SFDR Sustainability-Related Disclosures

SUSTAINABILITY-RELATED DISCLOSURE

Product Name: Mitsubishi Estate Logistics REIT Investment Corporation

Legal Entity Identifier: 353800YYSGZU31ICQK38

Mitsubishi Estate Logistics REIT Investment Corporation (“MEL”) 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”). MEL does not have any employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and MEL relies on Mitsubishi Jisho Investment Advisors, Inc. (the “Asset Management Company”) to manage and operate the properties in the portfolio. MEL and the Asset Management Company are hereinafter referred to collectively as “we,” “us” or “our”. References to fiscal year ("FY") are to the 12 months began or beginning April 1 of the year, unless noted otherwise.

Summary

No sustainable investment objective

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

Environmental or social characteristics of the financial product

As a member of the Group, which has established the Vision 2050 summarizing their awareness of environmental and social issues to be resolved by 2050, and the 2030 Plan setting objectives and plans to resolve the issues, based on the Vision 2050, MEL integrates the environmental and social characteristics of these objectives and goals into our business practices, with special emphasis on the four focus areas, i) environment, ii) diversity and inclusion, iii) innovation and iv) resilience, emphasized in the 2030 Plan.

In February 2019, the Asset Management Company created and adopted a Sustainability Policy which sets out the sustainability factors for us to take into our account in our investment evaluation and execution process, including enhancement of energy efficiency and reduction of GHG emissions, improvement in water use efficiency and waste management, preparation for disasters and enhancement of tenant safety, creation of great work environment for diverse group of talents, collaboration with external stakeholders, transparency of our ESG practices and keeping current and complying with the high standards of ethics.

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

• Environmental initiatives – climate change response. We implement energy-saving measures and take steps to reduce GHG emissions in our portfolio. Towards these ends, we have installed LED lighting and rooftop solar panels in our properties along with implementation of renewable energy. Furthermore, we display posters that raise awareness on energy-saving measures in common areas of our properties.
• Environmental initiatives – water and waste management. We seek to reduce water consumption by installing devices and appliances such as water meters, water-efficient toilets and smart irrigation systems. Moreover, we strive to reduce waste in cooperation with tenants by promoting the “3R” (reduce, reuse and recycle) waste programs.
• Social initiatives – tenants. We endeavor to improve tenant health, safety and comfort by undertaking renovation work in response to varying needs, and by expanding tenant support services to help serve such needs. We have built restaurants and convenience stores on our premises and installed amenities such as shower rooms and multipurpose restrooms. Our properties are also equipped with disaster-relief vending machines, secure reserves containing food and beverage in case of emergency, and automated external defibrillators.
• Social initiatives – local communities. We build and maintain good relations with local residents, governments and other community members by providing and ensuring a pleasant and safe environment. We support local communities in the event of disasters by providing our properties as municipality-designated disaster evacuation sites. We also participate in community service activities such as community clean-up events with local residents.
• Social initiatives – diversity and employee welfare. We are committed to respecting the fundamental rights and diversity of our employees, and we endeavor to establish an environment that supports a healthy work-life balance. To help achieve these goals, we have introduced flexible working hours, a defined contribution pension plan and various leave programs that are tailored to varying needs and circumstances.
• Social initiatives – human resources development. The Asset Management Company develops human resources with extensive expertise and know-how by offering various training programs, on topics such as compliance, human rights, risk management and sustainability. We also encourage employees to pursue professional qualifications that assist them in honing their skills as real estate asset management professionals, and we subsidize the costs needed to obtain and maintain such qualifications.

Investment strategy

MEL 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 in relation to real estate and real estate related assets.

The Asset Management Company’s investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that our sustainable investment strategy is properly implemented. ESG-related risks that are assessed during this process include risks pertaining to earthquakes, flooding, soil contamination and hazardous substances. With each acquisition opportunity, we review ESG-related due diligence findings.

We also take into account whether the property has obtained environmental certifications and/or the likelihood that they will be able to obtain them in the future. In particular, we have set a target of achieving a portfolio with a 100% “Green Buildings” ratio by FY2030 and takes it into our investment decision considerations. We have defined a Green Building as a property that has received a CASBEE certification, a BELS certification or a DBJ Green Building certification. As of August 31, 2022, 87.6% of our properties were Green Buildings based on gross floor area. As of February 28, 2023, 88.8% of our properties were Green Buildings based on gross floor area. In the fiscal period ended February 28, 2023, as a part of our ongoing environmental initiatives, we continued improving environmental performance of our properties and obtaining environmental certificates at our properties by enhancing energy efficiency and utilizing renewable energy.

As we holistically consider various factors in our investment decisions, we may acquire properties that are not Green Buildings in some cases. However, with respect to logistics properties, we have confirmed through due diligence process that such properties are still ESG-conscious as we regularly acquire properties from the Mitsubishi Estate Group which emphasizes ESG considerations in its investment strategy. When we acquire a logistics property that is not a Green Building, we implement appropriate measures to reduce the environmental impact following acquisition.

In addition, we have developed the Green Finance Framework for loans and bonds offerings and the Green Equity Framework for equity offerings. Under these Frameworks, the net proceeds may only be used to fund the acquisition of assets that meet certain sustainability criteria or to refinance borrowings required for acquiring such assets

Proportion of investments

MEL offers financial products which promote environmental or social characteristics but does not have sustainable investments as its objective. As of February 28, 2023, 88.8% of the properties in the portfolio were Green Buildings (defined above), and 11.2% were not based on gross floor area. We aim to increase the percentage of Green Buildings in our portfolio to 100% (excluding properties where we own only the underlying land) by FY 2030.

Monitoring of environmental or social characteristics

In order to monitor and track our properties’ performance on E/S characteristics, we rely on certifications issued by third-party organizations, such as the DBJ Green Building certification, the CASBEE certification, the BELS certification, and other relevant certification.

In addition, we have set in place the following monitoring mechanisms.

• We track energy consumption, solar power generation and GHG emission levels in our portfolio.
• We track water consumption and the recycling rate in our properties.
• Our data on energy consumption, GHG emissions, water use and waste volume is verified by a third-party organization, JACO.

Methodologies

We have established our Sustainability Committee, composed of the President and Chief Executive Officer, the General Manager of the Corporate Management Department, also appointed as the Sustainability Management Officer, and the General Managers of each Department of the Asset Management Company.

Our Sustainability Committee generally meets once a quarter to discuss sustainability-related key issues, goals and various measures to achieve those goals and to share the progress on these goals and measures. The Committee also evaluates the sustainability performances and share the progress on the goals they have set.

Certain matters discussed by the Sustainability Committee are then reported to, and if necessary, discussed by the Board of Directors. The minutes of the meetings are prepared and kept at the Sustainability Management Office.

Data sources and processing

The Asset Management Company uses the following data sources:

• Environmental certifications. The Asset Management Company obtains the relevant data provided by the established third-party organizations that issue environmental certifications for the properties in our portfolio. Obtaining the environmental certifications issued by the established third-party organizations helps ensure the data quality. The Asset Management Company calculates and tracks the properties which hold environmental certifications.
• Environmental initiatives. At the property level, the Asset Management Division of the Logistics REIT Management Department of the Asset Management Company collects the relevant data from the property managers regarding energy consumption, solar power generation and GHG emission levels in our portfolio as well as water consumption and the recycling rate in our properties. To ensure data quality, the Asset Management Company obtains an assurance report regarding energy consumption, GHG emissions, water use and waste emissions from an independent third-party organization each year.
• Installation of LED lightings and solar panels. At the property level, the Asset Management Company obtains relevant data from the property managers and solar panel management companies.
• External sustainability evaluation. Before MEL submits the responses to the survey of the GRESB assessment, a consulting firm reviews the ESG-related data and supporting materials used for the responses. The consulting firm also assists the Asset Management Company in evaluating any room for future improvement. Engaging an established consulting firm helps to ensure the data quality. Also, the Asset Management Company obtains the assurance report regarding energy consumption, GHG emissions, water use and waste volume, which are used for data in GRESB assessment, from an independent third-party organization.

Limitations to methodologies and data

The main limitations to methodologies and data stem from the necessity to rely on tenants and property managers for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the tenants, and it presents challenges to verify the accuracy of such data. 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 property level is compiled internally at the Asset Management Company level, and except for the data on energy consumption, GHG emissions, water use and waste volume, there is no quality assurance or verification by third-party organizations for such property-level data.

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

Due diligence

Prior to our investment in a property, the Asset Management Company conducts due diligence review, including an environmental assessment and an evaluation of risks related to building safety, soil contamination and flooding. We make decisions on the basis of this due diligence review, and we may reject a potential investment based on environmental factors.

In addition, the Asset Management Company has established a debt-based Green Finance Framework and an equity-based Green Equity Framework. When investing in properties using proceeds from green financing conducted under the Green Finance Framework or the Green Equity Frameworks, we do not consider properties that do not meet the certain green-buildings certification linked eligibility and sustainability criteria specified in these Frameworks.

Engagement policies

We do not generally consider investing in properties (i) that do not meet the thresholds for soil contamination and other environmental contamination in accordance with the Soil Contamination Act and other environmental laws and ordinances, (ii) that do not meet the eligibility criteria under our Frameworks and (iii) that are involved in the extraction, storage, transport or manufacture of fossil fuels.

Designated reference benchmark

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

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 system based on skill development. The Asset Management Company’s salary increase system is based on employees’ development of their professional skills. In order to raise employees’ motivation to improve their work performance and develop their professional skills, the Asset Management Company also has a performance-based bonus system in place that is based on a management by objectives model, as well as an objective performance evaluation and promotion system.

Evaluation of employees based on ESG criteria. All employees are evaluated once a year on their ESG awareness, including compliance and risk management awareness, and the results of this evaluation are taken into consideration when determining salary increases.

Retirement Allowance Program. The Asset Management Company offers a defined contribution pension plan as well as a retirement plan, with an aim to create a comfortable workplace where employees will want to work for a long period of time. Bonuses are calculated based on sales and performance, and are determined by the Asset Management Company’s internal rules. Bonuses take into account issues including job content, performance, and attendance. Such evaluations take into consideration the employee’s contributions and conduct with respect to sustainability efforts and compliance requirements.

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

We have established a Sustainability Committee to lead our sustainability initiatives. The Sustainability Committee is composed of the President & CEO (Chairman), the General Manager of the Corporate Management Department, the General Managers of each Department of the Asset Management Company, Sustainability Management Officer and other designated persons. The Sustainability Committee deliberates key issues, goals, and measures related to sustainability. Based on the discussion, the Sustainability Committee approves which ESG initiatives and targets, including, but not limited to, energy-saving and water-saving measures, reduction targets of energy and water consumption and GHG emissions, waste recycling measures and targets, green building certifications, on-site support services and facilities for our tenants, tenant and employee satisfaction surveys, and human resources development, to prioritize for implementation, and the President & CEO has final decision-making authority on which ESG initiatives and targets to implement.

Additionally, the Sustainability Management Officer periodically convenes a working group that analyzes climate-related risks pertaining to the Asset Management Company and its designated funds. These risks are divided into “transition risks”, which are risks arising from new regulations, taxation systems, technologies and other developments that decarbonization efforts may result in, and “physical risks”, which are risks arising from climate change, such as long-term changes in climate patterns and severe weather events such as typhoons and floods. The Sustainability Management Officer reports the findings resulting from these analyses to the Sustainability Committee, which help deliberate for environmental initiatives that are then made by the Sustainability Committee.

In order to achieve sustainability in our asset management while maximizing unitholder value, we consider ESG factors in our investment and asset management processes. As described above, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote E/S characteristics. Such initiatives include initiative to fight climate change, initiatives to improve water and waste management and initiatives to improve employee and tenant satisfaction.

Furthermore, we invest 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 and flooding. We make decisions on the basis of this due diligence review, and we may reject a potential investment based on environmental factors. Additionally, the Asset Management Company has established a debt-based Green Finance Framework and an equity-based Green Equity Framework. When investing in properties using proceeds from green financing under the Green Finance Framework or the Green Equity Framework, we do not consider properties that do not meet the criteria under our Green Finance Framework or our Green Equity Framework described above.

Due to the growing interest in ESG factors among our investors and society at large, we believe that a downgrade in our ESG ratings or any failure to acquire Green Buildings at a sufficient pace could materially adversely impact our business activities and decrease our unit price. We also recognize the impact on the cash flow of a property if its environmental performance is inadequate, because it becomes less competitive, as a result of which the rent we can charge and its occupancy rate may decline. We therefore take ESG factors into serious consideration when investing in new properties and managing our portfolio and believe that our ongoing ESG initiatives will contribute to our sustainable growth and increased unitholders’ value, while mitigating ESG-related risks.

STATEMENT ON PRINCIPAL ADVERSE IMPACTS OF INVESTMENT DECISIONS ON SUSTAINABILITY FACTORS

Jul. 28, 2023　PAI Statement PDF（250KB）