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 has no 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 its 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 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 MEL promote environmental or social characteristics, but do not have as their objective sustainable investment.

Environmental or social characteristics of the financial product

MEL and the Asset Management Company place a strong emphasis on promoting E/S characteristics. We have integrated the sustainability goals and initiatives of the Mitsubishi Estate Group into our business practices, including the Mitsubishi Estate Group Sustainability Vision 2050 (the “Vision 2050”), which summarizes the Mitsubishi Estate Group’s awareness of environmental and social issues to be resolved by 2050, and the Mitsubishi Estate Group 2030 Long-Term Management Plan (the “2030 Plan”), which sets objectives and plans to resolve the issues based on the Vision 2050. We integrate the E/S characteristics of these objectives and goals into our business practices, with special emphasis on the four areas emphasized in the 2030 Plan: (i) environment, (ii) diversity and inclusion, (iii) innovation and (iv) resilience.

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.

MEL does not have a specific index designated as a reference benchmark to determine whether MEL is aligned with the environmental or social characteristics that it promotes.

The highlights of MEL’s 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 MEL’s portfolio. Towards these ends, we have installed LED lighting and rooftop solar panels in MEL’s properties along with implementation of renewable energy. Furthermore, we display posters that raise awareness on energy-saving measures in common areas of MEL’s 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 MEL’s premises and installed amenities such as shower rooms and multipurpose restrooms. MEL’s 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 MEL’s 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. The Asset Management Company is committed to respecting the fundamental rights and diversity of its 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. The Asset Management Company also encourages its employees to pursue professional qualifications that assist them in honing their skills as real estate asset management professionals, and subsidizes the costs needed to obtain and maintain such qualifications.

Investment strategy

MEL invests directly, or indirectly through trust beneficiary interests, in real estate. Therefore, investment strategy in relation to investee companies is not applicable. The investment policies as described below are in relation to real estate and real estate-related assets.

MEL aims to build a stable and long-lasting portfolio through selective investments in highly competitive logistics facilities that meet tenant needs. It is our policy for logistics facilities to make up at least 80% of MEL’s portfolio, and for other types of properties related to or compatible with logistics facilities to make up no more than 20% of MEL’s portfolio based on acquisition price. It is also our policy for properties located in the Tokyo metropolitan area (which consists of Tokyo, Kanagawa, Saitama, Chiba and Ibaraki prefectures) to make up at least 50% of MEL’s portfolio, and for properties located elsewhere in Japan to make up no more than 50% of MEL’s portfolio based on acquisition price. When investing in properties, we focus on location of properties in terms of proximity to major metropolitan areas and ease of access for employees of tenants, building features such as floor space and versatility to meet tenant needs and stability in tenant’s ability to contribute MEL’s earnings.

In addition, in order to ensure that MEL’s investment and the Asset Management Company’s asset management are sustainable while maximizing the value of MEL’s portfolio assets, ESG factors are given significant consideration in our investment selection and asset management processes. For example, MEL 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 “Green Eligible Assets”, which are properties 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 Green Eligible Assets or refinance loans or bonds financed for such acquisition. Moreover, MEL has developed a green equity framework (the “Green Equity Framework” and together with the Green Finance Framework, the “Frameworks”) based on similar commitment to use proceeds from equity offerings to acquire Green Eligible Assets. For a property or a project to be a Green Eligible Asset, the property shall meet at least one of the following conditions:

• MEL has obtained or plan to obtain one of the following third-party certifications for the asset or project: (i) three stars or higher out of DBJ’s five-star ranking system, (ii) B+ Rank or higher out of the CASBEE ranking system or (iii) three stars or higher out of BELS's previous five-star ranking system or level 4 or higher out of the BELS's new six-level ranking system, subject to certain allowances for properties that use the previous five-star ranking system.
• Solar power generation facilities for installation at MEL's properties.
• The property or project has equipment designed to reduce environmental impacts (i.e., the equipment increases energy efficiency of the property/project by 30% or more in comparison with before the implementation of the equipment).

The Green Finance Framework has been subject to the Green Finance Framework Evaluation by Japan Credit Rating Agency, which has granted us “Green 1(F)”, the highest grade. In addition, the Green Equity Framework has been subject to the Green Equity Framework Evaluation by DNV Business Assurance Japan K.K.

As a general rule, we intend to continue using green financing under our Green Finance Framework and/or Green Equity Framework for future acquisitions and projects. We believe that using such green financing for the acquisitions of Green Eligible Assets, which we believe can serve society as infrastructure assets, will contribute to the betterment of society and the environment.

As we holistically consider various factors in making investment decisions, MEL may acquire properties that are not Green Buildings in some cases. When we acquire a logistics property that is not a Green Building, however, we implement appropriate measures to reduce the environmental impact following acquisition.

Proportion of investments

MEL offers financial products which promote environmental or social characteristics but does not have sustainable investments as their objective. As of February 29, 2024, 96.5% of MEL’s properties in the portfolio were Green Buildings, and 3.5% were not, in each case based on gross floor area. We aim to increase the percentage of Green Buildings in MEL’s portfolio to 100% (excluding properties where MEL owns only the underlying land) by FY2030.

Monitoring of environmental or social characteristics

In order to monitor and track MEL’s 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 and disclosure measures for environmental performance data of the properties in MEL’s portfolio.

• We track and monitor data on energy consumption, solar power generation, GHG emission levels, water consumption, waste amount and recycling rates of the properties in MEL’s portfolio.
• Our data on energy consumption, GHG emissions, water consumption and waste amount is verified by a third-party organization, JACO.
• We disclose environmental performance data of such as energy consumption, solar power generation, GHG emission levels, water consumption and waste amount on MEL’s website: https://mel-reit.co.jp/en/esg/environment/.

Methodologies

The Asset Management Company has established a 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.

The 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 towards these goals and implementation status of ESG measures. The Sustainability Committee also evaluates the sustainability performances of MEL’s properties and share the progress towards the goals set.

Certain matters discussed by the Sustainability Committee are then reported to, and if necessary, discussed by the Asset Management Company’s 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 MEL’s 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 performance data. 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 on energy consumption, solar power generation, GHG emission levels, water consumption, waste amount and recycling rates of the properties in MEL’s portfolio. To ensure data quality, the Asset Management Company obtains an assurance report regarding energy consumption, GHG emissions, water use and waste amount from an independent third-party organization each year.
• Installation of LED lightings and solar power generation. 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 consumption and waste amount, 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 property managers and other third-party service providers for data at the property level. Like many other real estate investment corporations and asset management companies, we primarily rely on data provided by the property managers, who collect and compile raw data provided by tenants, and it presents challenges to verify the accuracy of the raw data provided by tenants and/or the compiled data provided by the property managers. In addition, data at the property level provided by the 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 portfolio level is compiled internally at the Asset Management Company, and except for the data on energy consumption, GHG emissions, water consumption and waste amount, there is no quality assurance or verification by third-party organizations for such portfolio-level data. In addition, the verification process by third-party organizations for the portfolio-level data does not provide independent verification of accuracy of raw data at the property level and the challenges associated with our reliance on the property managers and, ultimately, tenants for raw data at the property level remain.

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

MEL 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. With each acquisition opportunity, the Asset Management Company reviews E/S related due diligence findings and take into account the property’s energy assessment as well as whether the property has been granted environmental certifications or its capability of being granted such certifications. MEL makes investment decisions on the basis of this due diligence review, and may reject a potential investment based on environmental factors.

In addition, MEL 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 Framework, properties that do not meet the certain green-buildings certification linked eligibility and sustainability criteria specified in these Frameworks are ruled out.

Engagement policies

One of the binding elements of MEL’s investment strategy is its Green Finance Framework and Green Equity Framework, which limit the use of proceeds from financing/equity issuance under the Frameworks to financing of the acquisitions of Green Eligible Assets. In addition, MEL does not generally consider investing in properties 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.

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)

The Asset Management Company has established a Sustainability Committee to lead MEL’s 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 MEL’s 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 the Green Finance Framework or the Green Equity Framework described above.

Due to the growing interest in ESG factors among MEL’s investors and society at large, we believe that a downgrade in MEL’s ESG ratings or any failure to acquire Green Buildings at a sufficient pace could materially adversely impact our business activities and decrease MEL’s 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 MEL’s portfolio and believe that our ongoing ESG initiatives will contribute to MEL’s sustainable growth and increased unitholders’ value, while mitigating ESG-related risks.

STATEMENT ON PRINCIPAL ADVERSE IMPACTS OF INVESTMENT DECISIONS ON SUSTAINABILITY FACTORS

Jul. 28, 2024　PAI Statement PDF（250KB）