Climate Change Initiatives

NTT UD REIT Investment Corporation’s Awareness of Climate Change

NTT UD REIT Investment Corporation (NUD) recognizes the following regarding climate change and improving the resilience of our business.
As shown by the Paris Agreement (2015), Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C (2018), IPCC Sixth Assessment Report (Working Group 1, 2021), and others, the advance of climate change is a scientific fact. It is an issue that will cause dramatic changes to the natural environment and social structure, significantly impacting our management and business as a whole.
We recognized that identifying, assessing, and managing the risks and opportunities caused by climate change and enhancing the resilience of our business are indispensable to ensuring sustainable, stable revenue for us over the long term.

Announcing Support for TCFD and Joining TCFD Consortium

NTT Urban Development Asset Management Corporation (UDAM), with the purpose of pursuing disclosure of information relating to climate issues, announced its support for the TCFD (Task Force on Climate-Related Financial Disclosures) in April 2022. At the same time as this announcement, it joined the TCFD Consortium. This consortium, which has been joined by many companies and organizations in Japan who have supported the TCFD, discusses matters such as the nature of climate-related information disclosure and how to use it. Through participation in the Consortium, UDAM proposes initiatives related to climate issues, the disclosure of related information, methods of using this information, etc. to the general public.

Basic Policy / Commitment

UDAM supports the international targets set forth in the Paris Agreement. In order to contribute to the mitigation of climate change, UDAM is committed to reducing greenhouse gas emissions and is aiming for net zero emissions by FY2050.

Governance

Regarding the structure for promoting sustainability at UDAM (including addressing climate change), please refer to the “Sustainability Promotion Structure”.

Strategy

Scenario Analysis

NUD has conducted multiple scenario analyses covering all owned properties.
Since the properties covered by the analysis may change in the future due to acquisition and disposition, the analysis results are also subject to change.

Scenario	Risks	Referenced Information Sources	Scenario Overview
4.0°C	Transition risks*¹	International Energy Agency (IEA) STEPS	Scenario in which existing policies or plans and agreements announced in recent years are implemented
4.0°C	Physical risks*²	IPCC Fifth Assessment Report – RCP 8.5	Scenario in which existing policies are relied on and global warming countermeasures surpassing the current ones are not implemented
1.5°C	Transition risks	IEA NZE 2050	Scenario in which CO₂ emissions are reduced by about 40% by 2030 and net zero is achieved by 2050
1.5°C	Physical risks	IPCC Fifth Assessment Report – RCP 2.6	Scenario in the report with the lowest assumed temperature rise range

(Note 1)	Transition risks: Risks arising due to new regulations, taxation, technologies, etc. for the purpose of achieving a carbon-neutral society
(Note 2)	Physical risks: Risks arising due to climate change itself, such as changes in the weather

Assumed Global Outlook

4.0°C Scenario

This scenario assumes that laws and regulations will not become stricter and while transition risks will be kept relatively low, because global initiatives aimed at carbon reduction do not progress, natural disasters will be more severe and physical risks will be extremely high.

Assumed Global Outlook

1.5°C Scenario

This scenario assumes that strict regulations, taxation, etc. will be implemented to achieve a carbon-neutral society and that greenhouse gas emissions will trend downward, so the physical risks will be low compared to the 4.0°C scenario while the transition risks will be high.

Identification of Risks and Opportunities and Countermeasures

NUD has identified risks and opportunities, identified scenarios, and assessed their business impact. The financial impacts were qualitatively assessed while referring to the scenarios described above.

Risks

Category	Assumed Phenomenon	Financial Impact on NUD	4.0°C Scenario		1.5°C Scenario		Risk Management, Countermeasures, and Initiatives
			Financial Impact		Financial Impact
			Medium-term	Long-term	Medium-term	Long-term
Transition Risks
Policy and legal	Increased taxation on GHG emissions due to introduction of carbon tax	Increased tax burden on properties’ GHG emissions	Small	Small	Large	Large	Introducing renewable energy and becoming more energy-efficient, reducing waste (incinerator, landfill), promoting GHG emission reduction across the supply chain through green procurement Setting carbon reduction targets, EMS and monitoring GHG emissions for the entire portfolio
Policy and legal	Enhancement of energy-efficiency standards for existing properties	Increased burden of renovation costs for purpose of adaptation (fines also a possibility)	Small	Small	Medium	Large
Technology	Promotion and spread of renewable energy and energy-efficient technology	Increased costs for introducing new technology to prevent obsolescence of equipment	Small	Small	Medium	Large	Establishing construction budgets that anticipate technology introduction costs Selecting and acquiring properties that have introduced environmental technology Promoting green leases in collaboration with tenants
Technology	Spread of energy creation	Increase in energy costs due to addition of energy-creation equipment costs	Small	Small	Large	Large
Markets	Introduction of standards for environmental performance, etc. in real estate appraisal	Decrease in funds’ NAV (Net Asset Value)	Small	Small	Small	Small	Setting medium- to long-term targets for acquiring green building certifications and improving the certification acquisition rate by establishing a certification acquisition plan Switching to renewable energy-sourced and CO₂-free electric power Revising portfolio mix in response to changing asset type demand Financing based on environmentally friendly investment and lending Maintaining and enhancing brand power in collaboration with NTT Group
	Worsening of lending requirements for market participants who have not adapted to climate change	Increase in financing costs	Small	Small	Medium	Large
	Increase in utility costs (including procurement of renewable energy)	Increase in overhead	Small	Small	Large	Large
	Changing tenant demands	Difficulty in acquiring new tenants and decreased retention	Small	Small	Medium	Large
Reputation	Decrease in brand value due to slow adaptation to climate change	Decrease in rent premium due to reduction of brand power	Small	Small	Medium	Medium
Physical Risks
Acute	Wind and water damage to properties due to typhoons	Increase in repair costs/insurance premiums	Medium	Large	Small	Medium	Improving resilience through countermeasures for rising tides, supplementing portfolio with disaster supplies, comprehensive BCP facilities, etc.
Acute	Inland flooding due to intense rainfall, inundation due to flooding of nearby waterways, etc.	Decrease in occupancy rate in addition to the above	Medium	Large	Small	Medium
Chronic	Flooding damage due to sea level rise	Incurring major renovation costs (raising level)	Medium	Large	Small	Medium	Avoiding chronic damage through acquisition focused on properties in areas unlikely to suffer flooding damage Developing power consumption peak distribution system in collaboration with tenants
Chronic	Increased HVAC demand due to increase in extreme weather (e.g., heat waves, intense cold)	Increase in HVAC operation, maintenance, and repair costs	Medium	Large	Small	Medium

Opportunities

Category	Assumed Phenomenon	Financial Impact on NUD	4.0°C Scenario		1.5°C Scenario		Risk Management, Countermeasures, and Initiatives
			Financial Impact		Financial Impact
			Medium-term	Long-term	Medium-term	Long-term
Opportunities
Policy and legal	Introduction of renewable energy on premises	Reduction of externally procured utility costs	Small	Small	Medium	Large	Establishing construction budgets that anticipate technology introduction costs Selecting and acquiring properties that have introduced environmental technology Revising portfolio mix in response to changing asset type demand Financing based on environmentally friendly investment and lending Improving resilience through countermeasures for rising tides, supplementing portfolio with disaster supplies, comprehensive BCP facilities, etc.
Policy and legal	Introduction of water-saving equipment and highly energy-efficient equipment	Increased resilience to water stress	Small	Small	Medium	Medium
Technology	Appealing to tenants and users by offering low-emission facilities and services	Attracting tenants and maintaining occupancy	Small	Small	Medium	Medium
Technology	Offering rental properties aligned with changing tenant preferences Reaching new clientele	Increasing revenue by improving retention	Small	Small	Medium	Large
Markets	Reaching new investors	Increase in financing based on green finance, reduction in financing costs	Small	Small	Medium	Large
Markets	Improving physical resilience of portfolio	Increased demand for safe properties that provide peace of mind	Medium	Large	Small	Medium

Risk Management

UDAM manages NUD’s climate-related risks as indicated below.

Organizational Structure

Regarding UDAM’s organizational structure for managing climate-related risks, please refer to “Sustainability Promotion Structure”.

Management Process

Regarding high-priority climate-related risks and opportunities that are important to business and financial planning which have been discussed by the Sustainability Promotion Committee, the chief climate officer guides the officers appointed in various relevant departments on developing proposals to address them.
The proposals developed by the officers in the relevant departments are executed following discussion by the Sustainability Promotion Committee, according to their details.
The chief climate officer supervises the risk identification, assessment, and management processes by providing guidance that factors in climate-related risks that are important to business and financial planning in the existing company-wide risk management program as well.

Metrics and Targets

NUD has established the following key performance indicators (KPIs) to monitor our response to environmental issues.

42% reduction in greenhouse gas (CO₂) emissions (Scope 1 and 2) intensity by FY2030 (vs. FY2020)
Achieving net zero greenhouse gas (CO₂) emissions (Scope 1, 2, and 3 total emissions) by FY2050