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Disclosure for Sustainable Finance Disclosure Regulation (SFDR)

30 June 2024

Principal Adverse Impact Statement PDF 280KB

SUSTAINABILITY-RELATED DISCLOSURE

Product Name: Global One Real Estate Investment Corporation (“GOR”)

GOR 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”). GOR has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on Global Alliance Realty Co., Ltd. (the “Asset Manager”), to manage and operate the properties in GOR’s portfolio. GOR and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our,” unless noted otherwise. References to “fiscal year” or “FY” are to the 12 months began or beginning April 1 of the year specified in line with the fiscal year of the Asset Manager, unless noted otherwise.

Summary

No sustainable investment objective	The financial products offered by GOR promote environmental or social characteristics, but do not have as their objective sustainable investment.
Environmental or social characteristics of the financial product	The Asset Manager has decided to incorporate a perspective on Environmental, Social, and Governance (“ESG”) into its overall operations in line with the following “Basic ESG Policy” as it is believed ESG consideration will contribute to maximizing the interests of the unitholders of GOR in the medium to long term, (1) Responding to Climate Change, (2) Considering User Health and Well-being, (3) Developing Human Capital, (4) Developing ESG Awareness, (5) Communicating ESG Information and (6) Eliminating Conflicts of Interest and Emphasizing Compliance. In line with the Basic ESG Policy laid out above, we promote environmental and/or characteristics through a host of environmental, social and governance (“ESG”) enhancement initiatives.
Investment strategy	GOR invests primarily in office buildings that are located in three major metropolitan areas in Japan (the Tokyo metropolitan area, Chubu area and Kinki area) as well as other major cities with populations over 500,000 that are identified as government-designated cities. While GOR in general considers three key factors of “closer” (i.e., conveniently situated), “newer” (recently built) and “larger” (large buildings) when selecting properties for investment, GOR’s analysis is not limited to such factors and takes into account unique competitiveness of each property, including, but not limited to, location, surrounding area and building features. GOR aims to achieve the steady growth of its assets and secure stable profits over the medium to long term and manage its finances stably, in order to maximize unitholder value. To achieve this goal, the Asset Manager believes that it must incorporate ESG considerations into its overall operations.
Proportion of investments	GOR offers financial products which promote environmental or social characteristics, but do not have sustainable investments as their objective. As of September 30, 2024, 91.0% of the properties in GOR’s portfolio received at least one Environmental Certification (as defined below), and 9.0% did not receive any Environmental Certification, in each case based on leasable area. We will continue our efforts to obtain the Environmental Certifications (as defined below) for properties that have not received such certification. We aim to obtain at least one Environmental Certification for all of the buildings in GOR’s properties by FY2030.
Monitoring of environmental or social characteristics	In order to measure the attainment of the E/S characteristics we promote, we use the indicators such as (i) environmental certification of individual properties, (ii) sustainability evaluation at the portfolio level and (ii) ESG data such as energy consumption, greenhouse gas emissions, water consumption and waste management data, each as further described below.
Methodologies	The Asset Manager has established the ESG Promotion Council in FY 2019 to continuously and systematically promote various ESG initiatives in the Asset Manager’s business practice, including asset management of GOR and its portfolio. Headed by the Asset Manager’s President, the ESG Promotion Council meets at least once every three months. The ESG Promotion Council develops a system for promoting ESG policies and initiatives, sets annual targets for relevant ESG initiatives and progress management thereof, manages and reviews implementation of ESG initiatives and measures, determines information disclosure content and methods related to ESG matters, and operates and organizes a data and information system for collecting and compiling ESG data and related issues.
Data sources and processing	As further described below, the Asset Manager obtains certain ESG data from tenants, property management companies, and local management company, depending on the type of data. In addition, the Asset Manager seeks to ensure data accuracy and quality by coordinating with relevant departments within the Asset Manager and engaging an external consulting firm for review and verification.
Limitations to methodologies and data	As further described below, the primary limitation to the methodology or data source is the reliance on the tenants 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 property management companies, and independent verification of accuracy of such data provided by the tenants and property management companies presents challenges. To overcome this issue, we have performed additional due diligence such as engaging a third-party organization to verify the accuracy of energy data. Data at the portfolio level are compiled internally at the Asset Manager, but there is no third-party quality assurance or verification for the portfolio-level data. Limitations to the methodology and data are not expected to affect the attainment of the environmental or social characteristics promoted by GOR in any material way.
Due diligence	Before GOR acquires a property, the Asset Manager conducts due diligence on the property, including ESG-related due diligence, building review and regulatory due diligence. The Asset Manager retains a reliable expert to conduct a survey on legal compliance and hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.) with respect to the property and obtain a report. Based on the results of such investigation, if it is impossible to ensure legal compliance with applicable laws and regulations (including but not limited to the Soil Contamination Countermeasures Law, Building Standards Law, Act on Special Measures Concerning Promotion of Proper Treatment of Polychlorinated Biphenyl Waste, and Fire Service Law of Japan), GOR will not invest in the property. In addition, as a part of the due diligence review, we consider the current Environmental Certification of the building and potential for ESG enhancements to the building, including obtainment of additional Environmental Certification or improvement of existing Environmental Certification.
Engagement policies	We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our environmental standards based on their history of land usage and soil contamination assessment by experts and examination of presence of hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), unless appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property we may acquire is compliant with applicable law.
Designated reference benchmark	GOR has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by GOR.

No sustainable investment objective

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

Environmental or social characteristics of the financial product

The Asset Manager has decided to incorporate a perspective on Environmental, Social, and Governance (“ESG”) into its overall operations in line with the following “Basic ESG Policy” as it is believed ESG consideration will contribute to maximizing the interests of the unitholders of GOR in the medium to long term:

1. Mitigating and Adapting to Climate Change
2. Considering User Health and Well-being
3. Improving Engagement of Employees
4. Promoting Diversity, Equity, and Inclusion (“DEI”), and Developing Human Capital
5. Developing ESG Awareness
6. Communicating ESG Information
7. Emphasizing Compliance

In line with the Basic ESG Policy laid out above, we promote environmental and/or characteristics through a host of environmental, social and governance (“ESG”) enhancement initiatives.

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

Our key environmental initiatives include the following:

• Reducing energy consumption and CO₂ emissions. We have installed equipment such as LED lighting and solar panels, added greenery to rooftops and built gardens to promote biodiversity in order to reduce electricity consumption and CO₂ emissions. We have also adopted an “energy web system” that tenants can use to see visualized energy consumption data to help them implement energy saving measures.
• Environmental burden reduction goal. We aim to reduce greenhouse gas emissions intensity by 42% at all of GOR’s properties from FY2022 to FY2030 and become carbon neutral by FY2050. We also aim to reduce energy consumption intensity by 10% from FY2022 to FY2030, water consumption intensity by 2% from FY2022 to FY2030 and to increase waste recycling rate by 1% from FY2022 to FY2030, at all of GOR’s properties.
• Promotion of conclusion of green lease agreements. We promote inclusion of green lease clauses into all of the lease contracts as part of our efforts to conserve energy and reduce CO₂ emissions in cooperation with the tenants at GOR’s properties. Green lease clauses include the following provisions:
  • The lessor and lessee shall endeavor to cooperate to the extent possible with the measures (including but not limited to, sharing of energy consumption data, acquisition of environmental certifications and other related certifications, and setting targets for energy consumption) taken by the other party for the purpose of energy conservation and environmental consideration.
  • The lessor and lessee shall give consideration to energy conservation in the building and strive to reduce energy and water consumption and the amount of waste generated.
• Cooperation with business partners. The Asset Manager has established the “Sustainable Procurement Policy” as one of the policies for putting into practice the individual items of the Basic ESG Policy. Under this policy, the Asset Manager promotes initiatives taking into consideration sustainability in the supply chain by setting guidelines related to the selection of products giving attention to the environment and health as well as the selection and evaluation of contractors. The Asset Manager has set selection criteria for property management companies to which it entrusts management of properties and also evaluates all property management companies once a year in principle. Upon such assessment, the Asset Manager takes into consideration points such as the status of environmental consideration in business, occupational safety and health of employees, and understanding and cooperation regarding the Basic ESG policies set by the Asset Manager, in addition to items related to building management capacity and repair work capacity.
• Supporting TCFD. In December 2015, the Financial Stability Board established the Task Force on Climate-related Financial Disclosures (“TCFD”) to develop recommendations for more effective climate-related disclosures. In May 2021, the Asset Manager established a Climate Change Resilience Policy and expressed support for the TCFD recommendations in order to clarify the policy and system on initiatives to address climate-related issues and to promote expansion of the disclosure of the content of such initiatives, and also joined the TCFD Consortium, a group of domestic companies that support TCFD recommendations. In addition, starting in June 2022, we have been disclosing the climate change-related disclosures recommended by TCFD on our website after identifying and analyzing climate change-related risks and opportunities in alignment with the TCFD’s recommendations.
• Signing onto Principles for Financial Action for the 21st Century (PFA 21). The Asset Manager became a signatory in March 2020, supporting the basic thinking behind the Principles for Financial Action for the 21st Century, or PFA 21, established in October 2011 in Japan, with the participation of financial institutions. PFA 21 serves as action guidelines to create a sustainable society.

We have implemented various social initiatives at GOR’s properties including the following:

• Tenant initiative. We have implemented various measures to improve tenant satisfaction such as creation of a roof garden at Hirakawacho Mori Tower and a roof deck at ARK Hills Sengokuyama Mori Tower. One of our properties, Otemachi First Square, received the 2018 Good Design Award after we renovated an existing urban sunken garden. We have also renewed the atrium at Otemachi First Square and installed digital signage at Yokohama Plaza Building to enhance tenants’ convenience and satisfaction. We have also set up a port for a sharing service for electric scooters which reduce CO₂ emissions and can be used as a means of transportation when public transportation is suspended due to a disaster, etc. at Toyosu Prime Square.
• Employee initiative. The Asset Manager recognizes that it is important for each executive and employee in charge of real estate management to become a professional in each field and makes various efforts related to the training of its personnel. The Asset Manager provides compliance, ESG and English language training and supports its employees' participation in training programs offered outside the company. The Asset Manager encourages and supports employees to acquire a wide range of professional qualifications as part of human capital development to raise expert skills of employees by shouldering expenses for taking examinations for qualifications or retaining such qualifications, etc., deemed necessary.
• Cooperation with local community. We have installed AEDs and community bicycle ports at certain properties in GOR’s portfolio. We also participate in various fundraising and donation campaigns, such as the Book Baton Project, which involves selling dated used books, CDs, DVDs and games and the proceeds thereof are donated to a non-profit organization, “Room to Read”, and a UN refugee support campaign organized by UNHCR.
• Disaster resilience. GOR owns ARK Hills Sengokuyama Mori Tower, which is equipped with seismic isolation structure enabled by seismic isolation devices in its 200-meter high-rise mixed-use buildings. GOR also owns Meiji Yasuda Life Insurance Osaka Midosuji Building, which is equipped with a quake-absorbing structure. We have installed an emergency power generation system that uses city gas, emergency boxes in elevators and a support system for building safety assessments developed as a tool to support post-disaster measures through understanding building status when an earthquake occurs at certain properties in GOR’s portfolio.

Investment strategy

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

GOR invests primarily in office buildings that are located in three major metropolitan areas in Japan (the Tokyo metropolitan area, Chubu area and Kinki area) as well as other major cities with populations over 500,000 that are identified as government-designated cities. While GOR in general considers three key factors of “closer” (i.e., conveniently situated), “newer” (recently built) and “larger” (large buildings) when selecting properties for investment, GOR’s analysis is not limited to such factors and takes into account unique competitiveness of each property, including, but not limited to, location, surrounding area and building features. GOR aims to achieve the steady growth of its assets and secure stable profits over the medium to long term and manage its finances stably, in order to maximize unitholder value. To achieve this goal, the Asset Manager believes that it must incorporate ESG considerations into its overall operations.

In particular, we have established a green finance framework (the “Green Finance Framework”), which in February 2021 received the Green 1(F) rating, the highest rating in the green finance framework evaluation conducted by Japan Credit Rating Agency, Ltd., an external credit and ESG rating agency in Japan.

• Use of funds procured: GOR uses the funds raised under the Green Finance Framework for a new investment in or refinancing of an investment in an eligible green project that meets Green Eligibility Criteria A or Green Eligibility Criteria B described below.

Green Eligibility Criteria A	Assets that have achieved or are expected to achieve any certification or re-certification that falls under any of the following: a) Five, four, three stars in the DBJ Certification b) Five, four, three stars in the BELS Certification c) S, A, B+ rank in the CASBEE for RE Certification d) Platinum, Gold, Silver in the LEED Certification
Green Eligibility Criteria B	Renovation with any of the following environmental improvements a) More than 30% reduction of CO2 emissions b) More than 30% reduction of energy consumption c) More than 30% reduction of water usage

• Management of procured funds: The total outstanding balance of green bonds and green loans under the Green Finance Framework may not exceed the following upper limit: (a) Total price of eligible green projects (i.e., total acquisition price of assets that meet Green Eligibility Criteria A plus total cost of renovations that meet Green Eligibility Criteria B), multiplied by (b) LTV (book value at the latest fiscal period end). GOR will treat unallocated funds as cash or cash equivalents.
• Reporting: GOR annually discloses the amounts of funds, outstanding balances of green bonds and green loans, and a confirmation that the funds have been used for eligible green projects and the total outstanding balance of green bonds and green loans has not exceeded the upper limit of green finance under the Green Finance Framework. If any major event occurs with respect to use of funds (e.g., sale of the property for which the funds were raised), GOR will disclose the event in a timely manner. GOR also discloses the following indicators to the extent practical: (i) environmental certifications and ratings, (ii) energy consumption, (iii) greenhouse gas including CO₂ emissions and (iv) water usage.

In addition, we have introduced the following measures to assess and enhance our governance systems:

• Performance-linked asset management fees and investment in GOR’s units by the Asset Manager. Based on its Articles of Incorporation and the asset management agreement, GOR has set that asset management fees to be paid to the Asset Manager shall be comprised of a portion linked to total assets as of the previous fiscal period end and the remaining portion linked to net income. GOR believes that linking a portion of the asset management fees to its net income will create incentives for the Asset Manager to improve GOR’s and its unitholders’ value. The Asset Manager also holds GOR’s investment units to align its interests with GOR’s and its unitholders’ interests.
• The Asset Manager’s ownership structure designed to remove conflict of interest. The Asset Manager does not belong to any of the sponsor groups, eliminating the conflict of interest that arises in a typical J-REIT structure where a sponsor owns an asset manager.
• Transparent and appropriate information disclosure. We recognize that further implementation of ESG initiatives as well as proactive information disclosure on such initiatives are part of our social responsibilities and believe that such efforts are also necessary for maximizing GOR’s unitholders’ value. We refer to the “Global Reporting Initiative (GRI) Standards,” an international framework on information reporting, for the scope of our information disclosure, and ESG-related information are announced on our website. We also provide updates with explanatory materials for financial results and securities reports.

Proportion of investments

GOR offers financial products which promote environmental or social characteristics, but do not have sustainable investments as their objective. As of September 30, 2024, 91.0% of the properties in GOR’s portfolio received at least one Environmental Certification (as defined below), and 9.0% did not receive any Environmental Certification, in each case based on leasable area. We will continue our efforts to obtain the Environmental Certifications (as defined below) for properties that have not received such certification. We aim to obtain at least one Environmental Certification for all of the buildings in GOR’s properties by FY2030.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics GOR promotes:

• Sustainability evaluation. Global Real Estate Sustainability Benchmark (“GRESB”) is an annual benchmarking assessment to measure ESG integration of real estate companies and funds, as well as the name of organization which runs the assessment. It was founded by a group of major European pension funds who played leading roles in launching Principles for Responsible Investment. We participate in the GRESB Real Estate Assessment, an annual benchmark that measures sustainability performance of property companies and real estate asset managers around the world. In the 2024 GRESB Real Estate Assessment, GOR received the highest “5 Stars” out of the five-star ranking system in GRESB Rating, which is based on GRESB Overall Score and its quintile position relative to global participants, for the fifth consecutive year. GOR also won the “Green Star” designation for the sixth consecutive year by achieving high performance both in the management component, which evaluates policies and organizational structure for ESG promotion, and in the performance component, which assesses environmental performance and tenant engagement. GOR also received the highest “A Level” for GRESB Public Disclosure, which assesses the breadth of ESG disclosure, for the fifth consecutive year.
• Environmental certification of properties. To track the environmental performance of our properties, we use certifications issued by third-party organizations such as the Development Bank of Japan’s Green Building Certification (“DBJ Certification”), Building-Housing Energy-Efficiency Labeling System (“BELS”) certification (“BELS Certification”), Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification for real estate (“CASBEE for RE Certification) and Leadership in Energy & Environmental Design (LEED) certification (“LEED Certification”). We aim to acquire at least one of the DBJ Certification, BELS Certification, CASBEE for RE Certification, LEED Certification and other certifications (individually, an “Environmental Certification” and, collectively, “Environmental Certifications”), for all of the buildings in GOR’s properties by FY2030.
• Tracking and monitoring ESG data. We monitor and track greenhouse gas emissions, energy consumption, water usage and amount of waste generated of the properties in GOR’s portfolio. More information and relevant ESG data can be found at GOR’s website: https://www.go-reit.co.jp/en/esg/environment--03.html.
• Green clauses in lease contracts. We include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy and other ESG-related data, promote energy saving and water conservation of our tenants and to facilitate and improve ESG certification of the buildings in GOR’s portfolio.
• Implementation of tenant satisfaction survey. By periodically (in principle, once or more every three years) implementing a tenant satisfaction survey and understanding requests and points that need to be improved, we strive to create an environment in which tenants can spend time at GOR’s properties comfortably.

Methodologies

The Asset Manager has established the ESG Promotion Council in FY 2019 to continuously and systematically promote various ESG initiatives in the Asset Manager’s business practice, including asset management of GOR and its portfolio. Headed by the Asset Manager’s President, the ESG Promotion Council meets at least once every three months. The ESG Promotion Council develops a system for promoting ESG policies and initiatives, sets annual targets for relevant ESG initiatives and progress management thereof, manages and reviews implementation of ESG initiatives and measures, determines information disclosure content and methods related to ESG matters, and operates and organizes a data and information system for collecting and compiling ESG data and related issues.

• Sustainability evaluation. GRESB is a portfolio-level assessment and is conducted by GRESB through annual submission of our responses and relevant data to GRESB’s questionnaires on ESG matters. We engage CSR Design Green Investment Advisory, Co., Ltd. (“CSR Design”), an external consulting firm in Japan, to help prepare our responses and relevant data to GRESB questionnaires. At the Asset Manager, the general manager of the Planning and General Affairs Department, who is in charge of promotion of ESG initiatives, coordinates with the REIT Management Department, the Research Department and CSR Design to collect and compile relevant ESG data information, and prepares and submits draft responses, which has been checked by Chief Executive Officer, Executive Director and Compliance Officer of the ESG Promotion Council, to GRESB questionnaires. The ESG Promotion Council, including the Asset Manager’s President and the Executive Officer of the Compliance Office, reviews the draft responses before their submission to GRESB. Around December of each year, CSR Design receives a detailed analysis of the GRESB assessment results, and, based on the analysis, formulates draft proposals to improve the assessment for the following year in consultation with the general manager of the Planning and General Affairs Department and the members of the REIT Management Department and the Research Department. The draft proposals are discussed, reviewed and finalized by the ESG Promotion Council as initiatives for the following year. In addition, around February of each year, CSR Design provides updates to the GRESB questionnaires for the following years, which are considered and reflected in the finalized and adopted proposals.
• Environmental certification of properties. The ESG Promotion Council oversees the progress and achievement of the target to acquire environmental certifications for all of GOR’s properties by examining the acquisition of new environmental certifications and monitoring the properties that have already acquired them (e.g., managing certification deadlines and etc.). The progress of environmental certification is reported to the ESG Promotion Council as one of the priority issues. In addition, during the biannual ESG-related budgeting reports, properties for which new certifications are to be obtained or existing certification are to be renewed in the next two fiscal periods are included and reported to the ESG Promotion Council. When obtaining a new environmental certification for a property, the REIT Management Department takes the lead in the process and also collaborates with the Research Department. Investigations and other activities to obtain environmental certifications go beyond the due diligence conducted prior to GOR’s investment. For properties that have not yet obtained environmental certifications after GOR’s acquisition, relevant investigation is conducted, and efforts are focused on obtaining such environmental certification promptly after GOR’s acquisition. For properties for which it is determined, as a result of our investigation, that it is difficult to immediately acquire such environmental certification, we implement various ESG initiatives such as energy-saving initiatives (e.g., LED lighting installation), in order to obtain such environmental certification sooner than later.
• Tracking and monitoring ESG data. In principle, we collect and compile energy data of the properties GOR owns from an energy data management system provided by an external company on a monthly basis for performance management. Using this energy data management system, energy data for all of GOR’s properties is aggregated and compiled, and the compiled results are reported to the ESG Promotion Council once every six months. When collecting and compiling energy data each month, the REIT Management Department verifies the data by comparing them with past data provided by the energy data management system, and the accuracy of the data is ensured by receiving a third-party verification once a year from Sustainability Accounting Office, Co., Ltd.
• Green clauses in lease contracts. The green lease contract rate is collected and compiled monthly by the REIT Management Department, and is shared with the GOR-related departments within the Asset Manager. The increase in contact rate is reported to the ESG Promotion Council as one of the priority issues. In order to improve the green lease rate, green clauses are included in new leases as well as in the renewal contracts for fixed-term leases. For those tenants with whom we do not yet have green clauses in the lease contracts, we actively pursue inclusion of green clauses during contract renewal process and other appropriate times by implementing various measures and incentives such as green lease fee sharing, in which both our tenants and we share the costs for implementation of energy-saving initiatives (e.g., LED lighting installation in dedicated areas).
• Implementation of tenant satisfaction survey. The REIT Management Department of the Asset Manager takes the lead in preparing the content of tenant satisfaction questionnaires, and conducts the survey by engaging a third-party organization in cooperation with the property management companies. The survey results are shared with property management companies and are linked to operational improvements in property management through the Plan-Do-Check-Act cycle.

Data sources and processing

We use the following data sources:

• Sustainability evaluation. GRESB provides assessment questionnaires and announces results of its assessment and rankings thereof annually. At the Asset Manager, the general manager of the Planning and General Affairs Department, who is in charge of promotion of ESG initiatives, coordinates with the REIT Management Department, the Research Department and CSR Design, an external consulting firm, to collect and compile relevant ESG data information, and prepares and submits draft responses to GRESB questionnaires to the ESG Promotion Council, which reviews and provides their input on the draft responses before their submission to GRESB. In addition, CSR Design reviews and analyzes the results of GRESB assessment, and provides their input including any updates or changes to GRESB questionnaires for the following year.
• Environmental certification of properties. The Asset Manager obtains the relevant environmental data provided by third-party organizations that issue environmental certifications for GOR’s properties. At the Asset Manager, the ESG Promotion Council oversees environmental certification progress and target, and, when obtaining a new environmental certification for a property, the REIT Management Department takes the lead in the process and also collaborates with the Research Department in order to conduct necessary investigation and formulate necessary ESG initiatives for the property to obtain relevant environmental certification. In addition, the proportion of the properties with environmental certification in GOR’s portfolio is calculated and tracked internally at the Asset Manager, and is reported to the ESG Promotion Council.
• Tracking and monitoring ESG data. In principle, the Asset Manager collects and compiles energy data of GOR’s properties based on actual usage on a monthly basis. The REIT Management Department of the Asset Manager is in charge of compiling energy data collected by onsite monitoring equipment at each property and reported by the property management companies. In principle, such energy and related data is extracted from the onsite monitoring equipment and invoices for each property by the property management companies. In addition, for certain properties, an energy data management system which enables remote and real-time monitoring of actual usage of energy is available. When collecting and compiling energy data each month, the REIT Management Department of the Asset Manager verifies the data by comparing them with past data provided by the values extracted from the onsite monitoring equipment and invoices as well as the energy data management system, and the accuracy of the data is further ensured by receiving a third-party verification once a year from Sustainability Accounting Office, Co., Ltd.
• Green clauses in lease contracts. The green lease contract rate is collected and compiled monthly by the REIT Management Department of the Asset Manager based on the review of the lease contracts, and is shared with the GOR-related departments within the Asset Manager.
• Implementation of tenant satisfaction survey. The REIT Management Department of the Asset Manager engages a third-party organization in cooperation with the property management companies in order to conduct tenant satisfaction survey. The survey results are collected and compiled externally by the third-party organization and reported to the Asset Manager, which reviews and analyzes the survey results for operational improvement measures at each property, and shares such results and improvement measures with the property management companies at each property.

Limitations to methodologies and data

The primary limitation to the methodology or data source is the reliance on the property management companies for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the property management companies, and independent verification of accuracy of such data provided by the property management companies presents challenges. To overcome this issue, we utilize an energy data management system which enables remote and real-time monitoring of actual usage of energy for certain properties, but the challenges associated with the reliance on the property management companies for raw data, especially those other than energy data, remain.

Data at the portfolio level are compiled internally at the Asset Manager. To ensure the accuracy of compiled data at the portfolio level, we have engaged an independent third-party accounting firm, Sustainability Accounting Office, Co., Ltd., which has provided a verification report regarding the accuracy and quality of compiled data at the portfolio level in accordance with our own criteria and methodologies. However, the assurance report does not provide independent verification of accuracy of raw data at the property level and the challenges associated with our reliance on the tenant and property management companies for raw data at the property level remain.

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

Due diligence

Before GOR acquires a property, the Asset Manager conducts due diligence on the property, including ESG-related due diligence, building review and regulatory due diligence. The Asset Manager retains a reliable expert to conduct a survey on legal compliance and hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.) with respect to the property and obtain a report. Based on the results of such investigation, if it is impossible to ensure legal compliance with applicable laws and regulations (including but not limited to the Soil Contamination Countermeasures Law, Building Standards Law, Act on Special Measures Concerning Promotion of Proper Treatment of Polychlorinated Biphenyl Waste, and Fire Service Law of Japan), GOR will not invest in the property. In addition, as a part of the due diligence review, we consider the current Environmental Certification of the building and potential for ESG enhancements to the building, including obtainment of additional Environmental Certification or improvement of existing Environmental Certification.

The REIT Department of the Asset Manager conducts due diligence investigations and shares the results with the other GOR-related departments within the Asset Manager as necessary. The due diligence findings are reported to the REIT Executive Committee of the Asset Manager, which in turn submits its recommendation as to the investment proposal to the Board of Directors of the Asset Manager. If the Board of Directors of the Asset Manager approves the investment proposal, the approval is reported to the Board of Directors of GOR for its final decision as to whether to invest in the property. ESG and related due diligence findings are reported to the ESG Promotion Council as appropriate once the property is acquired.

Engagement policies

We do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our environmental standards based on their history of land usage and soil contamination assessment by experts and examination of presence of hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), unless appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property we may acquire is compliant with applicable law.

When investing in properties using proceeds from our green finance, we do not consider properties that do not meet the criteria under the Green Finance Framework and do not qualify as eligible green projects that meet green eligibility criteria described above for our investment. We aim to obtain at least one Environmental Certification for all of the buildings in GOR’s properties by FY2030.

In addition, we include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy consumption of our tenants and to facilitate and improve ESG certification of the buildings in GOR’s portfolio.

The Asset Manager has established the "Sustainable Procurement Policy" as one of the policies for putting into practice the individual items of the ESG Policy. Under this policy, the Asset Manager promotes initiatives taking into consideration sustainability in the supply chain by setting guidelines related to the selection of products giving attention to the environment and health as well as the selection and evaluation of contractors. The Asset Manager has set selection criteria for property management companies to which it entrusts management of properties in GOR’s portfolio and also evaluates all property management companies once a year in principle. Upon such assessment, the Asset Manager takes into consideration points such as the status of environmental consideration in business, occupational safety and health of employees, and understanding and cooperation regarding the ESG policies set by the Asset Manager, in addition to items related to building management capacity and repair work capacity.

Designated reference benchmark

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

REMUNERATION POLICIES IN RELATION TO THE INTEGRATION OF SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

GOR has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan and relies on the Asset Manager to manage and operate the properties in its portfolio. Therefore, the remuneration policies as described below are related to the directors and employees of the Asset Manager.

The Asset Manager has a remuneration policy in place which aims to support its strategies, values and long-term interests, which include evaluations based on the performance of the Asset Manager, respectively employees’ positions and personnel evaluations from the prior fiscal year. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks, as follows:

• Directors. The board of directors approves remuneration for directors within the limits for total remuneration for directors authorized by the general meeting of its shareholders. Remuneration for individual directors is determined through comprehensive assessment that includes corporate performance, individual evaluation and other factors including those related to promotion or achievement of ESG key performance indicators and targets.
• Employees. The President of the Asset Manager determines remuneration of the employees based on the performance of the Asset Manager, their positions and personnel evaluations from the prior fiscal year. The personnel evaluations include evaluations of their relative contribution to and expectations for the achievement of management targets including ESG key performance indicators and targets. Bonuses are also determined by the President of the Asset Manager based on the performance of the Asset Manager, their positions and personnel evaluations from the prior fiscal year. Bonuses take into account issues including qualifications, personnel evaluations, performance, and attendance including those related to promotion or achievement of ESG key performance indicators and targets.

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

In order to realize sustainability in asset management while maximizing GOR’s portfolio value, we consider ESG factors in our investment and asset management processes. In particular, the Asset Manager has established the Green Finance Framework.

As stated above, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote environmental and social characteristics. Such initiatives include energy-saving initiatives and water resource initiatives.

While sustainability issues will severely impact our business activities, we believe that such issues may also become potential business opportunities to create new value for sustainable growth. Accordingly, we position our commitment to sustainability as a top priority in our management strategies. We also believe that integrating sustainability factors alongside traditional financial and operational metrics in our investment decision process helps us make a more holistic assessment of a property’s risks and opportunities and is commensurate with the pursuit of superior risk-adjusted returns.

• The 4℃ Scenario envisions a world where current climate change countermeasures do not progress significantly and economic activity remains dependent on oil and coal, leading to an increase of around 4℃ in the average temperature by the end of the 21st century. Due to the pronounced temperature rise, physical risks will increase, with various kinds of damage anticipated due to growing severity of storms and typhoons as well as the rising sea level ; on the other hand, since the laws and regulations will not change much compared with the current system, transition risks will remain low.

The 1.5℃ scenario hypothesizes that in order to restrict the global temperature increase to 1.5℃, it will be necessary to achieve a 45% reduction in global emissions of carbon dioxide (CO₂), the primary greenhouse gas, by 2030 (compared with the 2010 level) and to reach “net zero” (after subtracting the amount absorbed by forests, collected using technology, etc.) by 2050. Realizing these targets is predicated on developing various carbon-reducing technological innovations, and in addition to maximizing the use of renewable energy, nuclear power, hydrogen, batteries, etc., it is believed that technology for separating, collecting, and storing CO₂ in thermal power generation (CCS) and technology for efficiently using carbon will be essential, along with the introduction of strict domestic regulations and carbon taxation. Compared with the 4℃ scenario, physical risks will be limited due to the curbing of temperature increases, but it is forecast that changes in the social structure aimed at decarbonization will be significant, leading to higher transition risks.