Engaging to our social mission of improving the environmental performance of the properties we manage, we believe that reducing the environmental impact of such properties including energy consumption, GHG emissions, water consumption and waste management, and contributing to environmental sustainability through the continuous reduction of environmental impact as well as reduction and appropriate management of hazardous substances, will contribute to improving our mid- to long- term profit.

• Climate Change
• Environmental Performance
• Reduction of Environmental Burden
• Contribution to Biodiversity Conservation
• Stakeholder Engagement to Improve
  Property Performance

Climate Change

Global warming, as the main factor for a climate change, has been the primal topic at international meetings, and in 2015 Paris Agreement has adopted a new framework in 18 years since Kyoto Protocol. In this agreement, one of the goals is to keep the increase in global average temperature to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels. Furthermore, at COP26 in 2021, the Glasgow Climate Pact was agreed that the 1.5°C target remains in sight and scales up action on dealing with climate impacts. In light of the recent increase in extreme weather events, we recognize that efforts to climate change is one of the most important issues for our business activities and properties we manage.

Support for TCFD Recommendations

Governance

For further details concerning governance for climate change, please refer to Sustainability Management System.

Strategy

Scenario Analysis

The Asset Management Company conducted a scenario analysis to identify the risks and opportunities for KDXR to be posed by the climate change, and to assess their potential impact on KDXR’s business. World outlook of each scenario is provided below. The analysis was conducted with reference to future climate projections and energy trends published by international organizations.

World Outlook in the 4℃ Scenario

World Outlook in the 1.5℃ Scenario

(Major reference sources)

Scenarios	Transition risks	Physical risks
4°C Scenario	IEA (International Energy Agency) World Energy Outlook 2020 STEPS	IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report RCP8.5
1.5°C Scenario	IEA (International Energy Agency) NZE2050	IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report RCP2.6

Financial Impact based on Scenario Analysis

The Asset management Company examined the mid-term (2030) and long-term (2050) impacts of the risks, opportunities, and financial impacts for KDXR for each of the world outlook in the 4°C and 1.5°C scenario described above. The summary of the evaluation is as follows.

Risks and Opportunities			Financial Impact					Measures to address risks and opportunities
	Category	Factor		4℃ Scenario		1.5℃ Scenario
				Mid-term	Long-term	Mid-term	Long-term
Transition Risks and Opportunities	Policy and legal	CO2 emission regulation Introduction of CO2 emission regulations as a measure to comply with international frameworks incur costs and risks related to CO2 emissions	Increase in costs to improve energy efficiency of existing properties	Low	Low	Low	Mid	Improvement of energy-saving in existing properties Establishment of GHG reduction targets
		Carbon tax The introduction of carbon tax as a measure to comply with international frameworks incur costs and risks related to CO2 emissions	Increase in carbon tax costs	Low	Low	Mid	High	Introduction of renewable energy Acquisition of non-fossil certificates, etc.
			Increase in acquisition costs of non-fossil certificates, etc.	Low	Low	Mid	Mid
	Technology	Advancement of energy-saving and renewable energy technologies Further technology advancement will result in lower installation costs and effective achievement of energy-saving and renewable energy	Increase in costs due to introduction of new technology	Low	Low	Low	Mid	Energy-saving in existing properties
			Decrease in utility costs due to energy-saving, introduction of renewable energy, conversion to ZEB/ZEH, etc.	Low	Low	Low	Mid	Acquisition of ZEB/ZEH properties Conversion of existing properties to ZEB/ZEH
	Markets	Evaluation by investors and financial institutions Investors and financial institutions will value improvement of the environmental performance of properties	Increase in financing costs due to low valuation	Low	Low	Low	Low	Energy-saving in existing properties Acquisition of environmental certifications Improvement of engagement with investors and financial institutions Utilization of green finance
			Decrease in financing costs due to high valuation	Low	Low	Low	Low
		Focus on environmental certification Environmental certification will be required for portfolio evaluation by investors and financial institutions as well as property selection by tenants	Increase in cost of actions to improve evaluation	Low	Low	Low	Low	Acquisition of environmental certifications
			Increase in acquisition costs of environmental certifications	Low	Low	Low	Low
	Reputation	Tenant behavior change due to environmental orientation Environmental performance of properties will become valued due to regulation compliance and changing preferences	Low environmental performance properties becoming stranded	Low	Low	Mid	Mid	Energy-saving in existing properties Acquisition of environmental certifications Engagement
			Maintain and improve occupancy rates by improving environmental performance	Low	Low	Mid	Mid
		Tenant behavior change due to disaster-prevention orientation Disaster prevention aspect of properties will become valued due to increasing disasters caused by rising temperatures and sea level	Low resilience properties becoming stranded	Mid	Mid	Low	Low	Due diligence on acquisition Flood risk analysis of properties Improvement of resilience Engagement
			Maintain and improve occupancy rates by improving resilience measures	Mid	Mid	Low	Low
Physical Risks and Opportunities	Acute	Intensification of heavy rains and torrential rains The frequency of property damage will increase due to severe wind and extreme flood	Increase in disaster recovery costs	Mid	Mid	Low	Low
			Decrease in rental income during the recovery period	Mid	Mid	Low	Low
	Chronic	Rise in sea level Chronic rise in sea level	Increase in costs to cope with sea level rise	Low	Low小	Low	Low
		Rise in average temperature Chronic rise in average temperatures	Increase in utility costs during summer	Low	Low	Low	Low	Energy-saving in existing properties

• The financial impact (low, mid or high) of each scenario is formulated through discussions based on qualitative and quantitative perspectives at the Asset Management Company. The red color of the financial impact in each scenario represents risk items, and the green color represents opportunity items. This evaluation will continue to be reviewed and updated as necessary based on new external and internal factors that have arisen and close examination of the quantitative impact.

Risk Management

Risk Management System for Climate Change

Listed REIT Department of the Asset Management Company and the Sustainability Committee identifies and evaluates the sustainability and ESG-related risks of KDXR and the Asset Management Company. These sustainability and ESG-related risks are managed on a daily basis by each department in charge, and important risks are analyzed and reviewed regularly by the Sustainability Committee under the supervision of the Chair of the Sustainability Committee, and are managed appropriately. In addition, these risks are incorporated into the organization’s overall risk management by sharing them with relevant parties as necessary.

Metrics and Targets

KPIs related to Climate Change

Responding to climate change is one of the important social issues, and initiatives for climate change countermeasures are accelerating domestically and internationally. KDXR has set GHG emission reduction goal (KPI) as follows in order to actively promote the reduction of environmental impact and contribute to sustainability of environment through the mid- to long-term reduction of GHG emission in our portfolio.

GHG Emission Reduction Targets	2030 Targets (2022 baseline)	2050 Targets
	Total amount: 42% reduction Per unit: 42% reduction	Net-zero

Per unit: Emission per unit is calculated based on the total floor area considering the occupancy rate.

KDXR has obtained Science Based Targets (SBT) certification for the above GHG emission reduction targets.

For further details concerning Science Based Targets (SBT), please refer to Awards and Initiatives.

KDXR has set reduction goal (KPI) of energy consumption. (mid- to long-term targets) as follows:

Goal (KPI) for Energy Consumption	Reduce unit energy consumption by an average of 1% or more per year over the past five years in accordance with the Act on Rationalizing Energy Use (Energy Saving Act) Set individual goal for properties subject to local regulations related to cope with global warming

Process to Promote Sustainability / PDCA Cycle

KDXR has established PDCA process as below to achieve the mid- to long-term goal on reduction in GHG emissions, energy consumption and others, and been monitoring and assessing environmental performance on energy consumption at the Sustainability Committee held on regular basis.

Environmental Performance

GHG Emissions

	2022 (Baseline)
GHG emission（t-CO2）(Note 1)	100,349
Scope 1	1,592
Scope 2	40,036
Scope 3 (Category 13)	48,720
Intensity (t-CO2/m²)(Note 2)	0.055
Change in total amount (%)
Change in intensity (%)

• GHG emission for each fiscal year is estimated by the Asset Management Company using emission factors (adjusted emission factors) by electric utility in "Greenhouse Gas Emissions Calculation, Reporting, and Publication System” of the Ministry of the Environment. The figures are the total of Scope 1, 2 and 3, and the calculation methods of GHG emissions after FY2021 and prior to FY2020 are different.
  Scope 1: Direct emission from fuel combustion
  Scope 2: Indirect emissions from the use of externally procured electricity and heat
  Scope 3: Total emissions minus Scope 1 and Scope 2
• The intensity is calculated by dividing the GHG emission for each year by the total floor area, considering the occupancy rate of each owned property.

Energy and Water Consumption

	2022
Energy Consumption	472,800
Intensity (MWh/m²) (Note)	0.240
Water consumption (m³)	2,502,296
Intensity (m³/m²)(Note)	1.273

• The intensity is calculated by dividing each consumption by the total floor area, considering the occupancy rate of each property.

Independent Assurance Statement

GHG emission and energy and water consumption in 2022 have been assured by a third party, Sustainability Accounting Co., Ltd.

Independent Assurance Statement (Former KDO) PDF (266KB)

Independent Assurance Statement (Former KDR) PDF (266KB)

Independent Assurance Statement (Former KRR) PDF (266KB)

Reduction of Environmental Burden

Installation of LED Lightings

Solar Panel Installation

We installed solar panels at our properties to decrease GHG emissions.

Property Name	Solar Power Generation
Unicus Ina	307,655 kWh
Kawamachi Yahagi Mall	292,328 kWh
Apita Terrace Yokohama Tsunashima	27,986 kWh
Tenri Distribution Center	144,756 kWh
Monenosato Mall	494,663 kWh
Yumemachi Narashinodai Mall	264,818 kWh

• The figures of Power generation results are for the period August 2022 to July 2023.

Greening of Facilities

Greening of facilities creates energy-saving effects such as mitigation of outdoor temperature, as well as relaxing effects for customers, providing refreshing spaces. In particular, rooftop greening at commercial facilities provides not only physical environmental improvement effects such as improved thermal environment, but also promotes a healing effect for users of the properties owned, providing them with a place to relax.

Water Conservation Initiatives

We are working to reduce water consumption by introducing toilets with water-saving functions and installing rainwater tanks in our properties.

Remote Surveillance of Road Heating

Installing Secure Lockers for Deliveries

Contribution to Biodiversity Conservation

KDXR is committed to contribute to biodiversity conservation through real estate investment and management.

JHEP Certification (Note)

KDX Residence Tsudanuma and KDX Residence Tsudanuma Ⅱacquired AA certification.

• The JHEP certification is a system for quantitatively evaluating and certifying activities that contribute to the conservation and restoration of biodiversity based on the Habitat Evaluation Procedures (HEP).

For more details Concerning JHEP

Stakeholder Engagement to Improve Property Performance

As KDXR and the Asset Management Company are continuously making effort to realize sustainable environment, we think it is crucial to cooperate with our tenants who constantly use our properties. KDXR and KFM are aiming to cooperate by taking initiatives to raise awareness and promoting green lease that allow both owner and tenant to share economic merit to achieve sustainable environment.
KDXR and KFM have identified “tenant engagement to improve environmental performance” as material topic and been making contribution through promoting tenant cooperation and cooperating with other stakeholders such as property management companies who actually manage the building and employees in the Asset Management Company who manage the properties.

Proper Measures for Hazardous Substances, Soil Contamination and Other Materials Requiring Special Handling

Before acquiring a property and in conjunction with other transactions, we thoroughly examine properties by receiving an engineering report that covers the building's structure and facilities, including environmental items. We also receive an earthquake probable maximum loss assessment, a soil contamination survey and other information. These activities ensure that the building complies with laws and regulations.
The engineering report includes a confirmation that a building is free of asbestos, PCBs and fluorocarbons. If any hazardous substances are discovered, appropriate actions are taken, such as by establishing counter-measures, managing or disposing of these substances, in accordance with laws and regulations.
If a property we plan to acquire has soil contamination, we make the investment only after the completion of soil contamination counter-measures.

Brownfield Development at Yokohama Connect Square

Green Lease

KDXR conducted LED lighting installation works for a part of a tenant office space at the expense of KDXR based on the Agreement. A certain ratio of the highly reduced amount of electricity charges and maintenance costs (costs for exchanging fluorescent bulbs) has been paid from the tenants in return as Green Lease fee.

What is Green Lease?

It is an agreement specifying that building owners and tenants shall cooperate with each other to reduce environmental burden. The agreement contains provisions to facilitate renovation toward more environmentally-friendly office buildings by reducing building owners' investment burden through sharing the economic merits generated as a result of energy-saving renovation works among building owners and tenants. It also contains an agreement to streamline operations for energy saving, water saving and enhancing indoor conditions.

Promoting Lease Agreement with Clause for Environmental Cooperation

We have promoted including clause to cooperate to improve environmental performance of the property, comfort and productivity of our tenant into its base contract.

Cooperation with Property Managers

KDXR and KFM are engaging with property management companies to share our vision, policies of sustainability and when making contract with a new tenant, property managers explain these ideas to tenants to achieve their cooperation.

Education to Employees on Green Building

KFM provides annual sustainability training by external specialists to improve awareness and knowledge on green building for its employees.