Addressing Climate Change

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Awareness of Climate Change

The Earth is undergoing global warming amid a scenario where concentrations of carbon dioxide (CO2) and other greenhouse gases in the atmosphere have been increasing as a result of escalating energy consumption since the Industrial Revolution. Meanwhile, actions to address climate change now constitute key challenges worldwide amid a scenario where the environment, society, the economy, and corporate activities are being gravely affected by intensifying storms, heat waves, droughts, rising sea levels and other such weather-related catastrophes. The member states at the 2015 Conference of the Parties to the United Nations Framework Convention on Climate Change (COP) adopted the Paris Agreement, which aims to limit global warming to below 2℃, and preferably to 1.5℃, relative to levels prior to the Industrial Revolution.
Mitsui Fudosan Accommodations Fund Management Co., Ltd. (the “Asset Management Company”), the asset management company of Nippon Accommodations Fund Inc. (“NAF”), recognizes that climate change is a key challenge that will substantially affect NAF’s asset management and the Asset Management Company’s business activities over the medium to long term. Meanwhile, NAF will actively pursue opportunities while appropriately addressing risks associated with climate change in conjunction with the Asset Management Company.

Support for Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations

The Asset Management Company expressed its support for the recommendation of the Task Force on Climate-Related Financial Disclosures in September 2021.

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The Asset Management Company takes appropriate action and actively promotes information disclosure upon having analyzed and assessed effects of climate change on operations based on the TCFD disclosure recommendations.

TCFD recommended disclosure items

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Disclosure items Disclosure details
Governance The organization’s governance concerning climate-related risks and opportunities
Strategy The actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy and financial planning
Risk Management The processes for identifying, assessing and managing climate-related risks
Metrics and Targets Metrics and targets to assess and manage climate-related risks and opportunities

Governance and Risk Management

For the Asset Management Company’s internal system for promoting sustainability, including the response to climate change, please refer to “Internal System for Promoting Sustainability”.
As a rule, the Sustainability Promotion Office monitors climate change-related risks and opportunities, metrics and targets, etc. once a year, and these are discussed and assessed by the Investment Committee, whose members include the President & CEO of the Asset Management Company. At the same time, the progress status of applicable initiatives is reported to NAF's Board of Directors. The system also integrates company-wide risk management.

Strategy

With respect to this scenario analysis, NAF and the Asset Management Company reference the following scenarios.

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Scenario 1.5℃/2℃ scenario 4℃ scenario
Illustrative worldview Progress is being made toward achieving a decarbonized society for the sake of combating climate change. This calls for measures to respond to various environmental laws and regulations, as well as real estate with excellent environmental performance. Insufficient progress made to combat climate change is culminating in escalating severity of natural disasters, thereby giving rise to the need for society as a whole to strengthen measures for preventing disasters.
Reference sources IPCC Fifth Assessment Report (AR5) RCP 2.6
International Energy Agency (IEA) World Energy Outlook 2020 (NZE2050)		 IPCC Fifth Assessment Report (AR5) RCP 8.5
International Energy Agency (IEA) World Energy Outlook 2020 (SPS )
  • ※ IEA: International Energy Agency *IPCC: Intergovernmental Panel on Climate Change

Examination of Financial Impact Based on Scenario Analysis

NAF and the Asset Management Company examined the financial impact of identified risks and opportunities in terms of their qualitative magnitude with respect to the aforementioned 1.5°C/2°C, and 4°C scenarios, as follows.

  • ※ “Medium term” refers to the outlook for 2030, and “long term” refers to the outlook for 2050.

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Risk Type Risk and Opportunity Factors in Real Estate Management Recognized Issues and
Potential Financial Impact		 Category Timeframe Degree of Impact Strategies to Address Risks
1.5℃/2℃ ４℃
Transition risks and opportunities
Policy and legal Increased GHG emission costs (Note 1) due to introduction of carbon tax
  • Increased operating costs due to introduction of carbon tax and increased carbon reduction costs to meet emission quotas
 Risk Medium term
Long term		 Medium Small
  • Setting GHG emission intensity reduction targets and disclosing achievement status
  • Considering energy-saving upgrades for properties
  • Procuring renewable energy
  • Acquiring ZEH (Note 2) properties and considering retrofitting of existing properties
  • Sharing expertise across the Mitsui Fudosan Group
  • Steep rise in current electricity prices due to carbon tax hikes
Tightening of environmental standards
  • Increased procurement and repair costs for buildings and equipment
 Risk Medium term
Long term		 Medium Small
Technology Evolution and spread of renewable energy and energy-saving technologies
  • Increased costs of adapting to changing building specification requirements/standards as products created by technological revolution become more widespread
 Risk Long term Medium Small
  • Gathering information about new technologies and services and considering implementation policy
  • Sharing expertise across the Mitsui Fudosan Group
  • Reduced environmental footprint and energy costs due to the installation of LED lighting, high-efficiency A/C equipment, etc. and introduction of renewable energy facilities
 Opportunity Medium term Large Small
  • Setting GHG emission reduction targets and disclosing progress status
  • Considering the introduction of renewable energy-generating facilities
  • Considering and pursuing planned energy-saving upgrades
  • Sharing expertise across the Mitsui Fudosan Group
Markets Impact on real estate transaction markets
  • Lower values for properties with poor environmental performance (stranding of assets)
 Risk Short term Large Medium
  • Striving to gather information on real estate assessment trends and either improving properties' environmental performance or disposing of them
  • Setting GHG emission intensity reduction targets and disclosing achievement status
  • Considering energy-saving upgrades for properties
  • Procuring renewable energy
Impact on funding markets
  • Worse funding conditions due to climate change response being perceived as insufficient
 Risk Short term Medium Small
  • Comprehensive climate-related financial information disclosure
  • Ongoing implementation of green financing
  • Pursuing the acquisition of environmental certifications (green building certifications, etc.)
  • Improved funding conditions due to proactive climate change response
 Opportunity Medium term Large Small
Impact on rental housing markets
  • Avoidance of properties with poor environmental performance, leading to decreased demand
 Risk Medium term Large Small
  • Monitoring needs through tenant satisfaction surveys, etc.
  • Considering energy-saving upgrades
  • Pursuing the acquisition of environmental certifications (green building certifications, etc.)
  • Improved competitiveness for properties with excellent environmental performance
 Opportunity Medium term Large Small
Impact on operating costs
  • Increased running costs due to steep rise in energy prices
  • Increased renewable energy costs due to changing energy mix
 Risk Medium term Medium Small
  • Purchasing renewable energy (green power certificates, etc.)
Reputation Reduced brand reputation on financial and capital markets
  • Decreased investment unit value due to perceived passive response to climate change
 Risk Medium term
Long term		 Large Small
  • Maintaining brand image by proactively pursuing initiatives aimed at a decarbonized society and robustly addressing climate change
Physical risks and opportunities
Acute Torrential rainfall, flooding due to nearby rivers overflowing, inland flooding
  • Reduced rental income due to lower occupancy rates
  • Increased flood countermeasure costs
 Risk Short term
Medium term		 Small Large
  • Monitoring physical risks, identifying high-risk properties, and either taking preventive measures or disposing of them
  • Reflecting physical risk information in the assessment process when acquiring new properties
Damage to properties from typhoons
  • Increased repair costs and insurance premiums
 Risk Medium term Medium Large
Chronic Flooding of low-elevation properties, etc. due to rising sea level
  • Increased costs of countermeasures for high-water damage
 Risk Medium term
Long term		 Small Large
Increase in high-water damage due to rise in abnormal weather, such as extremely hot or cold days
  • Increased A/C equipment maintenance and operation costs
 Risk Medium term
Long term		 Medium Large
  • Managing A/C equipment maintenance and operation costs
  • (Note 1) GHG refers to greenhouse gases.
  • (Note 2) ZEH is an abbreviation for net-zero energy home.

Metrics and Targets

Environmental Targets

For information on metrics and targets, please refer to “Environmental Targets” and “Environmental Performance.”