Climate Change
- TOP
- Climate Change
Governance
The Asset Management Company, AEON Reit Management Co., Ltd. has established a
"Sustainability Promotion Committee" for the promotion of initiatives related to
sustainability, and shares information and deliberates responses related to climate change
in the committee as an important issue.
The committee is chaired by the Representative Director and President of the Asset
Management Company, with meetings held at least once quarterly in principle to consider and
deliberate matters such as targets related to sustainability. The activities of the
committee are reported to the Board of Directors of AEON REIT Investment Corporation and the
Board of Directors of the Asset Management Company at least once every six months.
Details on the sustainability promotion system can be found
here.
Strategy
The Investment Corporation and the Asset Management Company recognize climate change to have
a substantial impact on business activities and expressed its support for the TCFD
recommendations in December 2021. Details on the support can be found here.
The Asset Management Company aims to make disclosures in line with the TCFD recommendations
and conducted analysis of the 1.5℃ scenario and 4℃ scenario concerning the risks
and opportunities climate change presents to the Investment Corporation.
Preconditions of Scenario Analysis
Scope of Analysis
Properties owned in Japan (excluding leased land interests)
Duration
From 2026 until 2050.
Timelines for short-term, medium-term and long-term are set as follows.
Short-term: Until 2030
Medium-term: Until 2040
Long-term: Until 2050
Risk Classification
Risks are classified into "transition risks" and "physical risks" in accordance with the TCFD recommendations. Furthermore, "physical risks" have also been organized into "acute" and "chronic" classifications. "Opportunities" are also considered separately.
- - Transition risks: Risks associated with the transition to a low-carbon society (Policy and Legal, Technology, Market, Reputation)
- - Physical risks: Risks resulting from disasters, etc. caused by climate change (Acute, Chronic)
Referred to the guidance recommended by UNEP FI *1 and PRI *2 for the details of risk classifications.
Based on the above preconditions, scenario analysis was performed using future climate forecasts published by international organizations as the main sources of information.
External Scenarios Used as References
The main sources of information used as references are as follows.
Transition risks: 1.5℃ scenario/ IEA NZE Scenario *1 *2
Physical risks: 1.5℃ scenario / IPCC SSP 1-1.9 scenario (*3 *4)
4℃ scenario/ IPCC RCP 8.5 scenario (*3 *5)
Image of the World Anticipated in Each Scenario
1.5℃ Scenario
Overview
The 1.5℃ Scenario is a Scenario in which initiatives aimed at the realization of a decarbonized society by 2050 are promoted, and the rise in temperature is kept to within 1.5℃. It assumes proceeding with the introduction of stringent legal regulations and taxation systems, and while physical risks are relatively contained, transition risks are assumed to be high.
Anticipated Events
・Significant reduction of CO2 emissions: Approximately 40% reduction by 2030 and
realization of net zero by 2050 on a global scale
・Introduction of carbon tax
・Widespread introduction of renewable energy, etc.
4℃ Scenario
Overview
The 4℃ Scenario is a scenario in which measures to address climate change do not progress, and emissions of greenhouse gases (GHG) continue to increase, resulting in the average global temperature increasing by approximately 4℃ by 2100. It assumes that stringent legal regulations and taxation systems will not be implemented, and while transition risks are relatively low, physical risks are assumed to be high.
Anticipated Events
Forecast of impact of climate change on Japan based on RCP8.5 (partial excerpt)
| Item | Comparison of the end of the 21st century with the end of the 20th century |
|---|---|
| Average annual temperature | Increased by approximately 4.5℃ |
| Number of days with 100mm or more rainfall | Increased by approximately 1.4 times |
| Maximum daily rainfall per year | Increased by approximately 27% (28mm) |
| Average sea level | Increased by approximately 0.68m |
| Typhoons / storms associated with typhoons | Stronger / Incease |
Financial Impact of Risks and Opportunities Based on Scenario Analysis
1.5℃ Scenario
| Category | Potential Event | Financial Impact | Likelihood | Impact Magnitude (when occurs) | Response Measures | |||
|---|---|---|---|---|---|---|---|---|
| Short-term (2026–30) |
Mid-term (2031–40) |
Long-term (2041–50) |
||||||
| Transition Risk | Policy & Legal | Introduction of carbon pricing and rising prices | Increased costs to address property GHG emissions (equipment renewal capex, tax burden, credit purchase costs, etc.) | Medium | High | High | Small | (1) Promote CO2 reductions in collaboration with Group companies (2) Promote installation of equipment with superior environmental performance (energy-saving, etc.) at properties |
| Strengthening of energy-efficiency standards for buildings and expansion of scope | Increased renovation costs to comply with the Building Energy Efficiency Act | High | High | High | Medium | Planned, diversified investment in equipment with superior environmental performance (energy-saving, etc.) across properties | ||
| Technology | Tenant move-out risk due to low energy-efficiency equipment | Rent reduction due to higher tenant store operating costs | Low | Low | Low | Medium | Implement planned investment in energy-efficient, high-performance equipment | |
| Market | Climate change response is considered in investment decisions and loan terms | Increased financing costs due to delayed climate response, etc. | Low | Medium | Medium | Medium | (1) Maintain and improve third-party certifications, etc. (2) Strengthen disclosures (3) Capex aligned with climate change response |
|
| Reputation | Increased activity by financial institutions aiming for carbon neutrality | Deterioration of loan terms due to delays in GHG reduction actions, leading to increased borrowing costs | Low | Medium | Medium | Medium |
(1) Formulate policies that contribute to achieving carbon neutrality. (2) Promote the introduction/installation of equipment with superior environmental performance at properties. (3) Strengthen collaboration with Group companies. (4) Maintain high ratings from rating/evaluation agencies through enhanced disclosure. |
|
| Physical Risk | Acute | Significant increase in natural disasters such as floods and typhoons | Increased repair costs and insurance premiums due to flood and other inundation damage, particularly in hazard-prone areas | Low | Low | Medium | Medium | (1) Identify risks using hazard maps and other sources. (2) Implement measures to address physical risks (e.g., installing flood barriers/waterproof boards, installing drainage pumps, conducting evacuation drills, and disaster preparedness such as developing a BCP). (3) Reduce risk through insurance coverage. (4) Quantitatively assess physical risks and identify high-risk properties. (5) Share risk information with Group companies. |
| Chronic | Increased use of air conditioning at owned properties due to rising average temperatures | Increased replacement costs due to performance deterioration and early failure | Medium | Medium | Medium | Small | Promote planned investment in energy-efficient, high-performance equipment; Discuss switching to more energy-efficient, high-performance equipment with the ML in addition to the conventional replacement plan | |
| Chronic | Disruption of transport networks and logistics due to sea-level rise | Decreased rental income due to store closures (inability to continue store operations) | Low | Low | Low | Small | Continue planned efforts to obtain environmental certifications and periodically renew equipment | |
| Opportunity | Products & Services | Increased demand for certified properties and properties with superior environmental performance | (1) Increased tenant demand for properties with strong environmental performance (2) Increased rental income driven by improved leasing competitiveness of our environmentally certified properties |
High | High | High | Medium | Continue to systematically pursue environmental certification and periodic equipment replacement. |
| Market | Greater emphasis on sustainability finance | Expanded funding sources through sustainability finance | High | High | High | Medium | (1) Maintain and improve third-party certifications, etc. (2) Strengthen disclosures |
|
| Resilience | Increased demand for disaster-resilient properties | Increased property asset value through continuous, stable operations | Medium | Medium | Medium | Small | (1) Identify investment opportunities based on risk analysis using hazard maps and other sources (2) Share information on investment opportunities with Group companies (3) Use quantitative assessment of physical risks to select investment targets and consider investment plans/measures (4) Discuss value-up initiatives with ML |
|
4℃ Scenario
| Category | Potential Event | Financial Impact | Likelihood | Impact Magnitude (when occurs) | Response Measures | |||
|---|---|---|---|---|---|---|---|---|
| Short-term (2026–30) |
Mid-term (2031–40) |
Long-term (2041–50) |
||||||
| Physical Risk | Acute | Significant increase in natural disasters such as floods and typhoons | Increased repair costs and insurance premiums due to flood damage in hazard areas | Medium | Medium | High | Large | (1) Identify risks using hazard maps and other sources.; (2) Implement measures to address physical risks (e.g., installing flood barriers/waterproof boards, installing drainage pumps, conducting evacuation drills, and disaster preparedness such as developing a BCP).; (3) Reduce risk through insurance coverage.; (4) Quantitatively assess physical risks and identify high-risk properties.; (5) Share risk information with Group companies. |
| Chronic | Increased use of air conditioning at owned properties due to rising average temperatures | Increased replacement costs due to performance deterioration and early failure | High | High | High | Medium | Promote planned investment in energy-efficient, high-performance equipment | |
| Chronic | Increased flood damage due to sea-level rise | Decreased rental income due to store closures (inability to continue store operations) | Medium | Medium | Medium | Medium | Continue coordination with the ML on disaster countermeasures such as BCP development, etc. | |
| Opportunity | Products & Services | Increased demand for certified properties and properties with superior environmental performance | (1) Increased tenant demand for properties with strong environmental performance (2) Increased rental income driven by improved leasing competitiveness of our environmentally certified properties |
Medium | Medium | Medium | Small | Continue planned promotion of environmental certification acquisition |
| Market | Greater emphasis on sustainability finance | Expanded funding sources through sustainability finance | Medium | Medium | Medium | Small | (1) Maintain and improve third-party certifications, etc. (2) Strengthen disclosures |
|
| Resilience | Increased demand for disaster-resilient properties | Increased property asset value through continuous, stable operations | Medium | High | High | Medium | (1) Identify investment opportunities based on risk analysis using hazard maps and other sources (2) Share information on investment opportunities with Group companies (3) Use quantitative assessment of physical risks to select investment targets and consider investment plans/measures (4) Discuss value-up initiatives with ML |
|
Analysis Results and Future Action
In the 1.5℃ scenario, it is assumed that stringent regulations and taxation systems will be introduced for the purpose of curbing GHG emissions to realize a decarbonized society. This is expected to increase costs associated with the response including property management, property facility repair, and financing. At the moment, direct impact on AEON REIT is considered small because of the nature of current mater lease agreement, while in the future, the value of properties with poor environmental performance may decline, and decrease in demand by tenants/end tenants may happen due to no longer being considered for selection as properties, which may ultimately lead to a decline in rents.
In the 4℃ scenario, it is assumed that GHG emissions will continue to increase due to the aforementioned regulations and taxation systems not being introduced, and that weather disasters caused by rising temperatures will increase in severity. As a result, repair expenses and insurance premiums for owned properties are expected to increase. At the moment, direct impact on AEON REIT is considered small because of the nature of current mater lease agreement, while in the future, for properties with a high risk of being exposed to weather disasters, the demand by tenants/end tenants may decrease due to no longer being considered for selection as properties, which may ultimately lead to a decline in rents.
The Investment Corporation is promoting an increase of the percentage of green qualified assets within its portfolio to prepare for the transition risk anticipated under the 1.5℃ scenario to ensure the properties owned continue to be “Community Infrastructure Assets”. In the same time, promoting the understanding of risks and responses to disasters using a hazard map to prepare for the risks anticipated under the 4℃ scenario as well. Meanwhile, risks caused by climate change are considered to become more multi-faceted. In addition to the initiatives at present, AEON REIT will further strengthen ties with the Group companies, and endeavor to reduce risks and create opportunities through steps including appropriate information gathering, establishment of a system for considering responses to risks, and updating the facilities in owned properties.