Product Name: NTT UD REIT Investment Corporation

NTT UD REIT Investment Corporation (“NUD”) promotes environmental and 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”). We have no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on NTT Urban Development Asset Management Corporation (“Asset Manager”), to manage and operate the properties in our portfolio. NUD and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our.” References to “fiscal year” or “FY” are to the 12 months began or beginning April 1 of the year, unless noted otherwise. We have no reference benchmark designated for the purposes of attaining the environmental or social characteristics promoted by our investment units.

Summary

No Sustainable Investment Objective	The financial products offered by NUD promote environmental or social characteristics, but do not have as their objective sustainable investment.
Environmental or Social Characteristics of the Financial Product	We are aiming at business that contributes to the realization of a sustainable society, on the basis of the Sustainability Vision established by NTT Urban Solutions, Inc., the ultimate parent of the NTT Urban Solutions Group to which the Asset Manager belongs. Moreover, from the perspective of placing investors’ interests over the medium to long term as our top priority, we recognize the importance of ESG (Environmental, Social and Governance) awareness, and work to reflect ESG awareness in all aspects of our real estate investment and management operations. Accordingly, we established a sustainability policy in 2021 and manage our portfolio based on this policy. We implement various environmental or social initiatives, as described below.
Investment Strategy	NUD invests directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. We take into account sustainability in our investment process, as described below. While there is no third-party rating used for assessment of NUD’s governance practices, NUD and the Asset Manager have introduced various measures to assess and enhance NUD’s governance systems, as described below.
Proportion of Investments	As of April 30, 2023, 64.9% of the properties in the portfolio were Eligible Green Assets (defined below), and 35.1% were nonqualified assets based on acquisition price.
Monitoring of Environmental or Social Characteristics	In order to measure the attainment of the environmental or social characteristics we promote, we use the indicators such as acquiring (i) sustainability certifications such as CASBEE, DBJ, BELS (these are defined below) and Low-Carbon Model Building Benchmark and (ii) GRESB (defined below) assessment. Each is further described below.
Methodologies	In March 2021, the Asset Manager has established the Sustainability Promotion Committee, composed of the President & CEO and other full-time Directors, the Head of each Departments, and the Compliance Officer, in order to address matters related to sustainability. The Sustainability Promotion Committee convenes at least twice a year to review and discuss concrete targets and measures, track progress and establish action plans to achieve concrete targets, to promote environmental awareness and implement other sustainability initiatives, based on the Sustainability Policy and the discussion in the committee. The Asset Manager uses the methodologies as described below to monitor and track our ESG performance.
Data Sources and Processing	As further described below, the Asset Manager obtains certain ESG-related data from property management companies. In addition, depending on the type of data, the Asset Manager ensures data accuracy and quality by obtaining third-party organizations’ certifications.
Limitations to Methodologies and Data	As further described below, the primary limitation to the methodology or data source is the necessity of our reliance on the property management companies for raw data at the property level. Data at the property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third-party organization. Limitations to the methodology and data are not expected to affect the attainment of the environmental or social characteristics promoted by NUD in any material way.
Due Diligence	When acquiring a property, we conduct due diligence review and investigate into soil contamination and toxic substances such as asbestos and PCBs. We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.
Engagement Policies	Prior to our investment in a property, we conduct due diligence review of the property, including building safety and soil contamination. We also do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances, unless the defects are deemed curable immediately after the investment.
Designated Reference Benchmark	NUD has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by NUD.

No Sustainable Investment Objective

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

Environmental or Social Characteristics of the Financial Product

We are aiming at business that contributes to the realization of a sustainable society, on the basis of the Sustainability Vision established by NTT Urban Solutions, Inc., the ultimate parent of the NTT Urban Solutions Group to which the Asset Manager belongs. Moreover, from the perspective of placing investors’ interests over the medium to long term as our top priority, we recognize the importance of ESG (Environmental, Social and Governance) awareness, and work to reflect ESG awareness in all aspects of our real estate investment and management operations. Accordingly, we established a sustainability policy in 2021 and manage our portfolio based on this policy.

We have established targets for energy consumption, CO2 emissions, water consumption and waste and seek to meet these targets through various initiatives, including improvement of building management, capital investment, and sustainability training for tenants and property managers.

• Energy saving and reduction of CO2 emissions. We promote energy saving efforts and reduction of CO2 emissions in managing our investment assets such as by installing LED lightning at our properties. We have established the following targets in this regard:
  • Short-term target: Reduce energy intensity of our entire portfolio and each property by 1% every year compared to the previous year; and
  • Medium- to long-term target: Reduce energy intensity of our entire portfolio and each property by 5% during the five-year period from fiscal 2020 to fiscal 2024.
• Reducing water use. In a part of our properties, we have implemented water saving measures such as installment of water-efficient equipment in the restrooms, in case of office buildings, and for hot water, kitchens and shower facilities, in the case of residences. Every year we aim to maintain the water use intensity of our entire portfolio and each property at a level no greater than that of the previous fiscal year.
• Reducing waste. We continue to work on reducing waste and promote recycling. Every year we aim to maintain the volume of waste generated from our entire portfolio and from each property at a level no greater than that of the previous fiscal year. We provide our tenants with a guidebook on how to separate waste and recycle to encourage recycling and reduce waste.
• Including “Green Lease” provisions in our agreements. We have introduced environmental provisions, which we refer to as “Green Lease” provisions, in a part of leases with our tenants, under which tenants are required to switch to LED lighting in the areas they exclusively occupy and cooperate with us on environmental matters such through sharing data on energy and water consumption.

As responsible members of society, we also undertake socially-minded efforts, in dialogue with the tenants, local government, local community, sponsors, officers and employees of the Asset Manager and other stakeholders.

• Providing support to tenants and their employees. We conduct a tenant satisfaction survey once every year to solicit feedback to improve our leasing efforts and ensure stable operation. We share the survey results with property managers and utilize them to improve our services. For example, we converted, in response to feedback, a gym room that had a few training machines in the common area of Storia Akasaka into a business meeting space to make better use of space that tenants had not been using frequently.
• AED installation. We have installed AEDs near the entrance in a part of our properties. We have made AEDs available not only to our tenants but also to the local communities by publicizing their availability at our properties.
• Installation of emergency supply boxes. We have installed emergency supply boxes in the elevators in a part of our properties in order to provide supplies for the passengers if they become trapped inside them during emergencies, such as earthquakes.
• Cooperation with government in disasters. We have agreed with local governments to provide space in a part of our properties for people who are not able to return to their homes at times of disaster.
• Supporting local communities. We contribute to local communities by supporting local events such as a summer sprinkling water event (Akihabara UDX), a summer festival (Granpark and The Kanagawa Science Park R&D Building) and winter tree illumination (NTT CRED Okayama Building).
• Providing support for employees. The Asset Manager regularly provides compliance training and business training for its officers and employees to uphold high professional ethical standards and allow them to acquire advanced expertise. The Asset Manager also supports employees to obtain qualifications such as the ARES Certified Master by subsidizing expenses from obtaining qualifications. The Asset Manager also conducts an employee survey to improve their work environment and satisfaction levels. Some of our other initiatives include the following.
  • Advancement of women. NTT group, to which the Asset Manager belongs, has established a goal of increasing the ratio of female managers to 15% or more by 2025. We have introduced a childcare leave system and promote shorter and flexible working hours and encourage women to take paid leave.
  • Implementation of regular health exams. Employees’ health is a top priority matter. We not only encourage our employees to undergo periodic health exams, we also subsidize their medical exams and influenza vaccinations.
  • Special leave. In addition to annual paid leave, we offer life plan leave, summer leave, marriage leave, bereavement leave, maternity leave, sick leave, nursing leave, and long-term care leave.
• Business continuity planning. We promote business continuity plans (“BCPs”) for office buildings and implement disaster prevention measures at residential properties. We conduct annual disaster prevention and evacuation drills and have established a communication network that tenants can use in emergencies.
  • Sustainability Promotion Committee. In 2021, the Asset Manager established the Sustainability Promotion Committee, composed of the President & CEO and other full-time Directors, the Head of each Departments, and the Compliance Officer, in order to address matters related to sustainability. The Sustainability Promotion Committee convenes at least twice a year to review and discuss concrete targets and measures, track progress and establish action plans to achieve concrete targets, to promote environmental awareness and implement other sustainability initiatives. The Sustainability Promotion Committee also contributes to discussions for the NTT Group on ESG management in the real estate sector.

Investment Strategy

NUD invests directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable.

We take into account sustainability in our investment process as follows.

• Investment policy. We primarily invest in office buildings and residential buildings located in metropolitan areas to achieve stable growth and stable revenues.
• Due diligence. When acquiring a property, we conduct due diligence review and investigate into soil contamination and toxic substances such as asbestos and PCBs. We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.
• Selection of properties. An investment decision is made upon comprehensive review of a number of factors, including the mid-term to long-term real estate market trends, profitability, the property’s scale, specifications and environment. In this decision-making process, we evaluate environmental issues discovered through due diligence review. Furthermore, we have established a green finance framework to conduct green financing.
  • Green Finance Framework. Green finance refers to financing with loans obtained or securities issued for the purpose of acquiring assets needed for green projects (i.e. environmentally friendly investments and/or projects). In general, green finance is conducted in accordance with the Green Bond Principles stipulated by the International Capital Markets Association. Our green finance framework consists of green bonds and green loans where proceeds obtained through green finance are allocated as funds for acquiring Eligible Green Assets (as defined below) or refinancing for funds to acquire Eligible Green Assets.
  • Eligible Green Assets. Eligible Green Assets are assets that have received or are expected to receive one of DBJ Green Building certification (3-star rating or better), CASBEE Real Estate certification (B+ ranking or better), BELS Assessment (3-star rating or better) and Leadership in Energy & Environmental Design (LEED) certification (Silver ranking or better) or assets whose Energy Reduction Rate (ERR), an energy efficiency indicator established under Act on Improvement of Energy Consumption Performance of Buildings, is over 30%. Eligible Green Assets are selected by the Asset Manager’s Finance Department.
  • Third-party Eligibility Assessment. Our Green Finance Framework has been evaluated by Japan Credit Rating Agency, Ltd. (JCR) pursuant to the JCR Green Finance Evaluation Framework. JCR evaluates whether any given project conducted in accordance with our Green Finance Evaluation Framework may be deemed to be a green project as well as our management/operations and transparency. Our Green Finance Framework was assigned “Green 1(F),” the highest evaluation grade under the JCR Green Finance Evaluation Framework by JCR in 2021.

While there is no third-party rating used for assessment of NUD’s governance practices, NUD and the Asset Manager have introduced the following measures to assess and enhance NUD’s governance systems:

• Internal audit system. In order to ensure that we have appropriate operational structure subject to an effective internal audit system, we have established the Compliance Section, which is in charge of compliance-related matters, and appointed the Compliance Officer, who supervises compliance-related matters and monitor compliance.
• Related-party transactions. NUD is not allowed to carry out a related-party transaction if the transaction value exceeds a certain threshold, without the approval of NUD’s Board of Directors.
• Adoption of performance-linked asset management fees. NUD pays performance-linked fees based on asset value to the Asset Manager to align the interest of NUD’s unitholders and the interest of the Asset Manager.
• Reinforcement of corporate governance. We conduct compliance training to ensure officers and employees maintain a high level of compliance awareness. Also, we disclose our decision-making process to ensure transparency and promote compliance, with respect to which responsibilities are broken up as follows:
  • Compliance Section. In charge of compliance-related matters such as establishment and review of compliance manuals, investigation into matters referred by the Investment Committee, compliance training, and monitoring the property acquisition process;
  • Compliance Officer. Supervise compliance-related matters and monitor compliance by managing compliance manuals, reporting compliance status to the Compliance Committee, participating in Investment Committee meetings and liaise with the Compliance Committee as necessary; and
  • Compliance Committee. Deliberate on and adopt resolutions on the matters approved by the Compliance Officer.
• Information disclosure. We proactively disclose information on ESG matters such as the status of environmental certificates and assessments.

Proportion of Investments

As stated above, we have established a green finance framework to conduct green financing.
As of April 30, 2023, 64.9% of the properties in the portfolio were Eligible Green Assets, and 35.1% were nonqualified assets based on acquisition price.

Monitoring of Environmental or Social Characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics we promote.

• Sustainability certifications. To track the environmental performance of our properties, we rely on certifications issued by third-party organizations.
  • CASBEE Real Estate Certification. CASBEE (Comprehensive System for Building Environmental Efficiency) is a system established under the leadership of Japan’s Ministry of Land, Infrastructure, Transport and Tourism for the purpose of recognizing and assessing well-managed properties with significant environmental benefits. The ranking system of CASBEE is composed of S (superior), A (very good), B+ (good), B- (slightly poor) and C (poor).
  • DBJ Green Building Certification. To promote the environmental performance, security measures and disaster prevention measures at properties, the DBJ Green Building Certification system assesses and certifies buildings using a scoring model developed by the Development Bank of Japan (“DBJ”). The rating system of DBJ is the maximum rating system of five stars.
  • Building-housing Energy-efficiency Labeling System (BELS) Assessment. The BELS system was created for the purpose of implementing accurate evaluation and labeling of nonresidential buildings’ energy-efficiency performance by third-party organizations based on the evaluation guidelines for energy-efficiency labeling for non-residential buildings issued by the Ministry of Land, Infrastructure, Transport and Tourism of Japan in October 2013. The rating system of BELS is the maximum rating system of five stars.
  • Low-Carbon Model Building Benchmark. In May 2012, the Low-Carbon Model Building Benchmark was established by the Tokyo metropolitan government for the purpose of creating a real estate market that values low-carbon buildings. The ranking system is composed of A4 (CO2 emissions are under 55% compared to the average emissions), A3+ to A3- (CO2 emissions are 55% or more and 70% or less compared to the average emissions), A2+ to A2- (CO2 emissions are 70% or more and 85% or less compared to the average emissions), A1+ to A1- (CO2 emissions are 85% or more and 100% or less compared to the average emissions), B2+ to B2- (CO2 emissions are 100% or more and 115% or less compared to the average emissions), B1 (CO2 emissions are 115% or more and 150% or less compared to the average emissions) and C (CO2 emissions are not less than 150% compared to the average emissions).
• GRESB Real Estate Assessment and Rating. Established by European pension fund groups, GRESB is a benchmark for measuring real estate companies’ and institutional investors’ commitment to sustainability. Leading European, U.S., and Asian institutional investors use this benchmark in selecting investment targets. In the 2023 GRESB Real Estate Assessment, we acquired the “Green Star,” which is the highest rating and is given based on evaluation of the management component, which evaluates policies and organizational structure for ESG promotion, and the performance component, which assesses environmental performance and tenant engagement of properties owned, for the seventh consecutive year. In addition, also in 2023, we received “5-Stars” in the 5-star GRESB Rating, which is an overall rating given based on the global ranking, out of the maximum rating of five, for the second consecutive year. We also received the A rank, which is the highest rank, regarding the GRESB Disclosure Assessment due to our eminent information disclosure in 2023 for the fourth consecutive year.

Methodologies

In March 2021, the Asset Manager has established the Sustainability Promotion Committee, composed of the President & CEO and other full-time Directors, the Head of each Departments, and the Compliance Officer, in order to address matters related to sustainability. The Sustainability Promotion Committee convenes at least twice a year to review and discuss concrete targets and measures, track progress and establish action plans to achieve concrete targets, to promote environmental awareness and implement other sustainability initiatives, based on the Sustainability Policy and the discussion in the committee.

• Sustainability certifications. As a part of the initiatives for GRESB, the Sustainability Promotion Committee receives and confirms reports regarding sustainability certifications related matters such as the proportion of the properties that have obtained environmental certifications. Such reports are made by our operation I department when we newly obtain environmental certifications. After investing in the properties, we take initiatives such as making capital investment in order to introduce water-efficient equipment and bicycle-sharing, etc.
• ESG data coverage. As a part of the initiatives for GRESB, we deal with ESG data as the following.
  • Energy consumption, CO2 emissions, water consumption and waste amount: For the Sustainability Promotion Committee, outsourced service providers annually make reports regarding these data after they collect data from property management companies. We ensure the accuracy of these data we collect by third-party organizations’ certifications.
  • Status of environmental initiatives: For the Sustainability Promotion Committee, our operation I department annually makes reports regarding this data after they collect data from property management companies every 6 months.
  • Status of social and governance initiatives: For the Sustainability Promotion Committee, our engineering and sustainability management office annually makes reports regarding this data after they collect data from our operation department and other departments.
• GRESB Real Estate Assessment and Rating. The Sustainability Promotion Committee receives and confirms reports regarding GRESB related matters such as the initiatives to improve GRESB assessment. Such reports are made annually by our engineering and sustainability management office, in cooperation with our operation I department. After investing in the properties, we take initiatives such as the following: installation of water-efficient equipment, introduction of bicycle-sharing and installation of electricity meters to collect energy consumption of residential properties.

Data Sources and Processing

We use the following data sources:

• Sustainability certifications. Our operation I department collects the relevant data and reports it to the Sustainability Promotion Committee. The proportion of the properties that have obtained sustainability certifications in our portfolio based on gross floor area is calculated and tracked internally.
• ESG data coverage. Property management companies and our operation I department initially collect the relevant data. Environmental data in our portfolio such as energy consumption, CO2 emissions, water consumption and waste amount are tracked and monitored internally. We also ensure the accuracy of these data using third-party organizations’ certifications.
• GRESB Real Estate Assessment and Rating. Our engineering and sustainability management office collects the relevant data in cooperation with our operation I department and reports it to the Sustainability Promotion Committee.

Limitations to Methodologies and Data

The primary limitation to the methodology or data source is the necessity of our reliance on the property management companies for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by the property management companies, and independent verification of accuracy of such raw data provided by the property management companies presents challenges. 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 property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third-party organization.

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

Due Diligence

When acquiring a property, we conduct due diligence review and investigate into soil contamination and toxic substances such as asbestos and PCBs. We obtain real estate appraisal reports and engineering reports in addition to receiving disclosures from the sellers.
In addition, when we select assets for investment, we investigate legal compliance, whether there are toxic substances such as asbestos and PCB, whether there is soil contamination and other factors through our due diligence.

Engagement Policies

An investment decision is made upon comprehensive review of a number of factors, including the mid-term to long-term real estate market trends, profitability, the property’s scale, specifications and environment. In this decision-making process, we evaluate environmental issues discovered through due diligence review.

Prior to our investment in a property, we conduct due diligence review of the property, including building safety and soil contamination. We also do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances, unless the defects are deemed curable immediately after the investment.

Designated Reference Benchmark

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

Remuneration and Sustainability Risks (SFDR Article 5 Disclosure)

The Asset Manager has a remuneration policy in place which aims to support its strategy, values and long-term interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks, as follows:

• Employees of the Asset Manager receive remuneration according to their occupation, responsibilities, skills, education, experience, age, including, in some cases, contribution to sustainability targets.
• Remuneration, methods of calculation and payment, timing of payment, and increases in remuneration are determined according to the Asset Manager’s compensation rules, which are established based on statutory requirements.
• Remuneration for employees consists of annual salary (which is comprised of base salary and service allowance), overtime allowance, housing allowance, remote work allowance, cost of living allowance, commutation allowance and twice-a-year bonus. Employees may receive increases or reductions of their remunerations based on, in some cases, contribution to sustainability targets.
• Each employee may receive bonuses twice a year. Such bonus may be increased or decreased depending on the Asset Manager’s performance, including with respect to sustainability targets.

Integration of Sustainability Risks in the Investment Decisions, and the Impact of Such Risks on the Returns of NUD (SFDR Article 6 Disclosure)

NUD and the Asset Manager address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.

We have established the Sustainability Promotion Committee to review sustainability targets and measures in accordance with our Sustainability Policy. The Sustainability Promotion Committee convenes at least twice a year to review concrete targets and measures, track the status of progress and instruct as required under the objective of promoting environmental awareness and other sustainability such as information disclosure and cooperation with our external stakeholders, based on the Sustainability Policy. Furthermore, we have established green finance framework that consists of green bonds and green loans where proceeds obtained through green finance are allocated as funds for acquiring Eligible Green Assets or refinancing for funds to acquire Eligible Green Assets.

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

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.

Physical Risks

The assets in which NUD invests are exposed to physical climate risks. These can manifest themselves through, for example, floods, storms, heat and limited access to natural resources. This can mean that the assets in which the fund invests become worthless. Specifically for NUD, the following risk is particularly relevant.

Flood risk: for NUD this is a relevant risk because the part of assets in which NUD invests located in an area with a flood risk. If flooding occurs in this area, this will probably have a negative effect on the value of these assets. This may include physical damage to the properties and tenants’ premises. The Asset Manager addresses this by improving resilience through countermeasures for rising tides and supplementing portfolio with disaster supplies and comprehensive BCPs facilities, etc.

Transition Risks

The assets in which the fund invests are exposed to transition risks. These can manifest themselves through, for example, changes in regulations, technical developments and/or social developments. Such developments may mean that the assets in which the fund invests become worthless. Specifically for NUD, the following risk is relevant.

General transition risk: NUD generally invests in real estate. New government policy, technical developments and/or changes in consumer preferences may affect the operations of these real estate. Such developments may result in, among other things, increase in operation costs resulting from the introduction of a carbon tax. The Asset Manager addresses this through introducing renewable energy, reducing waste (incinerator, landfill), promoting GHG emission reduction across the supply chain through green procurement, setting carbon reduction targets, introducing Environmental Management System and monitoring GHG emissions for the entire portfolio.

Statement on Principal Adverse Impacts of Investment Decisions on Sustainability Factors

October 20, 2023

Statement on Principal Adverse Impacts of Investment Decisions on Sustainability FactorsPDF（260KB）