Climate Change Initiatives

Recognition of Climate Change (Background)
Support for the TCFD Recommendations
Governance
Strategy
Risk Management
Metrics and Targets

Recognition of Climate Change (Background)

We understand that climate change issues as stated in the Paris Agreement (2015) and IPCC Special Report (2018) are anticipated to bring drastic changes to thenatural environment and social structures, which represents one of the challenges that gives impact on the asset management of HHR. Therefore, we recognizethat our earnest efforts to address these issues will contribute to securing our sustainable profitability on a medium-to-long-term basis, and maximizing unitholdervalue.

Disclosure of information in line with the TCFD recommendations

HHRAM announced its support for the TCFD (Task Force on Climate-related Financial Disclosures) recommendations and joined the TCFD Consortium, an organization consisting of Japanese supporting companies.
We will further advance our climate change initiatives and enhance our disclosure practices in line with the TCFD recommendations regarding governance, strategy, risk management, and metrics and targets.

Governance

For the sustainability promotion system (including measures against climate change) of HHRAM, please refer to Sustainability Promotion System.

Strategy

* This table can be scrolled horizontally.

Item			Risk	Opportunity	Time frame
Transition risk	Policy and legal regulations	Carbon tax and carbon pricing	Cost of facility operations will increase due to a rise in electricity and fuel costs and others. Renovation and repair costs will increase due to a rise in construction materials prices and tighter regulations on buildings such as ZEB and ZEH (*1).	The introduction of renewable energy to avoid the impact of carbon tax, etc. will be accelerated, which will contribute to a rise in evaluation by tenants.	Short to long term
		Carbon emission trading	Properties which can hardly take energy-saving measures will have to bear the cost of purchasing carbon emission allowances.	-	Medium term
		Response to GHG (2) emission regulations by ZEB and ZEH(1).	Renovation costs will increase for renewal work due to the necessity of introducing devices and equipment with higher environmental performance.	Conversion of buildings into ZEB will contribute to a reduction of operation costs and enhancement of competitive edge by differentiation. (1) ZEB: Zero Energy Building, ZEH: Zero Energy House (2) GHG: Greenhouse Gas	Medium term
	Technology	Dissemination of new technology	Renovation costs will increase due to the introduction of new technologies for energy saving and renewable energy.	Renovation costs will be reduced when new technologies will be disseminated and the prices of energy-saving facilities and renewable energy materials will decline. By introducing new technologies, it is expected that the costs of facility operation including electricity and fuel costs will be reduced to a certain degree.	Medium term
	Market	Changes in energy mix, etc.	With the social requirement for raising the renewal energy ratio growing, the construction cost to be borne at the introduction stage will squeeze profits.	-	Medium to long term
	Reputation	Change in tenants’ tastes	Deterioration of asset value and brand value (declines in rent or occupancy rate) is possible if we cannot meet the needs of tenants for buildings or retail facilities with high environmental performance.	Our competitive edge will be maintained and strengthened if we can meet the needs of tenants for buildings, houses and retail facilities with high environmental performance.	Medium to long term
	Reputation	Investors’ key evaluation points	A delay in ESG measures and disclosure will cause a deterioration of evaluation by investors, leading to an increase in fund procurement costs.	A transition to low-carbon and environment-friendly properties will enable us to secure new highly ESG-conscious investors and a reduction in fund procurement costs.	Short to long term
Physical risk	Acute	Extreme weather (Intensified damage from natural disasters)	Due to typhoons becoming larger and more intense, retail facilities tend to temporarily suspend operation, resulting in decreases in visitors and sales. Inundation inside a levee, etc. may increase the possibility of damage to our properties.	Since demand for disaster-resistant buildings, etc. with measures for BCP and people who are unable to return home after disasters is increasing, we will be able to strengthen our competitive edge and increase sales if we can provide facilities that can meet those needs.	Short to long term
	Chronic	Rise in average temperature	Costs for enhancing air-conditioning capability will increase in order to respond to the rise in average temperature. Costs of renovation will increase due to degradation of work efficiency in the extremely hot weather in summer.	-	Medium to long term
	Chronic	Rise in sea level	The possibility of occurrence of damage is expected to increase due to inundation of our properties from tidal waves, etc.	-	Long term

Risk Management

HHRAM has established a department responsible for risk management in normal times which conducts annual risk assessments. The investigation covers a wide range of risks related to climate change (natural disasters, etc.), accidents, information management, legal compliance and other organizational operations, etc. As to risks peculiar to each business, the relevant responsible department establishes appropriate countermeasures by identifying and analyzing them.

With respect to climate change-related risks, we also conduct risk assessment from the viewpoints of possibility of occurrence and the degree of impact. Furthermore, we monitor the status of countermeasures once a year.
The Sustainability Promotion Committee also deliberates on climate change-related risks and their impact on business, etc. as necessary, and if changes are needed from the current content, such changes are reflected in the company-wide risk management by including them in a risk survey form which is used in the risk assessment.

Metrics and Targets

As for Metrics and Targets, please refer to Environmental Targets.