Initiatives towards Climate Change

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We recognize that climate change is a material global issue and medium - to long-term risk, and OJR is working on mitigation of climate change by reducing greenhouse gas emissions and adaptation of climate change in order to create opportunities while decreasing impacts as we move toward a decarbonized society together with ORIX Asset Management Corporation, the asset management company of OJR.

Supporting the TCFD Recommendations

ORIX Asset Management Corporation, OJR's asset management company, has signed off as a supporter of the Task Force on Climate-related Financial Disclosures (TCFD) launched by Financial Stability Board (FSB) and joined the Japan TCFD Consortium in October 2019.

The TCFD has published recommendations that encourage companies to disclose the financial implications of climate-related risks and opportunities to stakeholders including investors.

In fall 2020, ORIX Asset Management Corporation was selected by the Ministry of the Environment as a participant in the “Project to Analyze Scenarios of Climate Risks and Opportunities in Accordance with the TCFD in FY2020.“ We conducted scenario analysis and assessment in accordance with the TCFD recommendations under the consultation from Deloitte Tohmatsu Consulting LLC.


Click here to view details about the TCFD recommendations and here to view about the TCFD consortium.

Disclosure based on TCFD Recommendations

OAM announced its endorsement of the TCFD recommendations in 2019. We began participating in the TCFD Consortium, promoting initiatives alongside climate change risk analysis and management at OJR and began disclosing of information based on TCFD recommendations.

Category Main points
Governance
  • It is OAM’s role to address climate change-related issues at OJR, and responsibility for this lies with OAM’s CEO. OAM established a Sustainability Committee that is attended by CEO and executive officers (including all directors), where ESG issues, including climate change, are reported and discussed. Specific decisions are made by OAM’s Board of Directors or President based on the outcome of deliberations and in accordance with approval standards.
  • The members of OAM’s Board of Directors also serve on the Sustainability Committee, where they set targets and monitor progress on climate change issues and formulate a transition plan.
  • The Board of Directors makes decisions on alterations to ESG policies and related guidelines, annual activity schedules and budgets following deliberation by the Sustainability Committee. In addition, efforts to address climate change are subject to the Risk Management and Compliance Program, which is monitored by and reported to the Board of Directors on a quarterly basis.
  • OAM periodically reports on efforts to address ESG matters, including climate change, to OJR’s Board of Directors.
  • OAM’s directors are responsible for activities based on ESG policies, while executive officers promote initiatives and set out ways to address ESG-related matters as the organizational mission of the departments they manage.

> Click here for OJR's Approach to ESG

Strategy
  • OAM is engaged in analyzing the identification of risks and opportunities that climate change presents to OJR and how these factors will affect future strategy and planning.
  • Specifically, OAM is analyzing how resistant OJR’s climate change measures are to the transition to a low-carbon economy in accordance with the Paris Agreement and physical risks, which are expected to increase, through a number of scenarios based on TCFD recommendations (1.5-2°C scenario and 4°C scenario). In addition, we are working on verification by tools such as CREEM*1 and CVaR*2. We are working to create a transition plan aimed at “net zero by 2050”.
  • CREEM means Carbon Risk Real Estate Monitor.
  • CVaR means Climate Value-at-Risk of MSCI.

> Click here for Scenario Analysis

Risk management
  • OAM has established risk identification and assessment processes for all risks, including those posed by climate change, and conducts an annual review. Risk management is conducted based on risk management rules. Specifically, we have created a “Risk Library” based on the “Risk Management Implementation Guidelines,” which specifies risk categories, risk information, frequency of occurrence, and importance. Based on this, the risk management manager (overseen by the director in charge of the Risk Management and Compliance Department) identifies major risks that need to be addressed, formulates a response plan as "risk and compliance programs," and implements the relevant actions after obtaining approval from the Board of Directors.
  • Climate change risk is the subject of the “risk and compliance programs” as the major medium- to long-term risk that will impact the entirety of the company’s management. We conduct the "identification of long-term climate change risks and analysis of their impact” as one of the programs.
  • OAM works to understand the financial impact of climate change risks by following TCFD recommendations to identify risks and opportunities and conduct scenario analysis.

> Click here for risk management

Indicators and Targets
  • OAM is working to achieve its long-term goal of realizing net zero by 2050 in OJR’s asset management. In addition, our medium term goal is to reduce GHG emissions 42% over 2021 and reduce GHG emissions intensity 42% over 2021 for properties that are under OJR’s operational control in 2030. We also aim to acquire green building certification for no less than 80% of the floor space of the properties by 2030.
  • One of our medium-term targets for 2030, "to reduce GHG emissions 42% over 2021," was set based on scientific evidence in line with the 1.5°C target.
  • We periodically monitor and disclose climate change-related indicators, such as energy consumption, greenhouse gas emissions (Scope 1, 2, and 3), acquisition status of green building certification, waste weight, landfill disposal rate, and water usage.
  • We have established a future carbon tax prediction of 13,650 yen (130 USD: converted at 105 yen to the dollar on November 20, 2020, the time of the analysis) for internal carbon pricing through risk analyses such as the TCFD scenario analysis, which we use as a reference to predict future cost increases and when making investment decisions.

> Click here for indicators and targets.
>Click here for a transition roadmap to achieve the Targets
>Click here for SBTi Validation of the Targets

Strategy: Scenario Analysis

Scenario Analysis

The TCFD is a climate change initiative that requires companies to improve their governance and risk management, and to disclose their financial impact.
Specifically, companies are required to assess their own climate-related risks and opportunities using climate scenarios such as the 2°C target, reflect them in their management strategies and risk management, and clarify and disclose their financial impact. In assessing impacts and developing strategies, it is recommended to use a method called "scenario analysis," which assumes multiple future scenarios and examines the risks and opportunities if these scenarios were to actually occur, given that climate change is a medium- to long-term risk under uncertain circumstances.
ORIX Asset Management Corporation, the asset manager of OJR that supports the TCFD, was selected by the Ministry of the Environment as a participant in the “Project to Analyze Scenarios of Climate Risks and Opportunities in accordance with the TCFD in FY2020“and conducted scenario analysis and released the results in April 2021. Most recently, we performed a second scenario analysis and published even more in-depth results.

Click here to view the previous scenario analysis

Scope of Scenario Analysis

In the above project, the asset management of ORIX JREIT Inc. (OJR) managed by ORIX Asset Management Corporation was subject to the scenario analysis. The value chain of OJR is shown in the diagram below. In this project, the analysis is limited to the portion of assets held and managed based on the assumption that no changes in the portfolio such as acquisitions and dispositions for all 111 properties held as of the end of October 2020.
Therefore, the discussion presented here is limited, does not show the overall impact and it is a trial calculation based on a hypothesis.

Applied Scenario

Two scenarios were selected ; “4℃ scenario” of a 4℃ global warming, and “2℃ scenario” of a 2℃ global warming as of 2050. (Both transition risks are assumed as of 2030)

We assume the following two worldviews in the scenario analysis.

  • The term indicates an acronym of Tokyo Cap and Trade Program which represents mandatory reduction in overall greenhouse gas emissions and emissions trading program.
  • The term indicates an acronym of Net Zero Energy House/Net Zero Energy Building which aims to generate enough electricity for its consumption while saving significant energy.
  • The term is an acronym of Greenhouse Gas.

Estimated Business Impact

Scope of Scenario Analysis

In this scenario analysis, the conditions were left essentially the same to facilitate comparison with previous results. (For the analysis, the subject portfolio is as of October 2020 and the subject term is 1 year of FY August 2019 and FY February 2020.) Changes from the previous analysis are shown in red.

Applied Scenario

Two scenarios were selected ; “4℃ scenario” of a 4℃ global warming, and “1.5~2℃scenario” of a 2℃ global warming as of 2050. (Both transition risks are assumed as of 2030)

We assume the following two worldviews in the scenario analysis.

  • The term indicates an acronym of Tokyo Cap and Trade Program which represents mandatory reduction in overall greenhouse gas emissions and emissions trading program.
  • The term indicates an acronym of Net Zero Energy House/Net Zero Energy Building which aims to generate enough electricity for its consumption while saving significant energy.
  • The term is an acronym of Greenhouse Gas.

Estimated Business Impact

Business Impact of Climate Change

Consider the Impact of Calculated Risks and Opportunities on Earnings

Estimated Result of Risks and Opportunities

  • This estimation is a prediction of future impact based on OJR’s actual performance and uses parameters set by Asset Management Company in reference to several scenarios presented by major institutions. It does not guarantee the accuracy of the numerical values used. The predicted measures are assumptions informed by the calculations and are not measures that have been planned or decided upon.

Estimated Business Impact:4℃ Scenario

Decrease in earnings due to rising temperatures driving an increase in air conditioning costs and energy conservation improvement costs

  • This estimation is a prediction of future impact based on OJR’s actual performance and uses parameters set by Asset Management Company in reference to several scenarios presented by major institutions. It does not guarantee the accuracy of the numerical values used. The predicted measures are assumptions informed by the calculations and are not measures that have been planned or decided upon.

Estimated Business Impact:1.5~2℃ Scenario

Carbon tax and fall in rents had a significant impact, but rent incomes recovered due to the acquisition of environmental certification and renewable energy measures, thereby reducing the decline in earnings

  • This estimation is a prediction of future impact based on OJR’s actual performance and uses parameters set by Asset Management Company in reference to several scenarios presented by major institutions. It does not guarantee the accuracy of the numerical values used. The predicted measures are assumptions informed by the calculations and are not measures that have been planned or decided upon.

Strategy: Transition Roadmap

In order to achieve our targets above, OJR has formulated a transition roadmap.

By 2030, OJR will take the initiative in addressing GHG emissions, focusing primarily on Scopes 1, 2 and the portion of Category 13 (tenant areas) in Scope 3 where OJR has authority over facility management and electricity contracts, aiming for a 42% reduction on a volume basis over 2021 levels.
Specifically, we will not only expand our existing energy-saving efforts but also the use of renewable energy, with the goal of sourcing 50% of electricity under contract by OJR from renewable energy sources (including the use of non-fossil fuel certificates) by 2030.

In the run-up to 2050, we aim to achieve the utilization of 100% renewable electricity by 2040 and will collaborate with tenants to promote emission reductions in tenant areas. We also plan to monitor progress in non-electric emissions and emissions from the supply chain, such as services used, repairs, and waste disposal outsourcing, and take action through engagement, such as verifying response status and requesting reductions.

Further Steps to the TCFD Recommendations

This scenario analysis is limited to a part of the business scope and does not evaluate the overall impact. We recognize the necessity of further study and deepened assumptions and approaches for individual items. Japan is also accelerating the movement toward "Net Zero" as well as in global, and we will continue working on promoting information disclosure required by the TCFD taking into account policy trends.

SBTi Validation

SBTi(Science Based Targets initiative)is an international climate-change initiative established in 2015 by CDP (Carbon Disclosure Project), UNGC (United Nations Global Compact), WRI (World Resources Institute), and WWF.

To obtain a certification from SBTi, it is necessary to develop GHG emission reduction targets that are consistent with the levels required by the Paris Agreement, i.e., to control the global average temperature increases due to climate change well below 2 ° C above pre-industrial levels and to strive to limit it to 1.5 ° C.

Our target “Aim to reduce GHG emission by 42% in 2030 compared to 2021 for Scope1, Scope2” stated in “Guidelines for Reducing Energy and Greenhouse Gases” based on our ESG policy has been validated by SBTi as a Near Term Target and the target “Aim to reduce Total GHG emission including OJR’s supply chain by substantially 90% or more in 2050 compared to 2021 for Scope1, Scope2 and Scope3” has also been validated by SBTi as a Net Zero Target.

> Click here to view details about SBTi.