Climate Change Initiatives

Awareness of Climate Change

The Paris Agreement, adopted in 2015, is an international treaty that aims to pursue efforts to limit temperature rise 1.5℃ and to keep it well below 2℃ above pre-industrial levels. Many countries, regions, and industries are already taking steps to reduce greenhouse gas (hereinafter referred to as"GHG") emissions by 2050, and are continuously discussing the way of strengthening GHG emission regulations to achieve this goal.

According to IPCC Report (Note), there is no doubt that human activities have caused global warming mainly through GHG emissions, which have already led to an increase in natural disasters such as frequent heat waves and extremely heavy rainfall around the world.

MEL recognizes that climate change is an issue that will have a significant impact on maximizing unitholder value over the medium to long term and has positioned it as one of its materialities, aiming to achieve net zero total GHG emissions throughout the value chain by 2050.

Supporting for TCFD Recommendations

TCFD (Task Force on Climate-Related Financial Disclosures) was established by the Financial Stability Board (FSB) to consider how to disclose climate-related information and respond to financial institutions. The TCFD recommends that companies disclose their climate change governance, strategy, risks and opportunities, and indicators and targets.

In December 2021, MJIA announced its support for the TCFD recommendations and joined the TCFD Consortium, an organization of domestic companies that support TCFD recommendation.

MEL identifies risks and opportunities related to climate change and their impact on MEL's business, and promotes responses to and disclosure of such risks and opportunities.

(Disclosure Items Recommended by TCFD)

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Governance

MJIA's Sustainability Committee discusses and decides on climate-related strategies, identification of risks and opportunities, setting of indicators and targets, and measures to them, and reports to the Board of Directors.
Please refer to the ”Organization Chart for Promoting Sustainability” page for the system for promoting sustainability (including responses to climate change; the same hereafter) at MJIA.

Strategy

1.Scenario analysis

MEL conducted multiple scenario analyses to identify the risks and opportunities posed by climate change risks to MEL and to examine their impact on its business.

＜Assumptions for Scenario Analysis＞
MEL conducted scenario analysis using future climate projections published by international organizations as the main source of information. The table below shows the main sources of information referred to by MEL. Climate change risks can also be broadly categorized into "transition risk" and "physical risk," and the relationship between them is considered not to be completely independent but interdependent or trade-off.

【4℃ Scenario】

The 4℃ Scenario assumes that natural disasters will become severe and physical risks will be extremely high due to the lack of progress in global decarbonization efforts, although the risk of transition will be relatively small due to the lack of progress in strengthening legal regulations.

【1.5℃ Scenario】

1.5℃ Scenario is based on the assumption that emissions of greenhouse gases will tend to be reduced by implementing strict regulations and taxation systems to realize a decarbonizing society. Physical risks are low, and transition risks are high.

2.Identification of Climate Change Risks and Opportunities and Verification of Financial Impacts

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3.Quantitative analysis of financial impact

Organizing business impact on P/L

■1.5°C scenario

Transition risks increase. Environmental certifications in the portfolio have a significant impact on the increase or decrease in rental revenue, but countermeasures are taken to limit the decline in operating income.

■4°C scenario

Physical risks increase. Operating income is expected to decrease slightly by building a highly resilient portfolio, despite a certain degree of damage to properties due to wind and flood damage and a decrease in rental revenues.

This estimation is based on an analysis of a portion of MEL's business scope and does not evaluate the overall impact. Based on policy trends in Japan and globally, MEL will continue to study the assumptions and expansion of the items covered by the estimation in order to further deepen the analysis.

CRREM Analysis

CRREM (Carbon Risk Real Estate Monitor) calculates and publishes GHG emissions pathways (decarbonization pathways) to 2050 for each property use, consistent with the 2℃ and 1.5℃ targets of the Paris Agreement. MEL compares the CRREM 1.5℃ decarbonization pathway to the GHG emissions performance of the properties it owns, assesses the transition risk on a property-by-property basis, and uses this as a reference for measures to decarbonize its portfolio.

Roadmap for Reducing GHG Emissions

MEL has formulated Migration Roadmap for reducing GHG emissions and established new KPIs.
Going forward, MEL have set a goal of "achieving net zero GHG emissions for the entire value chain by FY2050," and will steadily implement each measure to achieve this goal.

Investment Corporation's Measures to Climate Change Risks

MEL is promoting a variety of measures and specific actions to address the "transition risks" and "physical risks" of climate change, including green projects to reduce GHG emissions and improve energy efficiency, and the acquisition of Environmental Certification.

Specific initiatives are as follows.

＜Planned purchase of non-fossil certificates＞

MEL has advocated the use of environmental value as part of reduction measures through the promotion of renewable energy, and since FY2021, MEL has been purchasing non-fossil certificates for a part of its portfolio in order to introduce renewable energy. We will systematically purchase non-fossil certificates and reduce GHG emissions.

＜Contribution to the environment in the real estate under management＞

https://mel-reit.co.jp/en/esg/environment/contributions.html

Risk Management

The risk management system for sustainability at MJIA is as follows.
At the time of investment decision: When making a new investment in assets under management, the management meeting makes an investment decision based on various surveys on climate change risk in the due diligence process. Specifically, regarding the possibility of flooding of the target property, we are investigating and confirming the inundation level, inundation history, and implementation history of hydraulic engineering work, etc. using various hazard maps. We also check the existence of environmental and energy-saving equipment, including the acquisition of environmental certification, and the status of BCP compliance.
During operation: The Sustainability Committee manages and monitors overall sustainability-related risks, including climate change risks. Specifically, we monitor the environmental performance of our properties and manage the progress of various targets (see "Indicators and Targets" below for details), and consider necessary measures based on these.

Metrics and Targets

MEL recognizes that resolving environmental issues such as climate change is an important management issue in MEL's sustainable business and its business strategy for realizing it. Based on this understanding, MEL is building a low-environmental impact portfolio by investing in low-environmental impact properties and making energy use more efficient and reducing GHG emissions through the implementation of environmental and energy-saving measures in owened properties.