Climate Change Initiatives
Approach to Climate Change/Policies
TLR recognizes climate change as a key transformation in the external environment that could impact the continued existence of many different businesses. Given that climate change is a severe risk that broadly threatens all life, essential infrastructure, and economic systems at the global level, it must be urgently addressed by the international community.
In Japan, the government has declared its aim of achieving a decarbonized, carbon-neutral society by 2050, and the public and private sectors are working together to accelerate climate change countermeasures.
With the aim of ensuring the seamless continuation of its business activities, TLR is proactively implementing “mitigation” measures that help to suppress climate change. These include the proactive introduction of energy-saving and high-efficiency equipment, promotion of energy saving, water saving, and the 3Rs (reduce, reuse, and recycle) in cooperation with tenants and other stakeholders, and introduction of renewable energy as part of the roadmap to net zero by 2050. In addition, as measures to enhance resilience that contribute to minimizing damage and loss caused by climate change, we will optimize capital expenditure with an awareness of disaster prevention and disaster mitigation and promote the formulation of Business Continuity Planning (BCP) for the entire portfolio and individual properties.
For the purpose of sharing these activities with stakeholders and promoting dialogue about them, in addition to endorsing the TCFD's recommendations, TLR will provide timely, appropriate disclosure regarding the status of its response to climate change-related risks and opportunities, in alignment with the TCFD framework.
Endorsement of TCFD (Task Force on Climate-related Financial Disclosures)
The Asset Manager endorsed the TCFD's recommendations in February 2022.
Recommended Disclosures by the TCFD
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| Disclosure Item | Disclosure Details |
|---|---|
| Governance | The organization's governance around climate-related risks and opportunities |
| Strategy | The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning |
| Risk management | Processes for identifying, assessing, and managing climate-related risks |
| Metrics and targets | Metrics and targets for assessing and managing climate-related risks and opportunities |
Governance
The Asset Manager has established a Sustainability Promotion Committee to consider specific targets and measures and to monitor the status of progress. The committee is comprised of the CEO, directors, the general manager of the Investment Management Department, the general manager of the Finance and Planning Department, and the Compliance Officer. It holds meetings at least once per fiscal period.
ESG-related activities in general, including the details of Sustainability Promotion Committee meetings, are reported to the Asset Manager's Board of Directors once every six months, and risks and opportunities are shared as management issues.
Strategy
For the explanation in this section, the Reference Scenarios in the Real Estate Field TCFD Compliance Guidance, published by the Ministry of Land, Infrastructure, Transport, and Tourism in March 2021, have been used. The global outlook for 4°C and 2°C /1.5°C scenarios for 2030-2040 is as follows.
- 4°C global outlook: Existing economic activities are prioritized over climate change countermeasures, and as a result of continued dependence on fossil fuels, global average temperatures are allowed to rise, and natural disasters become more severe and extreme. Problems occur relating to the worsening of the food situation, water resources, etc. There is a massive impact on human activities and the extinction of species. The impact of physical risks is comparatively major.
- 2°C /1.5°C global outlook: Society as a whole promotes decarbonization and carbon recovery, and effective utilization, resulting in the mitigation of climate change to some extent, and due to temperature rises being curbed, profoundly negative impacts and crisis situations are avoided. The impact of transition risks is comparatively large.
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| Risks and Opportunities | Category | Details |
|---|---|---|
| Transition risks | Policy and Legal Risks | 4°C： Relatively few legal compliance |
| 2°C/1.5°C： Tougher regulations relating to GHG emissions, increased clerical costs associated with increased information disclosure requirements, increased costs due to burden of environmental taxes and carbon taxes |
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| Technology Risk | 4°C： Replacement of existing equipment is relatively small |
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| 2°C／1.5°C： More frequent replacement of existing facilities, increased costs associated with the introduction of new technology becoming mandatory |
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| Market Risk | 4°C： Increased operating costs caused by soaring prices for energy, water, waste disposal, etc. |
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| 2°C/1.5°C： Increased operating costs caused by procurement of renewable energy |
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| Reputation Risk | 4°C： Stakeholders' awareness of the transition to a low-carbon society will not change significantly |
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| 2°C/1.5°C： Harming unitholder value due to increased criticism of the industry as a whole and negative screening by stakeholders. Increased vacancies and decreased revenues due to properties being avoided that are slow in responding to environmental concerns as tenants' preferences shift. |
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| Physical risks | Acute Risk | Risks of natural disasters' severity/extremity becoming more pronounced, leading to physical damage to property and personal damage, suspension of business, increased recovery costs, and significant impact on the health and safety of employees and tenants |
| Chronic Risk | Risks of weather patterns and human activity patterns changing, leading to more frequent equipment wear, increased non-life insurance premiums, and increased BCP/preparatory costs for anti-flooding measures, etc. | |
| Opportunities | Benefit of a diversified portfolio | Since TLR is a diversified REIT that is able to integrate a variety of asset types, it will be able to build a resilient portfolio by accounting for medium- and long-term risks. |
| Benefit of main sponsor being a developer | As part of its environmental initiatives, TLR's main sponsor MIRARTH HOLDINGS, Inc. has established KPIs which state that a certain number of the properties it develops will be green buildings (i.e., environmentally friendly properties, such as those that have received a certification or assessment from a third party), and a certain number of properties in the pipeline for TLR may therefore be expected to be green buildings. | |
| Advantage of renewable energy | TLR's main sponsor MIRARTH HOLDINGS, Inc. and companies in the Group have multiple organizations and companies engaged in clean energy-related business, and collaborations and business partnerships may be considered. Specific measures relating to effective means of procuring renewable energy may be considered while enjoying benefits such as consulting services from experts within the Group. |
※We plan to collaborate with external experts to disclose specific cost estimates and business impact evaluations associated with measures such as strengthening resilience.
Risk Management
The Asset Manager has created a Risk Management Manual and implements its contents. Moreover, with respect to the overall risks in TLR's business activities, including climate change, it revises the Annual Plan for Risk-Related Management Policy each year. This plan is approved by a resolution of the Compliance Committee, which is comprised of both internal and external members, and the Board of Directors. The Asset Manager regularly checks for issues in risk management conditions by means of voluntary inspections and internal audits, and the verified details are reported to the Compliance Committee and Board of Directors as needed.
With regard to the Asset Manager's organizational structure concerning risk management, refer to “G. Governance”
(1) Board of DirectorsAfter identifying the types and characteristics of risks faced by the company, the Board of Directors determines key matters concerning risk management, such as establishing the organizational structure and regulations with respect to risk management.
(2) Compliance CommitteeThe Compliance Committee serves a role as a cross-organizational consultative body. It discusses and considers the formulation, revision, and abolition of the organizational structure and regulations relating to risk management, monitors risks, etc. and passes resolutions on key matters concerning risk management, as well as collaborating with the Board of Directors, auditors, and Compliance Officer as needed.
(3) Risk Management SupervisorThe role of the Compliance Officer includes supervising risk management for the company.
(4) Risk ManagersThe heads of each department manage risks that fall under their department's jurisdiction and report to the risk management supervisor regarding the status of management.
Metrics and Targets
Refer to the “Environmental Targets” and “Environment-Related Data” sections in “E. Environment”.