We implement various environmental and social initiatives including the following.

• Reduction of energy consumption and CO2 emissions. We are committed to reducing the carbon footprint of ADR’s properties by such measures as promoting energy conservation awareness among tenants and installing energy-efficient equipment.

• Resource conservation and reduction of waste. We are committed to realizing resource-saving and recycle-oriented society by promoting and encouraging tenants to save water and recycle waste.

• Stakeholder engagement. We are committed to providing high quality housing to tenants and contributing to local communities by cooperating with our employees and service providers including property managers. In addition, we work with building managers to achieve the following common environmental goals: reduction of energy consumption, GHG (CO2) emission, water consumption and waste.

• Including “Green Lease” clauses in our agreements. We have entered into an increasing number of leases with clauses concerning energy and water conservation, which we call “Green Lease” clauses. In addition, ADR’s management services contract with a property manager includes a Green Lease clause.

• Criteria on selection of property managers. When we select a property manager, we take into consideration their environmental and social initiatives, such as whether it has introduced an environmental management system such as ISO14001 and ISO14005, whether it has established a sustainability policy, target and system, whether it procures environment-friendly products and whether it respects human rights and has established an appropriate work environment for its employees.

• Increasing tenants’ satisfaction. We conduct satisfaction surveys for our tenants residing at ADR’s RESIDIA properties at least once every three years, covering a majority of leasable units at RESIDIA properties. Moreover, we offer a variety of services toward tenants residing in our properties to enhance tenants’ satisfaction. In addition, we place emergency maps in the common areas of ADR’s properties, indicating evacuation routes to evacuation sites to ensure safety during disasters as well as to raise disaster prevention awareness.

• Contributing to local communities. In many of ADR’s properties, AEDs are available for public use, and we have installed vending machines with respect to which a certain portion of sales is donated to a pediatric cancer treatment facility. 

• Employee health and well-being. We believe that accommodating work environment is key to maintaining and improving our business performance. The Asset Manager has introduced measures to improve its employees’ work-life balance such as designation of every Wednesday as “no-overtime day”. In March 2018, the Asset Manager applied to the Tokyo Metropolitan Government to be certified as a TOKYO Work Style Reform Company and became the first J-REIT asset manager to receive such status.

• Human rights and labor standards. The Asset Manager established its human rights policy in February 2021 to demonstrate its respect for the human rights of all people involved in its business activities. The Human Rights Policy includes a policy of support for international norms and guidelines, such as the Universal Declaration of Human Rights, Declaration on Basic Principles and Rights in Labor declared by the International Labor Organization (ILO) and the United Nations Global Compact. In addition, the Asset Manager will respect human rights based on the Guiding Principles on Business and Human Rights established by the United Nations.

• ESG data coverage. We annually monitor and track energy consumption, GHG emissions, water use, and waste produced at each building of ADR’s properties. 

In order to systematically promote sustainability, the Asset Manager has established the Sustainability Promotion Committee, which is chaired by the Representative Director and consists of all general managers, full-time directors, the Asset Manager’s Compliance and Risk Management Officer, and Internal Audit Officer, and the Sustainability Practical Committee, which is composed of the practitioners of each Asset Manager department. The Sustainability Promotion Committee meets twice a year to establish sustainability goals and measures, identify and evaluate climate-related risks and opportunities, analyze, evaluate and manage climate-related risks, and evaluate environmental performance, including through ESG assessments by third parties. The Asset Manager aims to improve asset value over the medium to long term by implementing a PDCA (plan, do, check and act) cycle of monitoring results, checking progress against goals, and resetting goals to address open and new issues. In addition, the Sustainability Practical Committee is responsible for promoting various measures necessary to achieve the goals. Goals are decided by the Asset Manager’s Representative Director, who is the Chief Executive Officer of Sustainability, and the progress made against goals and status of implemented measures are reported to the Asset Manager’s Board of Directors and ADR’s Board of Directors once every six months.

We use the following indicators to measure the attainment of the environmental or social characteristics we promote.

• Environmental initiatives

  • Reduction of energy consumption initiatives. We aim to achieve 20% reduction in energy consumption intensity by FY2030 from the level in FY2018) for the common areas of ADR’s properties as a mid-term target. We have worked to reduce energy consumption of our portfolio by implementing eco-friendly equipment such as LED lighting, which reduces electronic usage, and energy-saving air conditioning systems. 

  • Reduction of GHG emissions initiatives. We aim to achieve 51% reduction in Scope 1 and Scope 2 GHG emissions by FY2030 from the level in FY2018 as a mid-term target and to achieve net zero emissions by FY2050 as a long-term target, each case for the common areas of ADR’s properties. We have worked to reduce GHG emissions of our portfolio by implementing eco-friendly equipment such as LED lighting as described above.

  • Water saving initiatives. We aim to avoid increases in water use intensity by FY2030 from the level in FY2018 for the common areas of ADR’s properties as a mid-term target.

  • Waste management initiatives. We aim to achieve the recycling rate (emissions related to construction of exclusive use areas) of 65% by FY2030 as a mid-term target.

• Environmental certifications. To track the environmental performance of ADR’s properties, we use the following environmental certifications issued by third-party organizations, which are also used as the eligibility criteria for Eligible Green Assets under the green finance framework. We aim to continue to acquire the following or equivalent environmental certifications for ADR’s properties, and to increase the proportion of Eligible Green Assets in ADR’s portfolio to 30% or higher by FY2030 based on gross floor area.

  • DBJ Green Building Certification. The DBJ Green Building Certification is a certificate developed by Development Bank of Japan Inc. (DBJ) to identify and certify real estate properties that satisfy various social needs including environmental quality.

  • CASBEE Certification. Comprehensive Assessment System for Built Environment Efficiency (CASBEE) is a method for evaluating and rating the environmental performance of buildings. It is a comprehensive assessment regarding the reduction of environmental loads such as conservation of energy and resources as well as the quality of a building including interior comfort and scenic aesthetics.

  • BELS Certification. The Building-Housing Energy-efficiency Labeling System (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. RESIDIA Ochanomizu Ⅱ was awarded the BELS Certification for in March 2019.

• GRESB Real Estate Assessment Rating. In 2014, ADR became the first residential J-REIT to participate in the GRESB, which is an industry-driven organization established by European pension funds committed to assessing the sustainability performance of real estate portfolios (public, private and direct) around the globe. In the FY2024 GRESB rating, which indicates a relative evaluation based on the global ranking of the overall score, ADR received a “3 Star” rating, the middle rank out of five levels. In the last 9 years, ADR has been consecutively awarded a Green Star rating. The Green Star rating is given to businesses that have been assessed to be superior in both management and performance.

• Expression of support for the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations. Based on the recommendations of TCFD, the Asset Manager will continue to contribute to the realization of sustainable society by assessing the impact of climate change on its businesses, taking measures to address risks while pursuing opportunities, and proactively making climate change-related disclosures. The Asset Manager expressed its support for the recommendations issued by the TCFD on March 11, 2020.  In addition to supporting TCFD, we are also a member of the TCFD Consortium (composed of Japanese companies and organizations that support TCFD).

• Sustainable procurement initiatives. The Asset Manager has established a Green Procurement Policy to implement procurement-related aspects of the Sustainability Policy with cooperation from its suppliers. Since FY2016, major suppliers, including all property managers that the Asset Manager uses, have been evaluated at the time of entry into a contract with the Asset Manager and thereafter annually in accordance to the Green Procurement Policy, on how they address sustainability issues. The Asset Manager considers suppliers’ engagement in sustainability when it selects a supplier in addition to its quality, price, credibility and services offered. The key elements of the Green Procurement Guidelines, established pursuant to the Green Procurement Policy, are as follows:

  • Environment. Suppliers shall (i) cooperate with the Asset Manager toward reduction of environmental burdens, (ii) procure and use products which are environmentally friendly or harmless for health, (iii) introduce environment management systems such as ISO14001, (iv) establish sustainability measures, (v) select service providers or suppliers taking into consideration sustainability and (vi) comply with laws and regulations.

  • Society. Suppliers shall (i) engage in providing appropriate work environment for and respecting the health and safety of employees, (ii) respect the human rights of officers and employees and (iii) contribute to local communities.

Environmental initiatives

As described above, the Asset Manager has established various portfolio-level environmental targets based on the data on energy consumption, GHG emissions, water use and waste of ADR’s properties that it tracks and monitors. In order to mitigate climate-related risks and to take advantage of climate-related opportunities of ADR’s properties, the progress for each relevant environmental target and related initiatives is tracked by monitoring the relevant environmental data and compiling such data at the portfolio level. To ensure the accuracy of the compiled data, the Asset Manager has been obtaining an assurance report regarding the annually compiled data on energy consumption, GHG emissions, water use and waste from an independent third-party accounting firm since FY2021. The progress status toward environmental targets and related initiatives are reported to the Sustainability Promotion Committee at least once a year for discussion and implementation of measures to achieve the targets and improve the initiatives. The annually compiled data energy consumption, GHG emissions, water use and waste are disclosed on our website. .

Environmental certifications

As described above, we use environmental certifications, which are issued by third-party organizations and generally cover a broader scope of sustainability and ESG-related items than those evaluated for our due diligence prior to acquisition of a property, of the buildings in ADR’s properties to track the environmental performance of ADR’s properties and portfolio as well as the eligibility criteria for Eligible Green Assets under the green finance framework. For a property that has not acquired any environmental certification or of which environmental certification is about to expire, the Asset Manager considers potential measures to meet the standards for obtaining or renewing applicable environmental certification for the property while taking into account the portfolio-level mid-term target of increasing the proportion of Eligible Green Assets in ADR’s portfolio to 30% or higher by FY2030 based on gross floor area. The progress of achieving this mid-term target is reported to the Sustainability Promotion Committee and disclosed on our website.

GRESB Real Estate Rating.

To objectively assess attainment of environmental and/or social characteristics of ADR and the Asset Manager, we participate in the GRESB Real Estate Assessment. Based on the benchmark report, the public disclosure report and other reports regarding GRESB Real Estate Assessment issued by the GRESB secretariat, the Sustainability Practical Committee of the Asset Manager analyzes the details of scores, evaluates any room for future upgrade and other data with the assistance of a third-party consulting firm and prepares an action plan for progressing sustainability and ESG goals. The results of these analyses and evaluations are reported once a year to the Sustainability Promotion Committee and the Board of Directors of the Asset Manager as well as the Board of Directors of ADR. The annual results are disclosed on our website.

Expression of support for the TCFD recommendations.

We identify, assess and manage climate-related risks and opportunities, and promote climate change adaptation and mitigation efforts in accordance with TCFD recommendations and the Climate Change and Resilience Policy established in 2020. The results of these efforts are regularly reviewed by the Sustainability Promotion Committee and reported to the Representative Director and the Board of Directors of the Asset Manager, and important details are disclosed on our website.

Sustainable procurement initiatives.

We support strengthening ESG initiatives throughout our supply chain to contribute to environmentally friendly, healthy and sustainable society. To realize the individual items set forth in the Sustainability Policy, the Asset Manager has established a Sustainability Procurement Policy to seek the understanding and cooperation of its business partners to collaborate with us on our ESG initiatives. Particularly, to the property management and building management companies who are our key business partners, we also provide and notify them of the Sustainable Procurement Guidelines.

We use the following data sources:

• Environmental initiatives. The Asset Manager has established the “Environmental Performance Data Management Standards” to ensure accuracy and quality of the environmental data such as that it collects and compiles. In accordance with such standards, the Engineering Department and the Sustainability Promotion Department of the Asset Manager engage third-party data collection firms to collect property-level raw data on energy consumption, GHG emissions, water use and waste of ADR’s properties, and regularly receive such property-level data from the third-party data collection firms. The Sustainability Promotion Department of the Asset Manager compiles such property-level data to annual portfolio-level data. As noted above, in order to ensure the accuracy and reliability of such compiled data, the Asset Manager has been obtaining an assurance report regarding the annually compiled data on energy consumption, GHG emissions, water use and waste from an independent third-party accounting firm since FY2021.

• Environmental certifications. The Sustainability Promotion Department, the Engineering Department and the Residential Division of the Asset Manager work together to obtain and/or renew environmental certifications of ADR’s properties by outsourcing the certification application work to a third-party consulting firm. The Sustainability Promotion Department coordinates with the third-party consulting firm to collect property-level raw data required by the third-party organizations that issue the applicable environmental certifications. With the assistance of the third-party consulting firm, the Sustainability Promotion Department compiles relevant data collected, and prepares and submits the required data and supporting materials to the third-party issuing organizations. The Sustainability Promotion Department manages the expiration dates of the existing environmental certifications and considers renewal or switching to other certifications before the expiration dates. After discussing the selection of target properties and the number of properties to be covered with the Engineering Department and the Residential Division, the Sustainability Promotion Department will consider the acquisition of new certification. The results are reported to the members of the Sustainability Promotion Committee and made public on our website.

• GRESB Real Estate Rating. The Sustainability Promotion Department of the Asset Manager is the responsible unit within the Asset Manager for GRESB Real Estate Assessment and related data processing. The Sustainability Promotion Department coordinates with various Departments within the Asset Manager to collect and compile required raw data, and prepares appropriate responses to the survey of the GRESB Real Estate Assessment. The Sustainability Promotion Department also analyzes the details of the GRESB Real Estate Assessment scores and evaluates any room for future improvement with the assistance of a third-party consulting firm, and prepares an action plan for progressing sustainability and ESG goals in accordance with the GRESB Real Estate Assessment’s framework. 

• Expression of support for the TCFD recommendations. The Sustainability Promotion Department of the Asset Manager is in charge of monitoring and reporting the results of the efforts to follow the TCFD recommendations to the Sustainability Promotion Committee, the Representative Director and the Board of Directors of the Asset Manager. 

• Sustainable procurement initiatives. In accordance with the Sustainability Procurement Policy, the Residential Division conducts a survey and evaluation on the status of sustainability initiatives for major suppliers, including all property management companies, at the start of their transactions and once a year. The results of this evaluation are reported annually to Board of Directors of the Asset Manager.

The primary limitation to methodologies and data is the necessity of reliance on tenants and data collection firms for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by tenants and data collection firms. In addition, data at the property level provided by the tenants and property managers is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up to date. 

Data at the portfolio level is compiled internally at the Asset Manager. To ensure the accuracy of compiled data at the portfolio level, we have engaged an independent third-party accounting firm which has provided an assurance report regarding the accuracy and quality of certain parts of the compiled annual 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 the tenants and the data collection firm 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 ADR in any material way.

When acquiring properties, we investigate the environmental and geological conditions of each property to determine the possibility of environmental hazardous substances and land pollution. We conduct, with assistance from outside experts, financial, property and legal due diligence review to evaluate investments. We invest only in properties that have no environmental hazardous substances and have appropriate measures against land pollution, in light of the Enforcement Regulations of Soil Contamination Countermeasures Act of Japan.

We review environmental issues discovered through due diligence review and evaluate risks identified through our due diligence review, such as legal compliance issues, land pollution, environmental and other factors, and make investment decisions that take into account those risks and their impacts on ESG factors.

Furthermore, ADR has established a green finance framework pursuant to which funds procured through applicable green financing are allocated to acquisition of assets meeting Eligible Green Assets, and/or to renovation work meeting the eligibility criteria or repayment of loans or redemption of investment corporation bonds that initially funded such acquisitions or renovations.

We 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 ADR’s sustainable investment strategy is implemented. With each acquisition opportunity, we review ESG-related due diligence findings and take into account the acquisition of green building certifications. These findings and assessment are required to be considered by the Asset Manager’s Investment Committee before a final decision is made on the investment by ADR’s Board of Directors. 

As part of due diligence review prior to investment in a property, we conduct due diligence on the property, including environment assessment and evaluation of earthquake resistance and probable maximum loss. 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, we track the sustainability measures including energy consumption initiatives, GHG 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 Sustainability Policy, 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.

The following table presents the key climate-related risks that may have a financial impact on ADRʼs real estate investment management business and the initiatives that we have taken to address those risks.

Principal Adverse Impact Statement

July.1,2024
Principal Adverse Impact Statement