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
Duration
From 2022 until 2050.
Timelines for short-term, medium-term and long-term are set as follows.
Short-term: Until 2025
Medium-term: Until 2030
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: 4℃ scenario/ IPCC RCP 8.5 Scenario *3 *4
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 with the end of the 20th century (or present) |
|---|---|
| Average annual temperature | Increased by approximately 4.5℃ |
| Number of days with 200mm or more rainfall | Increased by approximately 2.3 times |
| Maximum daily rainfall per year | Increased by approximately 27% (33mm) |
| Average sea level | Increased by approximately 0.71m |
| Typhoons and storms associated with typhoons | Stronger |
Financial Impact of Risks and Opportunities Based on Scenario Analysis
The Asset Management Company identified risks and opportunities based on the aforementioned 1.5℃ and 4℃ scenarios. Timelines were set according to the content of each of the identified risks and opportunities, and future action was considered after examining the financial impact. An overview of the analysis results is shown in the table below.
| Classification | Timeline | Risk | Potentially Occurring Events | Future Impact |
Action | ||
|---|---|---|---|---|---|---|---|
| Risk | Transition | Regulatory | Medium-term | Stricter carbon tax and associated taxation of greenhouse gas emissions | Increase in cost of responding to properties' GHG emissions (property facility updates, tax burden, cost of purchasing credits, etc.) | Small | (1)Promotion of CO2 reduction through partnership with the Group
companies (2)Promotion of the introduction of facilities with high environmental performance (energy saving, etc.) in properties |
| Legal | Medium-term | Stricter regulations and scope expansion associated with revision of the Building Energy Efficiency Act | (1)Restrictions on acquisition of antiquated properties and reduction of
number of properties in pipeline due to non-conformance with the revised
Building Energy Efficiency Act (2)Increase in refurbishment costs aimed at conformance with the Building Energy Efficiency Act |
Small | Promotion of the introduction of facilities with high environmental performance (energy saving, etc.) in properties | ||
| Medium-term | Requirement to comply with reduction of HFCs *1 associated with the complete abolition of CFC *2 emitting facilities *1 HFC: Hydro fluoro carbon *2 CFC: Chloro fluoro carbon |
Increase in cost of introducing facilities (such as natural refrigerants) on properties | Medium | Promotion of replacement of facilities aimed at the reduction of HFCs | |||
| Technology | Medium-term | Reduction of cost competitiveness for not promoting investment in facilities with high energy saving performance | (Although the direct impact on AEON REIT is small due to the nature of present master lease agreements) Possibility of increase in demands to reduce rent or in vacancies in owned properties due to rise of property operation cost | Small | Promotion of investment in high energy-saving facilities | ||
| Market | Short-term | Increasing difficulty in financing conditions due to lower ESG rating | (1)Increasing difficulty in implementation of sustainability finance (2)Increase in financing costs |
Small | (1)Continuous development of sustainability finance promotion system (2)Strengthening of disclosure |
||
| Medium-term | Decline in rents and values of properties with poor environmental performance | (1)Decline in property valuation due to change in appraisal
standards (2)Increase in departure of tenants due to rising utility costs caused by poor environmental performance. Occurrence of risk of rent reduction as a result. |
Small | (1)Implementation of periodic catch-up related to changes in appraisal
standards. Consideration of measures based on these. (2)Containment of fall in appraisal valuation through the ongoing acquisition of environmental certification (3)Differentiation from other facilities through planned introduction of facilities with high environmental performance |
|||
| Reputation | Short-term | Intensification of activities for initiatives aimed at carbon neutrality
(AoA *1、NZAM *2、NZBA *3, etc.). Avoidance of financing to REITs with inadequate initiatives aimed at reducing greenhouse gas emissions due to this. *1 AoA: Net-Zero Asset Owner Alliance *2 NZAMNZAM: Net Zero Asset Managers initiative *3 NZBA: Net-Zero Banking Alliance |
Increasing difficulty in financing due to decrease in demand | Small | (1)Formulation of policies contributing to the achievement of carbon
neutrality (2)Promotion of the introduction of facilities with high environmental performance in properties (3)Strengthening partnership with the Group companies (4)Maintaining high ratings from ratings agencies through disclosure |
||
| Physical | Acute | Short-term | Increase of natural disasters such as floods and typhoons, and interruption of building operation and decline in building value associated with the occurrence of these | (1)Increase in repair expenses and insurance premiums due to flood damage in
hazard areas (2)Decrease of asset value of properties with a high risk of flooding in hazard areas |
Small | (1)Understanding risks using hazard maps, etc. (2)Responses to physical risks (measures to address disasters such as installation of water shutters, etc., installation of drainage pumps, evacuation drills and formulation of BCP) (3)Risk mitigation through the purchase of insurance (4)Quantitative understanding of physical risks and identification of high-risk properties (5)Implementation of sharing of risk information with the Group companies |
|
| Chronic | Medium-term | Decrease in visitors to owned properties due to extreme changes in climate and the spread of infectious disease | (Although the direct impact on AEON REIT is small due to the nature of present master lease agreements) Possibility of increase in demands to reduce rent or in vacancies in owned properties due to future downscaling of operations | Small | (1)Active promotion of measures to prevent the spread of infectious disease
such as online services and pickup services in owned properties led by the
master lessee (2)Implementation of periodic monitoring of the three following points in the asset management company ⑴Status of international measures to address climate change and infectious disease ⑵Status of master lessee's response to climate change ⑶Status of infections where owned properties are located (3)Periodic engagement with the master lessee and consideration of investment in epidemic prevention measures as needed |
||
| Short-term | Increase in use of air conditioning and utilities expenses in owned properties due to rise in average temperature | (Although the direct impact on AEON REIT is small due to the nature of present master lease agreements) Possibility of increase in demands to reduce rent or in vacancies in owned properties due to rise of property operation cost | Small | Promotion of investment in high energy-saving facilities | |||
| Long-term | Interruption of operation and fall in value of owned properties associated with rising sea levels. | Occurrence of termination of contracts due to interruption of operation of properties, and increase in capital investment such as expenses for measures to address this | Small | (1)Understanding risks using hazard maps, etc. (2)Measures to address disasters such as installation of water shutters, etc., installation of drainage pumps, evacuation drills and formulation of BCP (3)Quantitative understanding of physical risks and identification of high-risk properties (4)Implementation of sharing of risk information with the Group companies |
|||
| Opportunity | Products and services | Short-term | Stabilization of tenant demand through acquisition of green building certification | Increased reputation and value of owned properties | Small | (1)Third-party certification obtained in 84.9% of domestic owned properties
on a total leasable area basis as of July 31, 2022 (2)Ongoing promotion of planned acquisition of environmental certification |
|
| Market | Short-term | Decrease in financing cost in the issuance of ESG bonds | Able to differentiate from REITs unable to issue ESG bonds | Small | Consideration of setting acquisition requirements related to sustainability | ||
| Resilience | Long-term | Ensuring stable operation as "Community Infrastructure Assets" by promoting the acquisition and ownership of properties resilient against natural disasters | (1)Reduction of damage from natural disasters (2)Continuous stable operation |
Small | (1)Understanding risks using hazard maps, etc. (2)Responses to physical risks (measures to address disasters such as installation of water shutters, etc., installation of drainage pumps, evacuation drills and formulation of BCP) (3)Risk mitigation through the purchase of insurance (4)Quantitative understanding of physical risks and identification of high-risk properties (5)Implementation of sharing of risk information with the Group companies |
||
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.
Risk Management
The Investment Corporation will include the perspective of climate change risks and opportunities in its risk management processes implemented in the Asset Management Company, and conduct ongoing risk assessments. Furthermore, the assessment of important risks and opportunities related to climate change will be shared and deliberated with the Sustainability Promotion Sub-committee of the asset management company.