Initiatives for climate change

Awareness of climate change

SLR and SRM understand that climate change is an important (material) issue that brings about drastic changes to natural environmental conditions and social structures, seriously affecting our operations as well as businesses overall.
Further, we are aware that progress in climate change is a scientific fact as indicated mainly by the Paris Agreement (2015), IPCC Special Report on Global Warming of 1.5℃ (2018) and IPCC Sixth Assessment Report (Working Group Ⅰ, 2021).

Announcement of support for the TCFD recommendations
(and participation in the TCFD Consortium)

SRM declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) in November 2021.
The TCFD was established by the Financial Stability Board (“FSB”) for the purpose of reviewing financial institutions’ climate related information disclosure and response. The TCFD announced recommendations to the effect that climate change should be seen as a significant risk to the global economy and companies, etc. should understand and disclose climate related information under the four pillars Governance, Strategy, Risk Management and Metrics and Targets. SLR is committed to increasing communication with stakeholders including investors by disclosing the financial impacts of climate change in accordance with the TCFD Recommendations.

Governance

To ensure the effectiveness of sustainability initiatives, SRM has established the ESG Promotion Committee, which is chaired by the president and composed of the persons responsible for fund operations, etc. and ESG Promotion Team members; the ESG Promotion Team as the working level ESG review structure; and the ESG Taskforce, which is in charge of the ESG operations of each business line and fund.
In terms of the governance structure for responding to climate-related risks and opportunities related to SRM and SLR, the person with the most responsibility for climate-related issues is the president. The president is the person with final decision-making authority for ESG activities. The person responsible for promoting ESG initiatives is the General Manager of the Business Planning Department. The ESG Promotion Committee is responsible for identifying and evaluating the impacts of climate change, managing risks and opportunities, and regularly reporting action on climate change including the status of initiatives to adapt to and mitigate the impacts, and the setting of metrics and targets.

See the Sustainability policy and system page for information about the asset management company's system for promoting sustainability (including actions to address climate change).

Strategy

SRM will establish a process to identify, evaluate and manage the impact of climate-related risks and opportunities on the management activities, strategies and financial plans of SLR, and put the process into use properly. It aims to identify and evaluate climate-related risks and opportunities systematically and objectively by utilizing scientific and academic findings.
The identified risks and opportunities and the results of evaluation of their impacts based on scenario analysis are as follows.

SLR’s worldview based on the scenarios

Climate-related risks and opportunities and response

						4°C scenario	1.5-2°C scenario
		Risks and opportunities for real estate management	Financial impact on our business and fund	Time span	Risk management, countermeasure, initiative	Financial impact	Financial impact
Transition risks	Policy and Legal	Tightening of environmental regulations including carbon taxes	Increase in tax burden on properties with respect to GHG emissions	Short- term	Setting of GHG emission reduction targets	Small	Large
		Enhancement of energy-saving measures at managed properties	Increased burden of renovation expenses for energy saving measures and imposition of fines in some cases	Mid- term	Acquisition of green building certification and energy rating (for individual properties) Switch to LEDs Installation of solar power generators Upgrading of air-conditioning systems	Small	Large
		Stricter emission reporting requirements under the Act on the Rational Use of Energy	Rising costs to comply with reporting requirements	Mid- term	Compliance with reporting requirements	Small	Small
	Technology	Evolution and widespread adoption of renewable energy and energy-saving technologies	Increase in costs for introducing new technologies	Mid- term	Acquisition of green building certification and energy rating (for individual properties) Switch to LEDs Installation of solar power generators Upgrading of air-conditioning systems	Small	Large
	Market	Introduction of environmental performance standards, among other standards, in real estate appraisal	Decrease in value of REIT and fund assets	Mid- term	Acquisition of green building certification and energy rating (for individual properties)	Small	Large
		Worsening funding conditions for market participants that have not responded to climate change	Rising funding costs	Mid- term	Acquisition of green building certification and energy rating and energy efficiency rating based on medium-to-long-term GHG reduction plan assumptions	Small	Large
		Rising utilities expenses (including expenses for renewable energy procured from outside sources)	Increasing business expenses	Mid- term	Switch to LEDs Installation of solar power generators Upgrading of air-conditioning systems	Large	Small
		Changes in demand from tenants (choosing properties that have responded to climate change, avoiding properties that have not responded to climate change)	Decrease in rent income due to the difficulty in attracting new tenants and a decline in retention rate Rising cost for acquisition of green building certification and energy rating	Short- term	Acquisition of green building certification and energy rating (for individual properties) PR in the display of green building certification and energy rating in properties (entrance hall, etc.) Promotion of green leases	Small	Large
	Reputation	Decline in brand value	Damage to reputation caused by tardy response to climate change	Short- term	Communication of ESG initiatives (utilizing website and disclosures) Monitoring of attainment of targets	Small	Large
Physical risks	Acute	Damage to properties caused by typhoon	Increasing repair expenses and insurance premiums	Short- term	BCP at an individual property level (establishment of emergency contact network)	Large	Small
	Acute	Inundation due to intensive heavy rainfall and flooding of nearby rivers	Other additional impacts such as fall in occupancy	Short- term	Due Diligence at the investment stage based on a hazard map, etc. Installation of flood barriers	Large	Small
	Chronic	Flooding of properties located in low-lying places due to sea level rises	Expenses for large-scale renovations (raising flood barriers) incurred	Short- term	Due Diligence at the investment stage Installation of tide barriers	Large	Small
	Chronic	Increasing demand for air-conditioning due to increases in extreme climatic conditions, such as extremely hot and cold days	Increases in air-conditioning operation, maintenance, and repair expenses	Short- term	Installation of solar power generators Upgrading of air-conditioning systems	Large	Small
Opportunities	Resource efficiency	Introduction of onsite renewable energy generation	Reduction in expenses for utilities procured from outside sources	Short- term	Installation of solar power generators	Small	Small
	Products and services	Providing low-emission facilities and services and communicating them to tenants and users	Increase in revenue by attracting tenants	Mid- term	Acquisition, management and leasing of high-quality properties	Small	Large
	Market	Finding new investors	Utilization of green bonds Increasing funds raised and reducing funding costs by attracting the attention of investors that emphasize environmental issues	Short- term	Adoption of green finance framework	Small	Large

Roadmap

The investment corporation formulated a transition roadmap for reducing GHG emissions and set new KPI targets regarding the reduction of emissions. Going forward, we have set the goal of achieving net zero GHG emissions throughout our value chain by FY2050, and we will unfailingly carry out initiatives to achieve this goal.

Risk management

SRM has established a management process such as the following with respect to material climate-related risks and opportunities that it has decided to prioritize and will focus on mitigating the risks and realizing the opportunities.

[Risk management process and integration into enterprise risk management program]

The person with the most responsibility for climate-related issues instructs the ESG Promotion Team to formulate proposed measures with respect to high priority climate-related risks and opportunities that are important for business and financial plans.
Depending on their content, the proposed measures formulated by the ESG Promotion Team are implemented after deliberation at a meeting of the ESG Promotion Committee and/or other appropriate internal committees.
The above process uses procedures such as the review of climate-related risks that are important for business and financial plans by the person with the most responsibility for climate-related issues and the reporting of content reviewed by the ESG Promotion Team to the ESG Promotion Committee for deliberation in order to achieve integration of the climate-related risk identification, evaluation and management process into enterprise risk management.

Metrics and Targets

SRM and SLR set key metrics (KPIs) and targets in order to manage and monitor risks and opportunities. The metrics and targets we have set are as follows.

See Environmental performance for details.