OJR's Approach to Sustainability Sustainability-related disclosures (SFDR)

Product Name: ORIX JREIT Inc.

ORIX JREIT Inc. (“OJR”) promotes environmental or social characteristics, but does not have a sustainable investment as its objective within the meaning of Article 9(1) of Regulation (EU) 2019/2088 (“SFDR”). OJR does not have any employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on ORIX Asset Management Corporation (the “Asset Manager”). OJR and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our.” References to “fiscal year” or “FY” are to the 12 months began or beginning April 1 of the year specified in line with the fiscal year of the Asset Manager, unless noted otherwise.

Summary

No sustainable investment objective

The financial products offered by OJR promote environmental or social characteristics, but do not have sustainable investment as their objective.

Environmental or social characteristics of the financial product

The Asset Manager closely monitors the impact of OJR’s portfolio and its management and operations on environmental or social factors such as Environmental Certifications, Green Lease Clauses, Engagement with Partner Companies and ESG Data Coverage.

Investment strategy

OJR invests in a wide variety of real estate properties, which primarily include office buildings but also include logistics facilities, retail facilities, residential properties and hotels and other properties. The Asset Manager has established an ESG policy to provide healthy asset growth and stable distributions over the medium to long term by incorporating ESG factors into its assets investment and management decision-making process, taking into consideration the importance of sustainability.
The Asset Manager has established the ESG Investment and Management Policies, which incorporate ESG factors into our assets investment and management decision-making process by taking into consideration the ESG factors. In accordance with these policies, the Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and recognition of its responsibility over ESG issues.

Proportion of investments

OJR offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. We define OJR’s properties other than properties that have received any of the Green Building (as defined below) certifications or other energy-saving certifications as “Energy-inefficient Assets.” As of February 28, 2025, 16.37% of the properties in the portfolio were Energy-inefficient Assets, and 83.63% were not Energy-inefficient Assets based on total gross floor area. OJR proactively promotes acquisition of Green Building and other energy-saving certifications. OJR plans to obtain and maintain Green Building certifications for 80% or more of its portfolio based on total gross floor area in 2030. Moreover, all of OJR’s properties are evaluated against environmental and social characteristics promoted by OJR.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the E/S characteristics we promote; (i) GRESB Real Estate Assessment; (ii) Green Building Certifications; (iii) JCR Green Finance Framework Evaluation; (iv) JCR Sustainability-Linked Finance Framework Evaluation; (v) Environmental Initiatives; (vi) Social Initiatives; and (vii) Sustainable Procurement Initiatives.

Methodologies

The Asset Manager established a Sustainability Committee to systematically proceed with initiatives based on our ESG policy on an ongoing basis. The Sustainability Committee is composed of the Asset Manager’s President and CEO (chairman of the committee) and the officers in charge of each department, including all other directors. They meet twice (or more if necessary) per year in principle, and will deliberate and receive reports on sustainability-related matters including climate change and ESG risks. Activity reports and future plan are reported to the board of directors of OJR once a year.

Data sources and processing

As further described below, the Asset Manager obtains certain ESG related data from third-party organizations that issue environmental certifications, tenants, property managers, etc. The Asset Manager seeks to ensure data accuracy and quality coordinating with relevant departments and a third-party organization.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on tenants and property managers for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by the tenants and the property managers at the properties of OJR’s portfolio. While we engage a third-party consulting firm to collect and compile such property-level data on a monthly basis and hold monthly meetings to review and confirm the collected data, the raw data at the property level is collected and provided by the tenants and the property managers, and independent verification of accuracy of such raw data provided by the tenants and the property managers presents challenges. In addition, certain data at the property level is updated on an annual basis. Accordingly, such property-specific data will therefore not always be fully up-to-date.
Annual data at the portfolio level is compiled by the Business Operation Management Department. To ensure the accuracy of the annually compiled data at the portfolio level, we have engaged an independent third-party firm which has provided an assurance report regarding the accuracy and quality of compiled 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 tenants and property managers for raw data at the property level remain.
Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by OJR in any material way.

Due diligence

The Asset Manager recognizes that, when representing OJR in the acquisition or sale of real estate related assets, the results of their due diligence and appraisal, etc. will have a significant influence on pricing and decision making by OJR when acquiring and transferring real estate related assets, and therefore selects and manages contractors appropriately, not only based on their business performance and social reputation, but also from the perspective of ESG initiatives. Prior to our investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance and PML. In addition, the Asset Manager reviews each property’s Green Building certification at the time of acquisition to confirm the status of acquiring the certificates. We also consider recent heavy rain disasters due to climate change, floods, typhoons, etc., and whether there is any past damage. We also check whether the property is within the expected range of damage caused by natural disasters by using the “hazard maps” disclosed by local government agencies. In addition, we also acquire environmental performance data of properties to be acquired and the Risk Compliance Department of the Asset Manager confirms the risk analysis results.
Also, when conducting due diligence and appraisal of subcontractors, the results reflect the content of ESG Initiatives for real estate related assets.

Engagement policies

We do 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 hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), 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 investing in properties using proceeds from our green finance, we do not consider properties that do not meet the criteria under our green finance framework. OJR plans to obtain and maintain Green Building certifications for 80% or more of its portfolio based on gross floor area by 2030.
Sustainable Procurement Initiatives. We believe that establishing standards for the entire supply chain is an effective way to promote ESG, and we are working with the property managers and building managers among our business partners to implement these standards.

Designated reference benchmark

OJR has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by OJR.

No sustainable investment objective

The financial products offered by OJR promote environmental or social characteristics, but do not have sustainable investment as their objective.

Environmental or social characteristics of the financial product

OJR invests in a wide variety of real estate properties, which primarily include office buildings but also include logistics facilities, retail facilities, residential properties and hotels and other properties. The Asset Manager believes that it is vital to consider environmental, social and governance, or ESG issues of properties in order to conduct sustainable asset management. Accordingly, the Asset Manager has established an ESG policy to achieve stable growth in unitholder value, which is in line with OJR’s investment policy. OJR has implemented a number of environmental initiatives, including resource and energy management, waste management, water use and environmental care, as well as a number of social initiatives, including connections with tenants and business partners and engagements with local communities.

OJR does not have a specific index designated as a reference benchmark to determine whether OJR is aligned with the environmental or social characteristics that it promotes.

In order to monitor and track our performance on environmental and social initiatives, we utilize certain environmental certifications for the properties in OJR’s portfolio, cooperate with property managers and building managers by applying our ESG Guidelines for Procurement and Other Transactions, and gather ESG data for the properties in OJR’s portfolio:

• Environmental Certifications. OJR uses various certifications issued by third-party organizations, which we call Green Building (as defined below) certifications, to monitor and track the ESG performance for each building. We plan to obtain and maintain Green Building certifications for 80% or more of the properties in OJR’s portfolio based on total gross floor area by 2030.

• Green Lease Clauses. OJR has executed lease agreements, which include clauses addressing environmental issues such as reduction of energy usage and waste weightage and requiring tenants to collaborate with us when we seek Green Building certification with some tenants of some properties in OJR’s portfolio. We will continue our efforts to include such green lease clauses with our new tenants.

• Engagement with Partner Companies. To create sustainable society through asset management, the ESG Guidelines for Procurement and Other Transactions were established to ensure that property managers and other business partners take into account the environment and social norms during procurement and other transactions. Some of OJR’s property management agreements include ESG clauses requiring property managers to take into account ESG factors in their property management and promote ESG factors through suppliers. In addition, OJR assesses its outsourcing partners based on ESG-related measures in addition to evaluating their management capability and service quality.

• ESG Data Coverage. We monitor and track energy consumption, greenhouse gas emissions, water usage and waste amounts at the properties in OJR’s portfolio.

Investment strategy

OJR invests directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (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.

OJR takes into account sustainability in its investment process as follows.

• Investment Policy. OJR invests in a wide variety of real estate properties, which primarily include office buildings but also include logistics facilities, retail facilities, residential properties and hotels and other properties. The Asset Manager has established an ESG policy to provide healthy asset growth and stable distributions over the medium to long term by incorporating ESG factors into its assets investment and management decision-making process, taking into consideration the importance of sustainability.

• ESG Investment and Management Policies. The Asset Manager has established the ESG Investment and Management Policies, which incorporate ESG factors into our assets investment and management decision-making process by taking into consideration the ESG factors. In accordance with these policies, the Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and recognition of its responsibility over ESG issues. With each acquisition opportunity, OJR and the Asset Manager review ESG-related due diligence findings and these findings are required to be considered by the Investment Committee (and the Risk Management and Compliance Committee only if it is a related party transaction) before a final decision is made on the investment by OJR’s Board of Directors.

• Due Diligence. Prior to our investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance and PML. In addition, the Asset Manager reviews each property’s Green Building certification at the time of acquisition to confirm the status of acquiring the certificates.

• Selection of Properties under Sustainable Finance. In addition to the review of environmental issues discovered through due diligence review, we evaluate risks associated with climate change, environmental issues, human rights and social challenges, including health and safety. Furthermore, OJR has established a “Sustainability-Linked Finance Framework” to conduct sustainable financing in line with the requirements of the Sustainability-Linked Bond Principles 2020 of the International Capital Market Association, Sustainability Linked Loan Principles 2023 of the Loan Market Association, the Loan Syndications and Trading Association and the Asia Pacific Loan Market Association, and Green Bond and Sustainability-Linked Bond Guidelines 2022 and Green Loan and Sustainability-Linked Loan Guidelines 2022 of the Ministry of the Environment of Japan. Sustainable financing procured through the Sustainability-Linked Finance Framework is subject to terms and conditions based on achievement of sustainability performance targets (“SPTs”) using certain key performance indicators (“KPIs”) related to sustainability and reporting obligations thereunder. More information related to the sustainability-linked finance framework and other ESG-related finance frameworks that we use can be found on the website:
https://www.orixjreit.com/en/feature/finance/sustainability-linked-finance/

While there is no third-party rating used for assessment of OJR’s governance practices, OJR and the Asset Manager have introduced the following measures to assess and enhance OJR’s governance systems:

• Adoption of Performance-linked Asset Management Fees. OJR pays performance-linked fees to the Asset Manager to align the interest of OJR’s unitholders and the interest of the Asset Manager.

• Related-party Transactions. OJR is not allowed to carry out related-party transactions which amount exceed certain threshold without the approval of OJR’s Board of Directors.

• Transparent and Appropriate Information Disclosure. OJR holds management calls for its overseas unitholders and engages with a wide range of unitholders at its earnings meetings, which are held via teleconference. OJR makes ongoing disclosures in Japanese pursuant to the Financial Instruments and Exchange Act and other applicable laws and regulations in Japan, and provides ongoing disclosures in English simultaneously.

Proportion of investments

OJR offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. We define OJR’s properties other than properties that have received any of the Green Building (as defined below) certifications or other energy-saving certifications as “Energy-inefficient Assets.” As of February 28, 2025, 16.37% of the properties in the portfolio were Energy-inefficient Assets, and 83.63% were not Energy-inefficient Assets, in each case based on total gross floor area. OJR proactively promotes acquisition of Green Building and other energy-saving certifications. OJR plans to obtain and maintain Green Building certifications for 80% or more of its portfolio based on total gross floor area by 2030. Moreover, all of OJR’s properties are evaluated against environmental and social characteristics promoted by OJR.

Monitoring of environmental or social characteristics

OJR and the Asset Manager use the following indicators to measure progress made on the environmental or social characteristics promoted by OJR:

• GRESB Real Estate Assessment. OJR and the Asset Manager have participated in the Global Real Estate Sustainability Benchmark (“GRESB”) since the fiscal period ended August 31, 2013. OJR has been evaluated by the GRESB every year.

• Green Building Certifications. We utilize certain environmental certifications issued by third-party organizations to monitor and track the ESG performance of the properties in OJR’s portfolio at the building level. In particular, we use the Development Bank of Japan (“DBJ”) Green Building Certification, Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) Certification and the Building-House Energy-efficiency Labeling System (“BELS”) Certification for Real Estate, which we collectively refer to as “Green Building” certifications.

o DBJ Green Building Certification. The DBJ Green Building Certification is a system developed by the Development Bank of Japan with the objective of promoting real estate that demonstrates not only high environmental performance but also high levels of consideration for disaster prevention and anticrime measures as well as societal demands from stakeholders.

o CASBEE Certification. The CASBEE is a comprehensive environmental performance assessment system that is under the initiative of the Japanese Ministry of Land, Infrastructure, Transport and Tourism for buildings being developed and promoted in Japan.

o BELS Certification for Real Estate. The BELS is a third-party certification system to rate houses and buildings based on energy saving performance in accordance with the Act on Improving Energy Consumption Performance for Architectural Structures of Japan.

o Net Zero Energy Building (‘ZEB’) certification. ZEB is a building aimed to achieve annual zero primary energy balance while managing a comfortable indoor environment, which is evaluated in the BELS certification system in 4 stages, ZEB, Nearly ZEB, ZEB Ready, and ZEB Oriented.

• JCR Green Finance Framework Evaluation. OJR aims to further promote ESG considerations in asset management and strengthen its financial foundation by broadening its investor base by creating opportunities for ESG investment through a green finance framework. Since 2019, OJR’s green finance framework has received a Green 1 (F) rating, the highest rating, from the JCR Green Finance Framework Evaluation from Japan Credit Rating Agency, Ltd. (“JCR”), an institution which assesses green finance.

• JCR Sustainability-Linked Finance Framework Evaluation. OJR has made a Sustainable Finance guideline to promote sustainable finance with financial institutions in response to the “Collaboration with Stakeholders” as set out in our ESG policy and also established the Sustainability-Linked Finance Framework. The KPIs and SPTs stated in OJR’s Sustainability Linked Finance Framework have been evaluated by a third party, JCR, as meaningful and ambitious in relation to our ESG initiatives.

• Environmental Initiatives. We monitor and track energy consumption, greenhouse gas emissions, water usage and waste amounts at the properties in OJR’s portfolio, and implement various initiatives to reduce the environmental impact of the properties in OJR’s portfolio.

o Energy Saving Initiatives. OJR aims to reduce energy consumption intensity by an average of 1% or more per year over five years for the properties in OJR’s portfolio that are under OJR’s operational control and are subject to periodic reporting under the Act on the Rational Use of Energy of Japan.

o Reduction of Greenhouse Gas Emissions Initiatives. OJR aims to reduce total GHG emissions (defined as including Scope 1, Scope 2 and Scope 3 from all of OJR’s properties in OJR’s portfolio) by 90% or more by 2050 compared to the level in 2021 and to reduce Scope 1, Scope 2 and Scope 3 GHG emissions by 42% by 2030 compared to the level in 2021 for portions of OJR’s properties that are under OJR’s operational control. To achieve this goal, we set an interim target of 14% reduction in 2024, and then annual target of increasing reductions by 4.7% per year until 2030, in each case compared to the level in 2021.

o Water-saving and Efficient Usage Initiatives. We ascertain water use in properties held by OJR, promote efficient use, and aim every year to achieve no increase in water use compared to that of the previous year.

o Waste Management Initiatives. We measure the amount of waste (both waste attributable to OJR and other waste that we can detect) and aim to increase the recycling rate to 50% or more for the properties owned in OJR’s portfolio in 2030.

• Social Initiatives. We endeavor to contribute to society through various engagements with the community. We host and sponsor various events at OJR’s properties to contribute to local communities throughout the year. In addition, safety measures at OJR’s properties are implemented with property managers and building managers so that the properties are disaster-ready and are safe for the tenants and other property users. At the time of any property acquisition, we investigate past damage on the property such as destruction due to earthquakes, floods or typhoons, whether the building meets earthquake resistance standards and whether the probable maximum loss value meets our standards.

• Sustainable Procurement Initiatives. We believe that establishing standards for the entire supply chain is an effective way to promote ESG, and we are working with the property managers and building managers among our business partners to implement our sustainable procurement standards, as further described below under “Engagement policies”.

Methodologies

In March 2018, the Asset Manager established a Sustainability Committee composed of senior management including the President and CEO as well as other board members to systematically implement initiatives based on our ESG policy on an ongoing basis. The Rules for the Sustainability Committee were officially established on December 25, 2018, to position the committee as a body to deliberate on important ESG matters as well as to receive Sustainability Reports. In general, the Sustainability Committee meets twice (or more if necessary) a year. In addition, ESG activity reports and schedules are reported to OJR’s Board of Directors once a year.

Moreover, the Asset Manager has established the ESG Investment and Management Policies, which incorporate ESG factors into our assets investment and management decision-making process by taking into consideration the ESG factors. In accordance with these policies, the Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and recognition of its responsibility for ESG issues.

• GRESB Real Estate Assessment. The Risk Management and Compliance Department and the Business Operation Management Department of the Asset Manager lead in preparing draft responses to GRESB questionnaires. The draft responses are reviewed by relevant departments, such as the Finance and Investor Relations Department, if necessary. The Risk Management and Compliance Department and the Business Operation Management Department consult with a third-party consulting firm regarding the contents of our responses. The responses are finalized after discussions at the Sustainability Committee and submitted to the GRESB. The evaluation results and analytical information are reported to the Sustainability Committee, and the Sustainability Committee discusses measures to be taken for the next year’s evaluation.

• Green Building Certifications. As a KPI corresponding to the materiality, OJR plans to obtain and maintain Green Building certifications for 80% or more of its portfolio based on total gross floor area by 2030. The Business Operation Management Department of the Asset Manager monitors and tracks the portfolio-level management of the percentage of the properties with Green Building certification by use, renewal deadlines and certification rankings. The Business Operation Management Department also leads the property-level acquisition of Green Building certification by selecting candidate properties for new certifications and renewals. Once a property is selected as a candidate for a new Green Building certification or renewal, the Business Operation Management Department engages a third-party consulting firm, and obtains the necessary internal approval (the decision-maker varies depending on the amount of money and other factors). To ensure the accuracy of data and to facilitate the acquisition of Green Building certifications, the preparation of responses to questionnaires from the issuing organizations is generally outsourced to the third-party consulting firm except for the DBJ Green Building Certification, which is handled by the Business Operation Management Department. The percentage of the properties with Green Building certifications as of the end of each fiscal period is disclosed on our website.

• JCR Green Finance Framework Evaluation. The Finance and Investor Relations Department of the Asset Manager, which is in charge of executing OJR’s borrowings and other financings, leads in preparing the responses to the JCR’s evaluation process. The Finance and Investor Relations Department receives the relevant data necessary for preparing the responses from the Risk Management and Compliance Department, the Business Operation Management Department and other departments. When we first established the green finance framework, it was discussed by the Sustainability Committee and then approved by the Investment Committee (chaired by the President and CEO of the Asset Manager). The fund appropriation status reporting and impact reporting are disclosed once a year on our website. Such data is also included in the Sustainability Report.

• JCR Sustainability-Linked Finance Framework Evaluation. The Finance and Investor Relations Department of the Asset Manager, which is in charge of executing OJR’s borrowings and other financings, leads in preparing the responses to the JCR’s evaluation process. The Finance and Investor Relations Department receives the relevant data necessary for preparing the responses from the Risk Management and Compliance Department, the Business Operation Management Department and other departments. When we established the sustainability-linked finance framework, it was discussed by the Sustainability Committee and then approved by the Investment Committee (chaired by the President and CEO of the Asset Manager). The KPI/SPT performances validated by an independent third party are disclosed more than once a year on our website. Such data is also included in the Sustainability Report.

• Environmental Initiatives. A third-party consulting firm collects and compiles data on energy consumption, greenhouse gas emissions, water usage and waste amounts at the properties in OJR’s portfolio from the property managers. In principle, the relevant data is collected and compiled on a monthly basis from the property managers unless separate arrangements with tenants or property managers are in place, and the third-party consulting firm reports monthly data to the Business Operation Management Department of the Asset Manager. The annual aggregate data is reported to the Sustainability Committee once a year and is used in our various reports required under the laws and local regulations in Japan, as well as GRESB responses and our annual Sustainability Report.

• Social Initiatives. Upon receiving an invitation to hold or sponsor an event or campaign from the property managers or local associations, the Investment & Asset Management Department of the Asset Manager examines the significance, contents, and costs for holding or sponsoring such event or campaign, obtains internal approval of the Asset Manager (the decision-maker varies depending on the level of the costs) and holds or sponsors the events.

• Sustainable Procurement Initiatives. The Risk Management and Compliance Department is primarily in charge of monitoring and managing the status of achievements of the materiality and KPIs related to our sustainable procurement standards, as further described below under “Engagement policies”. The Risk Management and Compliance Department revises the relevant policies as necessary, taking into consideration government policies on ESG and current trends in the society. When such revisions are made, they are discussed by the Sustainability Committee after consulting with a third-party consulting firm, and then approved by the Board of Directors of the Asset Manager. The information on the status of achievements of the materiality and KPIs related to our sustainable procurement standards is reported to the Sustainability Committee once a year and is used in our various reports required under the laws and local regulations in Japan, as well as GRESB responses and our annual Sustainability Report.

Data sources and processing

We use the following data sources:

• GRESB Real Estate Assessment. The data used to prepare the responses to GRESB questionnaires, such as data on energy consumption and other environmental data, are initially provided by the tenants and property managers, and compiled and confirmed by a third-party consulting firm in charge of collecting and compiling the environmental data described under “—Environmental Initiatives” below.

• Green Building Certifications. The data used to prepare the responses to questionnaires from the certification-issuing organizations, such as data on energy consumption and other environmental data, are initially provided by the tenants and property managers, and compiled and confirmed by the Business Operation Management Department of the Asset Manager. The frequency of collection of the data is in principle once a year. To ensure the accuracy of data and facilitate the acquisition of Green Building certifications, the preparation of responses to questionnaires from the certification-issuing organizations is generally outsourced to a third-party consulting firm except for the DBJ Green Building Certification, which is handled by the Business Operation Management Department.

• JCR Green Finance Framework Evaluation. As mentioned above, the Finance and Investor Relations Department receives the relevant data necessary for preparing the responses to the JCR’s evaluation process from the Risk Management and Compliance Department, the Business Operation Management Department and other departments, and leads in preparing responses for the JCR’s evaluation process. The Finance and Investor Relations Department compiles and discloses the fund appropriation status reporting and impact reporting once a year on our website.

• JCR Sustainability-Linked Finance Framework Evaluation. As mentioned above, the Finance and Investor Relations Department receives the relevant data necessary for preparing the responses to the JCR’s evaluation process from the Risk Management and Compliance Department, the Business Operation Management Department and other departments, and leads in preparing responses for the JCR’s evaluation process. The Finance and Investor Relations Department discloses the KPI/SPT performances validated by an independent third party more than once a year on our website.

• Environmental Initiatives. As mentioned above, we engage a third-party consulting firm to collect and compile data on energy consumption, greenhouse gas emissions, water usage and waste amounts at the properties in OJR’s portfolio, which are initially provided by the tenants and property managers. The frequency of collection of such environmental data is in principle once a month, but the frequency of collection varies for single-tenant properties and waste-related data for certain properties depending on the circumstances of the properties. The Business Operation Management Department of the Asset Manager conducts monthly meetings with the third-party consulting firm to review the collected data, correct any abnormal values and improve the accuracy of the data. To ensure the accuracy of the annually compiled data, the Asset Manager obtains an assurance report regarding the annually compiled data on energy consumption, greenhouse gas emissions, water usage and waste amounts from an independent third-party firm.

• Social Initiatives. The content and details of the events and campaigns held and/or sponsored are compiled annually by the Investment & Asset Management Department of the Asset Manager.

• Sustainable Procurement Initiatives. The data related to our sustainable procurement initiatives, including the status of achievements of the materiality and KPIs are collected and compiled internally by the Risk Management and Compliance Department of the Asset Manager.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on tenants and property managers for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by the tenants and the property managers at the properties of OJR’s portfolio. While we engage a third-party consulting firm to collect and compile such property-level data on a monthly basis and hold monthly meetings to review and confirm the collected data, the raw data at the property level is collected and provided by the tenants and the property managers, and independent verification of accuracy of such raw data provided by the tenants and the property managers presents challenges. In addition, certain data at the property level is updated on an annual basis. Accordingly, such property-specific data will therefore not always be fully up-to-date.

Annual data at the portfolio level is compiled by the Business Operation Management Department. To ensure the accuracy of the annually compiled data at the portfolio level, we have engaged an independent third-party firm which has provided an assurance report regarding the accuracy and quality of compiled 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 tenants and property managers for raw data at the property level remain.

Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by OJR in any material way.

Due diligence

The Asset Manager recognizes that, when representing OJR in the acquisition or sale of real estate related assets, the results of their due diligence and appraisal, etc. will have a significant influence on pricing and decision making by OJR when acquiring and transferring real estate related assets, and therefore selects and manages contractors appropriately, not only based on their business performance and social reputation, but also from the perspective of ESG initiatives. Prior to our investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance and PML. In addition, the Asset Manager reviews each property’s Green Building certification at the time of acquisition to confirm the status of acquiring the certificates. We also consider recent heavy rain disasters due to climate change, floods, typhoons, etc., and whether there is any past damage. We also check whether the property is within the expected range of damage caused by natural disasters by using the “hazard maps” disclosed by local government agencies. In addition, we also acquire environmental performance data of properties to be acquired and the Risk Compliance Department of the Asset Manager confirms the risk analysis results.
Also, when conducting due diligence and appraisal of subcontractors, the results reflect the content of ESG Initiatives for real estate related assets.

Engagement policies

We do 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 hazardous substances (soil contamination, asbestos, polychlorinated biphenyls, etc.), 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 investing in properties using proceeds from our green finance, we do not consider properties that do not meet the criteria under our green finance framework. OJR plans to obtain and maintain Green Building certifications for 80% or more of its portfolio based on gross floor area by 2030.

Sustainable Procurement Initiatives

We believe that establishing standards for the entire supply chain is an effective way to promote ESG, and we are working with the property managers and building managers among our business partners to implement these standards.

• ESG Guidelines for Procurement and Other Transactions. The Asset Manager aims to create sustainable society through asset management. To this end, the ESG guidelines for Procurement and Other Transactions were established to ensure that property managers and other business partners take into account the environment and social norms during procurement and other transactions.

• ESG Consideration Clause. Some of OJR property management agreements with property managers include ESG clauses requiring property managers to take into account ESG factors in their property management and promote ESG factors through suppliers.

• Ensuring ESG-related Measures. OJR assesses its outsourcing partners based on ESG-related measures as shown in Table1 below in addition to evaluating their management capability and service quality.

Designated reference benchmark

OJR has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by OJR.

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

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

• ORIX Corporation (“ORIX”), OJR’s sponsor and the parent company of the Asset Manager, determines the remuneration for employees of the Asset Manager seconded from ORIX each year based on a comprehensive assessment that takes into consideration corporate performance, including the contribution to sustainability targets, individual position, rank and evaluation, and other circumstances as required by law.

• ORIX group companies other than ORIX (the “Group Company”) determine remuneration for employees of the Asset Manager seconded from the relevant Group Company each year based on a comprehensive assessment that takes into consideration corporate performance, including the contribution to sustainability targets, individual position, rank and evaluation, and other circumstances as required by law.

• The remuneration for employees of the Asset Manager employed by the Asset Manager directly is decided by the Asset Manager according to the compensation rules of the ORIX group including a comprehensive assessment that takes into consideration corporate performance, including the contribution to sustainability targets, individual position, rank and evaluation, and other circumstances as required by law.

INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISIONS, AND THE IMPACT OF SUCH RISKS ON THE RETURNS OF OJR (SFDR ARTICLE 6 DISCLOSURE)

OJR and the Asset Manager address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.
The Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that OJR’s sustainable investment strategy is implemented. With each acquisition opportunity, OJR and the Asset Manager review ESG-related due diligence findings and risk assessment. These findings and assessment are required to be considered by the Asset Manager’s Investment Committee (and the Risk Management and Compliance Committee only if it is a related party transaction) before a final decision is made on the investment by OJR’s Board of Directors.

As part of due diligence review prior to investment in a property, the Asset Manager conducts due diligence on the property, including environment assessment and evaluation of earthquake resistance and PML. The Asset Manager also reviews each property’s Green Building certification at the time of acquisition to confirm the status of acquiring the certificates. In addition to the review of environmental issues discovered through due diligence review, we evaluate risks associated with climate change, environmental issues, human rights and social challenges, including health and safety.

In accordance with the ESG Investment and Management Policies, the Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and recognition of its responsibility over ESG issues. With each acquisition opportunity, OJR and the Asset Manager review ESG-related due diligence findings and these findings are required to be considered by the Asset Manager’s Investment Committee (and the Risk Management and Compliance Committee only if it is a related party transaction) before a final decision is made on the investment by OJR’s Board of Directors.

Furthermore, the Asset Manager tracks the sustainability measures including energy saving initiatives, reduction of greenhouse gas emissions initiatives, water-saving initiatives and waste management initiatives.

As a result of the growing interest in ESG factors among our investors and other stakeholders, we believe that insufficient engagement in ESG-related issues could materially adversely impact our reputation, business activities and our unit price. Having established the ESG Investment and Management Policy in September 2021, we will take ESG factors into serious consideration when investing in new properties and managing our portfolio in accordance with such policy. We believe that our ongoing ESG initiatives will contribute to our sustainable growth and improve unitholders’ value while mitigating such ESG-related risks. In addition, we believe that such initiatives also contribute to reduction of the environmental impact of Japan’s overall economy while contributing to local communities and regional economies and at the same time generate sustainable growth in returns.

We believe that adapting to change and contributing to sustainable society will ultimately lead to growth in unitholder value. We do not consider sustainable society and unitholder value growth to be mutually exclusive, and we believe that aiming to achieve both will enable stable medium to long-term growth. In addition, 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 a top priority 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.

• Statement on principal adverse impacts of investment decisions on sustainability factors PDF (1,157KB)