SFDR - Sustainability-related Disclosures

Product name: TOKYU REIT, Inc.

（as of Sep. 1, 2023）

  TOKYU REIT, Inc. 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”). TOKYU REIT, Inc. 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 Tokyu Real Estate Investment Management Inc. (the “Asset Manager”), to manage and operate the properties in TOKYU REIT, Inc.’s portfolio. TOKYU REIT, Inc. 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 February 1 of the year specified in line with the fiscal year of the TOKYU REIT, Inc., unless noted otherwise.

◆Summary

No sustainable investment objective	The financial products offered by TOKYU REIT, Inc. promote environmental or social characteristics, but do not have as its objective sustainable investment.
Environmental or social characteristics of the financial product	ESG (Environment, Social and Governance) matters and SDGs (Sustainable Development Goals) are important considerations as we seek to make sustainable investments primarily in office properties, commercial facilities, residential properties and complexes that include any of the foregoing. The Asset Manager established a Sustainability Policy in March 2022, based on its belief that contribution to the sustainability of society is the most important challenge that must be met in pursuing sustainable growth and maximizing unitholder value over the medium to long term.  We work together with the Asset Manager to promote initiatives that help to realize a sustainable society, while aiming to enhance portfolio value and maximize unitholder value. Accordingly, we implement various environmental or social initiatives, as described below.
Investment strategy	TOKYU REIT, Inc. invests directly or indirectly through trust beneficiary interests in real estate. Therefore, investment strategy and due diligence (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. TOKYU REIT, Inc. invests primarily in office properties, commercial facilities, residential properties and complexes that include any of the foregoing, located in Tokyo’s central five wards (Chiyoda, Chuo, Minato, Shinjuku and Shibuya wards) or what we refer to as the “Tokyu Areas”, which are the areas serviced by the Tokyu rail network. We will pursue sustainable investment management that emphasizes growth potential and stability to be a “100-year REIT” by implementing our long-term investment management strategy that addresses the medium- to long-term cyclicality of real estate prices. We recognize that ESG and SDGs are important considerations in pursuing sustainable investment management.
Proportion of investments	As of January 31, 2023, 54.1% of the properties in our portfolio were Green Buildings, and 45.9% were nonqualified assets based on gross floor area. We aim to increase the percentage of Green Building in our properties by over 70% by FY2025 based on gross floor area.
Monitoring of environmental or social characteristics	In order to periodically monitor and track our performance on environmental or social characteristics, we use the initiatives and indicators such as (i) acquiring environmental certification of individual properties; (ii) acquiring GRESB Real Estate Assessment; (iii) identifying and assessing climate change risks in accordance with Task Force on Climate-related Financial Disclosures (“TCFD”), each as further described below.
Methodologies	The Asset Manager has established a Sustainability Promotion Committee, which is composed of Chief Financial Officer as Chief Sustainability Manager, as the chairperson, full-time directors, executive officers and heads of each division, which generally meets at least once every quarter, to discuss sustainability goals, review the progress and achievement against those goals and report to the Board of Directors of the Asset Manager and our Board of Directors. Our Sustainability Policy and any material issues we identify will be reviewed and discussed by the Sustainability Promotion Committee as necessary and reported to the Board of Directors of the Asset Manager and our Board of Directors. The Asset Manager uses the methodologies as described below to monitor and track our ESG key performance indicators.
Data sources and processing	As further described below, the Asset Manager obtains certain ESG-related data from tenants, property management companies, building management companies, third-party consulting firms and issuers of environmental certifications, 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 obtaining an assurance report regarding certain ESG data from an independent third-party accounting firm.
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 property management companies, building management companies and tenants for raw data at the property level. 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 which has provided an assurance report regarding the accuracy and quality of compiled data at the portfolio level, but 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 property management companies, building management companies and tenants 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 TOKYU REIT, Inc. in any material way.
Due diligence	Prior to our investment in a property, the Asset Manager conducts due diligence review of the property based on real estate valuation and engineering report conducted by independent agencies, including the assessment of compliance with applicable environmental laws and ordinances and environmental and disaster risks, as well as investigation into hazardous substances and soil contamination. We do not consider investing in properties that do not meet the standards stipulated in applicable environmental laws and ordinances. However, from time to time we acquire properties not meeting the standards as long as they are deemed fixable after acquisition, comprehensively considering their impact on our entire portfolio and the degree of expected contribution to the enhancement of our portfolio value. The above investment strategy applies to all of our properties.
Engagement policies	TOKYU REIT, Inc. does 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 harmful substances, 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 acquiring properties, we review the status of obtaining environmental certifications for the properties. In addition, we generally include “green lease clauses” in new lease agreements in order to work together with our counterparties to improve the environmental performance of our properties and maintain and enhance their comfort and productivity by, among other things, sharing energy data, obtaining environmental certifications, sustainably procuring resources used in our properties and reducing waste.
Designated reference benchmark	TOKYU REIT, Inc. has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by TOKYU REIT, Inc.

◆No sustainable investment objective

  The financial products offered by TOKYU REIT, Inc. promotes environmental or social characteristics, but does not have as its objective sustainable investment.

  We implement various social initiatives at our properties including the following.

• Improving tenant safety and comfort. We make efforts to make our properties comfortable gathering places through various initiatives such as renovating the building rooftops. Also, we have implemented disaster prevention and business continuity planning measures. We have also installed portable emergency power generators and emergency disaster prevention boxes containing emergency portable toilets, water, food and other emergency supplies in the elevators at some of our properties.

• Urban Development Initiatives in Collaboration with Sponsor. Our sponsor, TOKYU CORPORATION, promotes development aimed at enhancing the value of areas along its railways to remain the railway company of choice. In addition to promoting large-scale development projects in Shibuya and elsewhere, our sponsor strives to create environmentally friendly communities and revitalize rail-side areas in its next-generation urban development efforts. In collaboration with our sponsor, we are making efforts to increase the value of our investment target areas by investing in the same areas as our sponsor and pursuing a long-term investment management strategy that makes us resistant against the cyclical nature of real estate price over the medium to long term.

• Improving work environment. The Asset Manager strives to create a work environment that enables its officers and employees to work flexibly and brings out the best in each. The Asset Manager promotes work-life balance of its officers and employees with a flexible-hours system as well as through a leave policy that requires every officer and employee to take five consecutive business days off per fiscal year and allows them to take leave from work on an hourly basis, rather than only on a daily basis. The Asset Manager also conducts an employee satisfaction survey for its officers and employees and uses the survey results to improve its workplace environment.

• Employee health management. The Asset Manager engages in a number of health initiatives for its officers and employees, which include establishing a health committee that meets once a month to discuss various topics relating employees’ health and work environment, having corporate physicians available whom officers and employees can consult, reimbursing officers and employees for flu vaccinations, offering workplace COVID-19 vaccination programs, and providing stress checks.

• Initiatives for HR development. The Asset Manager conducts a variety of training for all officers and employees (including temporary workers) including sustainability training. In addition, we financially support our officers and employees seeking to acquire professional certifications such as real estate appraiser, real estate transaction agent, or ARES (Association for Real Estate Securitization) Certified Master, certified building administrator, certified rental property manager and Certified Public Accountant.

◆Investment strategy

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

  TOKYU REIT, Inc. invests primarily in office properties, commercial facilities, residential properties and complexes that include any of the foregoing, located in Tokyo’s central five wards (Chiyoda, Chuo, Minato, Shinjuku and Shibuya wards) or what we refer to as the “Tokyu Areas”, which are the areas serviced by the Tokyu rail network.

  Since its founding, TOKYU CORPORATION, our sponsor and the Asset Manager’s parent, has a history of addressing social issues through its business activities by focusing on railways-based urban development. Its basic sustainable management stance is captured by the group’s slogan “Toward a Beautiful Age.” To maximize our unitholder value, the Asset Manager has continually worked to improve the value of our portfolio and investment target areas by investing in highly competitive properties in areas with strong growth potential. Our asset management strategy is to seek growth, stability and transparency, in addition to collaboration with TOKYU CORPORATION.

  We will pursue sustainable investment management that emphasizes growth potential and stability to be a “100-year REIT” by implementing our long-term investment management strategy that addresses the medium- to long-term cyclicality of real estate prices. We recognize that ESG and SDGs are important considerations in pursuing sustainable investment management.

  In July 2022, we have formulated the “Green Finance Framework” as follows in order to contribute to the realization of a sustainable environment and society through financing in investments contributing to the resolution of environmental issues (green financing) and to strengthen the financing base through the expansion of the investor base interested in ESG investments.

• Use of Funds. Funds procured through green finance (the “Procured Funds”) shall be allocated to funds for new acquisition of assets fulfilling the green eligibility criteria (1) described below (the “Green Buildings”), funds for renovation work, etc. fulfilling the green eligibility criteria (2) described below (the “Renovation Work, etc.”), or refinancing of borrowings or investment corporation bonds required for them (the “Refinancing of Borrowings, etc.”).

• Green Eligibility Criteria.

 (１) Green Buildings

  Structures that have acquired or are scheduled to acquire one of the environmental certifications from third-party certification bodies in i to iv below that are effective as of the payment date of green bonds or the drawdown date of green loans.

1. DBJ Green Building Certification: 3, 4 or 5 Stars
2. CASBEE Certification: Rank S, A or B+
3. BELS Certification: 3, 4 or 5 Stars
4. LEED Certification: Platinum, Gold or Silver (top three)

 (２) Renovation Work, etc.

  Renovation Work, etc. fulfilling one of the criteria in i to iii below

1. Renovation work intending to improve the number of stars or rank by one or more for one of the certifications in green eligibility criteria of (1) Green Buildings above
2. Renovation work capable of reducing energy consumption, greenhouse gas emission or water consumption by 30% or more
3. Introduction or acquisition of facilities related to renewable energy

• Evaluation and Selection Process of Projects. Upon the evaluation and selection of Green Buildings and Renovation Work, etc., the Finance and IR Division considers the adequacy based on the sustainability policy and green eligibility criteria at the Asset Manager, and the President and Chief Executive Officer conducts evaluation and selection after confirmation by the Sustainability Promotion Committee. The details will be reported at the Asset Manager’s Board of Directors and TOKYU REIT, Inc.’s Board of Directors’ meeting.

• Management of Procured Funds. If there are unallocated funds, the Procured Funds shall be managed as cash or cash equivalents. If the assets subject to the use of funds are excluded from the target due to sale or damage, etc. by the date of redemption or repayment of the targeted investment corporation bonds or borrowings even after the allocation of the entire amount, the unallocated funds which occur temporarily shall be managed through Portfolio Management (Note).

(Note) “Portfolio Management” refers to the management method of confirming that the total balance of green finance does not exceed the amount of green eligible debt in each fiscal period. Moreover, green eligible debt is calculated with the formula of total acquisition price of Green Buildings × total assets LTV ratio (as of the end of fiscal period) + amount invested in Renovation Work, etc., and is the maximum amount of the balance of green finance.

• Reporting.

• Reporting of the status of allocation of funds. The following items will be disclosed on our website on an annual basis so long as any amount raised through green finance has been invested in eligible green assets, and such assets remain in our portfolio.

　　・Green Finance Allocated Amount

　　・Green Finance Unallocated Amount

• Reporting of the effect on environmental improvement, etc. The following items will be disclosed on our website for on an annual basis.

　　・Green Buildings

　　・Environmental Performance Data

  Our Green Finance Framework received the highest rank “Green 1(F)” by Japan Credit Rating Agency, Ltd. (“JCR”) on July 2022. JCR evaluates green bond issuance or green loan borrowing policies for the purpose of ensuring compliance with the International Capital Markets Association’s (ICMA) International Green Bond Principles, the Loan Market Association’s Green Loan Principles or the Guidelines for Green Bonds established by the Ministry of the Environment of Japan.

  We, along with the Asset Manager, have introduced the following measures to assess and enhance our governance systems.

• Compliance and risk management. The Asset Manager has established the Compliance and Risk Management Committee, which is an advisory body to the Asset Manager’s Board of Directors. It meets at the request of the Board of Directors to discuss important compliance and risk management matters (including related party transactions and any other matters deemed necessary by the Executive Officer in charge of compliance or the Head of the Committee Secretariat). It also reviews the related party transaction rules and reports to the Asset Manager’s Board of Directors.

• Measures against conflicts of interest. We are not allowed to carry out related party transactions without deliberation of the Compliance and Risk Management Committee and the approval of our Board of Directors, which reviews each such transaction to make sure that it is in accordance with our interested-party transaction rules as well as the appropriateness of each transaction, and approval of the Board of Directors of the Asset Manager.  We disclose related party transactions in a timely manner.

• Internal audit. The Asset Manager examines whether its operations are being conducted appropriately and efficiently in accordance with applicable laws and regulations and internal rules, reports the results to its Board of Directors and the President and CEO and makes recommendations for improvement to the divisions subject to internal audits. Internal audits cover all organizations, divisions and operations within the Asset Manager as well as certain aspects of outside parties to which operations are outsourced.

• Transparent and appropriate information disclosure. We disclose information on our sustainability initiatives on our website in accordance with the GRI Sustainability Reporting Standards, the global standards for sustainability reporting that enable any organization – large or small, private or public – to understand and report on their impacts on the economy, environment and people in a comparable and credible way. We disclose on our website a table that compares our ESG-related information to the relevant GRI Sustainability Reporting Standards.

◆Proportion of investments

  As of January 31, 2023, 54.1% of the properties in our portfolio were Green Buildings, and 45.9% were nonqualified assets based on gross floor area. We aim to increase the percentage of Green Building in our properties by over 70% by FY2025 based on gross floor area.

◆Monitoring of environmental or social characteristics

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

• Environmental certification of individual properties. To track the environmental performance of our properties, we rely on certifications issued by third party organizations, such as Building-Housing Energy-efficiency Labeling System (“BELS”) certification, Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification, Leadership in Energy and Environmental Design (“LEED”) certification and other equivalent certifications. We call our properties that receive any such certifications “Green Buildings”. With respect to BELS, we consider a property to have sufficient environmental certification if it received two stars or higher out of BELS’ five-star ranking system. With respect to CASBEE, we consider a property to have sufficient environmental certification if it received a B+ Rank or higher out of the CASBEE ranking system featuring Rank S (excellent), Rank A (very good), Rank B+ (good), Rank B- (slightly inferior) and Rank C (inferior). With respect to LEED, we consider a property to have sufficient environmental certification if it received Platinum, Gold or Silver.

• GRESB Real Estate Assessment. The GRESB, established in 2009, validates ESG performance data and provide benchmarks for measuring real estate companies’ and institutional investors’ commitment to sustainability. Leading European, U.S., and Asian institutional investors use these benchmarks in selecting investment targets. We have participated in the GRESB Real Estate Assessment since 2014 and have acquired “Green Star,” which 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 eight consecutive years since 2015. In the 2022 GRESB Real Estate Assessment, we have received a “4 Stars” in GRESB Rating, which is based on GRESB Overall Score and its quintile position relative to global participants. We also have received the highest “A Level” for the GRESB Public Disclosure, which assess the width of ESG disclosure.

• Task Force on Climate-related Financial Disclosures (“TCFD”). The TCFD was established by the Financial Stability Board (FSB) to develop recommendations for more effective climate-related disclosures. In September 2020, our sponsor, TOKYU CORPORATION announced its endorsement of the TCFD recommendations. Our sponsor is promoting the introduction of renewable energy and private (electric) power generation in response to risks associated with the transition to a low-carbon society, and taking measures against risks associated with floods and slope failures that might affect its railways and properties. In August 2022, the Asset Manager announced its endorsement of TCFD recommendations and joined TCFD Consortium, an organization made up of Japanese companies that support the recommendations. Based on the TCFD recommendations on the impact of climate change on TOKYU REIT, Inc., we analyze multiple scenarios (less than 1.5°C and less than 2°C scenarios and 4°C scenario) to identify and assess climate change risks and opportunities that may affect our business activities.

◆Methodologies

  The Asset Manager has established a Sustainability Promotion Committee, which is composed of Chief Financial Officer as Chief Sustainability Manager, as the chairperson, full-time directors, executive officers and heads of each division, which generally meets at least once every quarter, to discuss sustainability goals, review the progress and achievement against those goals and report to the Board of Directors of the Asset Manager and our Board of Directors. Our Sustainability Policy and any material issues we identify will be reviewed and discussed by the Sustainability Promotion Committee as necessary and reported to the Board of Directors of the Asset Manager and our Board of Directors.

• Environmental certification of individual properties. Before acquiring a property, we review the status of environmental certifications that have been obtained with respect to the property. When we obtain an environmental certification for an acquired property, the Asset Management Department of the Asset Manager reports to the Sustainability Promotion Committee. To further aid in obtaining environmental certifications, we have engaged a third-party environmental certification consulting firm to advise on actions to be taken in order to improve or obtain relevant environmental certifications.

• GRESB Real Estate Assessment. The Asset Management Department of the Asset Manager oversees the assessment process for the GRESB Real Estate Assessment. The assessment process for the GRESB Real Estate Assessment involves submission of questionnaires by GRESB by the end of June of each year. The final results of the GRESB Real Estate Assessment are announced around October of the same year. The Asset Management Department of the Asset Manager oversees preparation of our responses to GRESB based on information from each related department, property management companies and tenants by engaging a third-party consulting firm. After the final results are announced, the Asset Management Department of the Asset Manager reports TOKYU REIT, Inc.’s GRESB rating and final results to the Sustainability Promotion Committee and each of the related committees within the Asset Manager.

• Task Force on Climate-related Financial Disclosures (“TCFD”) The Administrative Management Department of the Asset Manager oversees the risk analysis in accordance with TCFD recommendations and each of the related department’s reviews and discusses the details of the risk analysis. The Asset Manager identifies and assesses risks posed by climate changes by engaging a third-party consulting firm, and considers countermeasures such as plans and strategies to address the risks. These identified risks and assessments are reported to and discussed in the Sustainability Promotion Committee and after the review by the Compliance and Risk Management Committee, the Board of Directors finally determines the risks. The details of climate change risks that have been identified and assessed and countermeasures are reviewed once a year and reported to and discussed by the Sustainability Promotion Committee. Furthermore, these details are integrated into the company-wide risk management process and managed within the risk management cycle based on the “Risk Management Basic Policy” and “Risk Management Rules”.

◆Data sources and processing

  We use the following data sources:

• Environmental certification of individual properties. At the property level, the building management companies and the property management companies initially collect and report relevant environmental performance data and supporting materials for each property that we target for obtaining an environmental certification prior to our engagement with the third-party issuer of the relevant environmental certification. The Asset Management Department of the Asset Manager reviews and compiles the relevant data and materials required by the third-party issuer of the relevant environmental certification. To ensure data quality, the Asset Manager also obtains an assurance report regarding certain parts of environmental performance data at the portfolio level from an independent third-party accounting firm.

• GRESB Real Estate Assessment. Before TOKYU REIT, Inc. submits the responses to the questionnaires of the GRESB Real Estate Assessment, the property management companies initially collect the environmental performance data and supporting materials used for the responses at the property level and the Asset Management Department of the Asset Manager reviews and compiles the relevant data and materials at the portfolio level with the assistance from a third-party consulting firm. To ensure data quality, the Asset Manager obtains an assurance report regarding certain parts of environmental performance data used for the GRESB Real Estate Assessment, from an independent third-party accounting firm.

• Task Force on Climate-related Financial Disclosures (“TCFD”) When identifying and assessing risks, the third-party consulting firm initially collects and compiles the data used for the risk analysis in accordance with TCFD recommendations and provides the data to the Asset Manager. Upon monitoring under the risk management cycle, each of the related departments collects and compiles the data used for the risk management process. The content of the data is reviewed within each department and Sustainability Promotion Committee.

◆Limitations to methodologies and data

  The primary limitation to the methodology or data source is the necessity of our reliance on property management companies, building management companies and tenants for certain parts of raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by property management companies, building management companies and tenants, and independent verification of accuracy of such raw data provided by property management companies, building management companies and tenants presents challenges. In addition, data at the property level provided by property managers, building managers and tenants is generally updated three times a year. Accordingly, property-specific data will therefore not always be fully up to date.

  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 which has provided an assurance report regarding the accuracy and quality of certain parts of the compiled annual 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 property management companies, building management companies and tenants 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 TOKYU REIT, Inc. in any material way.

◆Due diligence

  Prior to our investment in a property, the Asset Manager conducts due diligence review of the property based on real estate valuation conducted by independent agencies, including the assessment of compliance with applicable environmental laws and ordinances and environmental and disaster risks, as well as investigation into hazardous substances and soil contamination. We do not consider investing in properties that do not meet the standards stipulated in applicable environmental laws and ordinances. However, from time to time we acquire properties not meeting the standards as long as they are deemed fixable after acquisition, comprehensively considering their impact on our entire portfolio and the degree of expected contribution to the enhancement of our portfolio value. The above investment strategy applies to all of our properties.

◆Engagement policies

  TOKYU REIT, Inc. does 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 harmful substances, 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 acquiring properties, we review the status of environmental certifications that have been obtained with respect to the properties. We aim to increase the percentage of Green Building in our properties by over 70% by FY2025 based on gross floor area.

  In addition, we generally include “green lease clauses” in new lease agreements in order to work together with our counterparties to improve the environmental performance of our properties and maintain and enhance their comfort and productivity by, among other things, sharing energy data, obtaining environmental certifications, sustainably procuring resources used in our properties and reducing waste.

◆Designated reference benchmark

  TOKYU REIT, Inc. has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by TOKYU REIT, Inc.

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

• Remuneration, methods of calculation and payment and timing of payment are determined according to the Asset Manager’s compensation rules.

• Remuneration is composed of base salary and various allowances. Remuneration may increase or decrease every year based on evaluations, which take into consideration, among other factors, individual work performance, which may include those with respect to ESG, and abilities.

• The amount of bonuses for each employee shall reflect their attendance records and evaluation results, which may include those with respect to ESG. The total amount of bonuses and timing for payment, as well as whether or not to pay any bonuses, are determined based on the profitability of the Asset Manager.

• Each employee’s retirement allowance is determined based on his or her monthly contribution and months of contribution, in accordance with the Small and Medium Sized Enterprise Retirement Allowance Cooperative Act. The monthly contribution is determined based on each employee’s job rank.

  The Asset Manager has established the Sustainability Promotion Committee, which generally meets at least once every quarter, to review the progress and achievement related to the sustainability initiatives and report to the Board of Directors of the Asset Manager and our Board of Directors. The Sustainability Promotion Committee composed of Chief Financial Officer as Chief Sustainability Manager, as the chairperson, full-time directors, executive officers and heads of each division.

  Under this organizational structure, we have instituted a number of initiatives to promote E/S characteristics. Such initiatives include climate change initiatives, initiatives for saving/reducing energy consumption, local community initiatives, and initiatives for employees’/tenant’s initiatives.

  In order to conduct sustainable asset management while maximizing the value of our properties, we have taken into consideration ESG factors in our investment and asset management processes.

  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 one of the top priorities 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. In other words, we believe that if we fail to consider ESG factors enough in the investment decision-making process, it may cause the increase of capital cost and even reduce investors’ returns. If our ESG initiatives are not sufficient, our investment units may be excluded from investment by investors who use the status of ESG initiatives as one of their investment criteria. As a result, the investment unit price may be adversely affected. We are exposed to the following risks in particular.

◆Physical risks

  The assets in which we invest are exposed to physical climate risks, which can materialize through, for example, floods, storms, heat and limited access to natural resources, which in turn can cause the value of our assets to decline. Specifically, for TOKYU REIT, Inc., the following risks are, among other risks, particularly relevant. The risks are assessed by the TCFD 4 ℃ scenario. More information can be found on the website: https://www.tokyu-reit.co.jp/eng/sustainability/climate

Potential Changes in Business Environment	Impact on Business	Degree of Impact		Potential Countermeasures
		FY2030	FY2050
Increase in abnormal weather	Decreased asset value for properties at high risk from natural disasters due to increases in abnormal weather. Increased repair costs and insurance premium expenses for properties that suffer damage from abnormal weather such as flooding and storm surges. Lost sales opportunities for properties that suffer damage from abnormal weather such as flooding and storm surges.	Small	Small	Identifying risks based on hazard maps, etc. Reducing disaster risks by installing waterproof boards and emergency power sources, implementing BCP measures, etc. Providing disaster prevention information to tenants
Impact of increased average temperatures	Increased cooling costs for properties due to abnormally high temperatures. Incurring renovation costs due to sea level rise, etc. (regrading, etc.)	Small	Small	Reducing energy consumption by implementing energy-saving-related work Carrying out renovations in response to risks, such as regrading Reducing disaster risks by installing waterproof boards and emergency power sources, implementing BCP measures, etc. Providing disaster prevention information to tenants

◆Transition risks

  The assets in which we invest are exposed to physical transition risks, which can materialize through, for example, changes in regulations, technical developments and/or social developments, which in turn may cause the value of our assets to decline. Specifically, for TOKYU REIT, Inc., the following risk is, among other risks, particularly relevant. The risks are assessed by TCFD less than 1.5°C and less than 2°C scenarios. More information can be found on the website: https://www.tokyu-reit.co.jp/eng/sustainability/climate

Potential Changes in Business Environment	Impact on Business	Degree of Impact		Potential Countermeasures
		FY2030	FY2050
Introduction of carbon taxation/enhancement of emissions trading systems	Increased financial burden due to tighter greenhouse gas emission regulations based on carbon pricing, etc.	Medium	Medium	Ongoing introduction of 100% renewable energy-based power Planned reduction of energy consumption aimed at reaching targets
Strengthening/expansion of legal systems, energy efficiency assessment labeling systems, and disclosure requirements	Increased adaptation burden as information disclosure requirements are strengthened and expanded. Increased financial burden due to growing demand to acquire environmental certifications for existing properties and increased acquisition of environmental certifications for portfolio properties.	Small	Small	Planned certification acquisition aimed at reaching environmental certification acquisition rate target Replacing assets with properties that have acquired environmental certification and acquiring new ones
Increased retrofitting costs (increased renovation costs to comply with greenhouse gas emission regulations)	Incurring renovation costs for ZEB and ZEH conversion of existing properties in response to stricter laws and changing customer demands.	Large	Large	Promoting ZEB/ZEH conversion work Acquiring properties with excellent energy-saving performance
Soaring energy prices	Rising energy costs due to soaring electricity prices, natural gas prices, etc.	Large	Large	Reducing energy consumption by implementing energy-saving-related work Ongoing introduction of 100% renewable energy-based power Considering energy creation
Changes in customer demand	More competitive acquisition environment due to growing demand for properties with excellent environmental performance, soaring property acquisition prices, etc. Lower competitiveness as demand for portfolio properties with inferior environmental performance decreases.	Large	Large	Planned certification acquisition aimed at reaching environmental certification acquisition rate target Improving energy efficiency of existing portfolio properties through facility upgrades, renovations, etc. Introducing ESG assessment criteria when acquiring properties Promoting ESG and climate change adaptation; enhancing disclosure details Promoting initiatives aimed at improving ESG assessments by external organizations
Changes in investors’ and financial institutions’ attitude and evaluations	Changes in investors’ and financial institutions’ attitudes to ESG lending and investment and company assessments. Less positive assessment due to delays in adapting to ESG/climate change. Increased financing costs due to less positive ESG assessment.	Medium	Medium–Large	Proactive use of sustainable financing Promoting ESG and climate change adaptation; enhancing disclosure details Promoting initiatives aimed at improving ESG assessments by external organizations

◆Social and governance risks

  The assets in which we invest are exposed to physical social and governance risks, such as, among other risks, the following.

Risk of infectious diseases: An epidemic or pandemic of infectious diseases may hinder the operation of our properties and adversely affect profitability of our portfolio. We address this risk by adopting countermeasures such as increased cleaning and sanitization by our building managers.