
|---|---|
| Sustainability Officer | Head of Residential REIT Division |
| Items for discussion | Matters related to climate change action, including the establishment of metrics and targets |
| Reporting frequency | At least once a year at regular meetings in accordance with the Rules on Sustainability Promotion System |
For details, please refer to "Sustainability Policy and Structure".
Strategy
Scope of Analysis
The scenario analysis conducted on this occasion covered the portfolio of Samty Residential.
Please note that the results of the analysis may change due to variance in the portfolio in scope due to property transactions.
External Scenarios Referenced
The Asset Management Company conducted risk analysis in accordance with scenarios developed by international organizations such as the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC).
These scenarios referenced are as follows.
| Scenario | Transition risks | Physical risks |
|---|---|---|
| 4°C scenario | IEA STEPS | IPCC RCP8.5 |
| 1.5°C scenario | IEA NZE2050 | IPCC RCP2.6 |
State of the World Expected in Each Scenario
1.5°C scenario
In this scenario, the advance of social policies, emission controls, technology investments, and other efforts for decarbonization and reduced greenhouse gas emissions to achieve the goals of the Paris Agreement will lead to a relatively slow rise in temperature and mild severity and frequency of disasters. However, this will also increase transition risks as a result of introducing more stringent regulations, taxes, and other measures.
4°C scenario
Physical risks are high, due to a failure to execute sufficient climate change mitigation measures. As a result, greenhouse gas emissions will continue to increase, and natural disasters will become more severe and more frequent. However, transition risks are relatively small in this scenario, as legal and regulatory frameworks will not change significantly from the current system.
Identifying Risks and Opportunities
Based on the aforementioned scenario analysis, the Asset Management Company has identified climate-related risks and opportunities and assessed their financial impact, and has considered future measures to address each risk and opportunity.
| Risk classification | Drivers | Financial impact on Samty Residential | Measures to address risks Initiatives to capture opportunities |
4°C scenario | 1.5°C scenario | |||
|---|---|---|---|---|---|---|---|---|
| Medium-term | Long-term | Medium-term | Long-term | |||||
| Financial impact | Financial impact | |||||||
| Transition risks | Policy and regulations | Strengthening of taxation on GHG emissions due to introduction of carbon taxes | Increased tax burden depending on a property's GHG emissions Increased electricity prices due to higher carbon taxes |
|
Low | Low | Medium | Medium |
| Strengthening of energy conservation standards in owned properties | Increased renovation costs accompanying energy conservation | Low | Low | Medium | High | |||
| Technology | Evolution and diffusion of renewable energy and energy conservation technologies | Increased costs associated with introduction of new technologies |
|
Low | Low | Medium | High | |
| Market | Fluctuation in property values due to environmental performance | Reduced prices for properties with poor environmental performance |
|
Low | Low | Medium | Medium | |
| Changes in investors’/financial institutions' evaluations based on state of climate change action | Increased financing costs due to poor evaluations |
|
Low | Low | Medium | Medium | ||
| Changes in demand from tenants based on environmental performance levels | Reduced profitability of properties with low environmental performance/resilience (becoming stranded assets) |
|
Low | Low | Medium | Medium | ||
| Changes in operating costs due to rising energy prices | Increased running costs due to rising energy prices Increased electricity costs associated with changes in the energy mix Increased operating costs accompanying energy conservation in owned properties |
|
Low | Low | Medium | Medium | ||
| Reputation | Decreases in brand value in financial and capital markets due to delays in addressing climate change | Reduced investment unit prices Reduced ESG ratings |
|
Low | Low | Medium | Medium | |
| Physical risks | Acute | Damage from severe wind and flooding | Increased repair expenses and insurance costs Reduced rental income during the restoration period |
|
Medium | Medium | Low | Low |
| Chronic | Increased damage due to rising average temperature/sea levels | Increased renovation costs to prevent flooding, damage, etc. Increased HVAC operation, maintenance, and repair expenses |
Medium | Medium | Low | Low | ||
| Opportunities | Resource efficiency | Improved competitiveness of properties with high environmental performance | Increased rental income from properties with superior environmental performance Suppression of utilities expenses through energy efficiency improvements |
|
Low | Low | Medium | Medium |
| Products and services | Appealing to tenants and users by providing low emission facilities and services | Increased income from attracting tenants |
|
Low | Low | Low | Medium | |
| Market | Preference for disaster-resistant properties | Increased income through increasing of rent and |
|
Medium | Medium | Low | Medium | |
| Developing a new investor base through initiatives that contribute to climate change action | Use of sustainable financing (e.g., green bonds) Increased funding procured and reduced funding costs by responding and appealing to investors who are focused on environmental issues |
|
Low | Low | Medium | High | ||
Specific Initiatives to Address Risks and Opportunities
For specific initiatives on environmental issues, please refer to "Addressing Environmental Issues" and "External Certifications and Evaluations".
Risk Management
The Asset Management Company's process for managing climate change-related risks is as follows.
Risk and opportunity identification and assessment process
Risk and opportunity management process
Metrics and Targets
Samty Residential has established key performance indicators (KPIs) and targets to manage and monitor risks and opportunities.
For details, please refer to "Environmental Performance Targets and Results".