Sustainability-Related Disclosures

Product Name: AEON REIT Investment Corporation

Legal Entity Identifier: 353800P59F8MJB4FE788

AEON REIT Investment Corporation (“AEON REIT”) promotes environmental or social characteristics, but does not have as its objective a sustainable investment within the meaning of article 9(1) of Regulation (EU) 2019/2088 (“SFDR”). AEON REIT does not have any employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on AEON Reit Management Co., Ltd. (“Asset Manager”), to manage and operate the properties in our portfolio. The Asset Manager and AEON REIT are hereafter referred to as “we”, “us” or “our”. In addition, any “fiscal year” or “FY” hereinafter refers to the fiscal year beginning on March 1 of such year and ending on the last day of February of the following year.

Summary

No sustainable investment objective	The financial products offered by AEON REIT promote environmental or social characteristics, but do not have as their objective sustainable investment.
Environmental or social characteristics of the financial product	The Asset Manager closely monitors the impact of AEON REIT’s portfolio and its management and operations on environmental factors such as setting reduction goals with respect to greenhouse gas emissions and energy consumption in all properties in our portfolio, reducing greenhouse gas emissions and energy consumption generally, promoting the usage of electric cars by installing charging stations, promoting “green procurement” in the entire supply chain for real estate management, including “Green Lease” provisions in our agreements, selecting electric power companies and property management companies in light of their environmental considerations, among other factors, promoting the usage of reusable shopping bags and promoting the planting of trees as well as social factors such as supporting local communities with properties that have high public utility, business-continuity-planning and providing assistance to the community during an emergency, supporting local communities by facilitating local groups’ activities as well as art and cultural events, providing support to tenants and their employees and promoting diversity.
Investment strategy	Our basic philosophy is to contribute to the enhancement of people’s lives and local communities through investment in retail facilities and related properties. With this philosophy in mind, we aim to ensure stable income in the medium to long term by investing in assets that form the backbone of local communities and their lifestyle infrastructure. To this end, we mainly invest in retail properties in Japan that are operated by the AEON Group, which have generated stable revenues and shown steady growth. Regarding the type of properties we invest in, we divide our properties into three general types: (i) large-scale retail properties, (ii) other retail properties, and (iii) logistics facilities. Therefore we plan to maintain a minimum investment percentage (based on the acquisition price) of 80% or more for large-scale retail properties, no more than 20% for other retail properties such as supermarkets, and no more than 10% for logistics facilities.
Proportion of investments	AEON REIT offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of January 31, 2025, 86.8% of the properties in our portfolio based on total leasable area were Green Qualified Assets or Sustainability Qualified Assets, and 13.2% were nonqualified assets (which are the 11 properties in our portfolio in Japan). We plan to increase the number of qualifying assets with reducing each environmental metric by 5% in the five years from FY 2020 to FY 2024.
Monitoring of environmental or social characteristics	We use the following indicators to measure the attainment of the E/S characteristics we promote; (i) Overall ESG performance; (ii) Environmental certification of individual properties; (iii) Climate change initiatives – energy consumption and efficiency and greenhouse gas emissions; and (iv) Social initiatives – local community.
Methodologies	The Asset Manager has established a “Sustainability Promotion Committee” for the promotion of initiatives related to sustainability. The committee is chaired by the Representative Director and President of the Asset Manager, who is the final decision-maker as well, and consists of directors, compliance officers, and heads of each department. The committee examines and deliberates on policies related to sustainability, goals for each fiscal year, and specific measures to achieve these goals, etc. The committee is held at least once quarterly in principle and 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 Manager at least once every six months. Details on the indicators above are described below.
Data sources and processing	As further described below, the Asset Manager obtains certain ESG related data from third-party organizations that issue environmental certifications, tenants, property management companies, etc. The Asset Manager seeks to ensure data accuracy and quality coordinating with relevant departments and a third party organization.
Limitations to methodologies and data	The primary limitation to methodologies and data is the necessity of reliance on tenants and property management companies for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the tenants and property management companies. 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 property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third party organization. Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by AEON REIT in any material way.
Due diligence	Due diligence review of a target property, which involves determination of the possibility of environmental hazardous substances and land pollution, is a binding element of the investment strategy. We also do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances, unless the defects are deemed curable immediately after the investment.
Engagement policies	We do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances from our portfolio. However, from time to time we acquire properties not meeting the standards as long as they are deemed fixable promptly after acquisition. We also invest in properties that have been constructed, reinforced, or otherwise modified to meet applicable new earthquake resistance building codes or have been deemed to have seismic capacity equivalent thereto. We invest so that the overall probable maximum loss (PML) of our portfolio in Japan does not exceed 10%. PML indicates the level of damage that may result from an earthquake of the assumed maximum size for the assumed scheduled use period, expressed as a ratio of the replacement cost to the estimated expenses required to restore the damaged property to its pre-earthquake condition. For those properties with PML that exceed 15%, we consider taking out earthquake insurance. The Asset Manager has also established the Sustainability Finance Framework and the framework is a binding element as it involves determination of whether the property qualifies under one of the green qualification criteria or sustainability qualification criteria that we have set. We have committed to exclusively use funds financed through Green Financing or Sustainability Financing for investments in Green Qualified Assets and Sustainability Qualified Assets, or other projects aimed at promoting sustainability. In addition, we include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy consumption of our tenants and to facilitate and improve ESG certification of the buildings in AEON REIT’s portfolio.
Designated reference benchmark	AEON REIT has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by AEON REIT.

No sustainable investment objective

The financial products offered by AEON REIT promote environmental or social characteristics, but do not have as their objective sustainable investment.

Environmental or social characteristics of the financial product

Our basic philosophy is to contribute to the enrichment of people’s lives and local communities through investment in retail properties and other related properties that form the backbone of local communities. To this end, we strive to invest in properties that we deem to be “community infrastructure assets”, which include (i) community platforms offering a range of tenants that are visited on a daily basis, (ii) properties that respond flexibly to the changes in the needs of the people to ensure continuous operations, and (iii) properties that are essential to the development of local communities. As part of the AEON Group, we are committed to the “AEON Sustainability Principle”, “AEON Sustainable Procurement Policy”, and the “AEON Group Food Waste Reduction Targets”, which were established and revised to reflect the goals set by the United Nations Sustainable Development Goals and the Paris Agreement of 2015. Since March 2018, we are also committed to the AEON Group’s “AEON Decarbonization Vision”, in which we aim to achieve a carbon-free society by 2040 by promoting energy saving and renewable energy. In addition, based on AEON REIT’s corporate philosophy and the Sustainability Policy it has formulated, in 2021 AEON REIT identified certain material issues it faces. In September 2023, we set new key performance indicators (KPIs) to enable more effective efforts toward resolving these material issues. We will implement a plan-do-check-act (PDCA) cycle focused on efforts to achieve these KPIs in order to resolve environmental and social challenges and realize medium to long term corporate growth. To realize both our philosophy and our sustainability goals, we believe that initiatives that promote environmental, social, and governance (“ESG”) goals are important and necessary part of our investment decision.

AEON REIT does not have a specific index designated as a reference benchmark to determine whether AEON REIT is aligned with the environmental or social characteristics that it promotes.

We implement various environmental initiatives at our properties including:

Setting reduction goals with respect to greenhouse gas emissions and energy consumption in all properties in our portfolio. We aim to reduce energy consumption intensity and CO₂ emissions intensity by 1% per year each on average. We also aim to source 50% of our electricity/energy consumption from renewable energy and achieve 50% reduction of CO₂ emissions (Scope 3) by FY2030, and have also set a “net zero” goal by FY2040. We aim to achieve this goal with the environmental initiatives listed below.
Reducing greenhouse gas emissions and energy consumption generally. We aim to reduce greenhouse gas emissions by replacing environmentally damaging coolants used in our refrigerators and freezers with natural refrigerants (the first Japanese retailer to do so). All new malls that opened on and after FY2015 use natural refrigerants, and pre-existing malls will continue to update the refrigerants used one by one. We also install energy saving equipment such as LED lighting and efficient air-conditioning systems at our properties. We increase usage of renewable energy through installation of solar panels at our properties.
Promoting the usage of electric cars by installing charging stations. We install charging stations at our properties.
Promoting “green procurement” in the entire supply chain for real estate management. Green procurement is a term for product and service procurement efforts that involve preferentially selecting recycled goods and other environmentally conscious products, as well as suppliers engaged in initiatives that contribute to reducing the burden placed on the environment.
Including “Green Lease” provisions in our agreements. We include environmental provisions, which we refer to as “Green Lease” provisions, in the leases with our tenants. Our Green Lease provisions include a clause that require our tenants to cooperate with us in implementing environmental measures.
Selecting electric power companies and property management companies in light of their environmental considerations, among other factors. We select electric power companies based on the cost, stability of supply, and their CO₂ emission, among other factors. We select property management companies based on their ability to build, manage, and renovate buildings. We also consider their policies on environmental considerations, industrial safety, and health for employees, and their understanding of and compliance with the Asset Manager's sustainability policy. We also ask selected property management companies to make proposals to reduce energy consumption and environmental impact. All property managers are evaluated once a year.
Promoting the usage of reusable shopping bags. The AEON Group has been running the “Bring Your Own Shopping Bag Campaign” since 1991, helping reduce CO₂ emissions and waste, as well as conserving petroleum used in the manufacturing of single-use plastic bags.
Promoting the planting of trees. In November 2013, the number of trees planted by the AEON Group exceeded 10 million, and AEON Group launched the Forest Circulation Program, in which it aims to “plant, nurture, and utilize” trees.

We implement various social initiatives at our properties including:

Supporting local communities with properties that have high public utility. We have built and managed facilities as well as invited tenants to our properties that help the local community. These properties include healthcare facilities, government offices, day-care centers, banks, and post offices, as well as multipurpose halls for use by local governments and other groups. Some of our properties have improved the customers’ convenience by installing docks for bike-sharing programs in cooperation with local governments.
Business-continuity-planning and providing assistance to the community during an emergency. Our properties have been improved and are prepared to provide assistance to the local community in the event of natural disasters and other emergencies that could disrupt the local community. AEON Co., Ltd. was the first retailer to be designated as a “Designated Public Institution” under the Basic Act on Disaster Management. We have disaster prevention agreements with local governments for 100% of retail properties in our portfolio in Japan, and some of them are registered as disaster prevention centers. We are also prepared to provide drinking water and electricity to assist the reconstruction process of local communities hit by an emergency. We have also increased the resiliency of our properties to minimize the damage caused by earthquakes and to accelerate the restoration of the properties’ operations to provide services to the local communities hit by an emergency. These efforts include installing road-heating systems to mitigate snow damage as well as constructing smoke-proof hanging walls that slow down the flow of smoke in the event of a fire. We also conduct regular emergency drills to improve our properties’ abilities to deal with disasters. We are also cooperating with the Japan Ground Self-Defense Force and Japan Airlines in order to set up temporary shelters at our retail properties in Japan. During the COVID-19 pandemic, our properties have conducted daily COVID-19 countermeasures to provide safety to customers.
Providing support to tenants and their employees. We provide amenities such as break rooms and day-care centers for tenant employees. We also implement barrier-free working environment by installing ramps, barrier-free restrooms, as well as barrier-free vending machines in our retail properties in Japan.
Promoting diversity. We install genderless restrooms in our retail properties in Japan. We have also committed to increasing female managers in our properties, aiming to fill 50% or more of all managerial roles with female employees in adherence to the goals set by the AEON Group.
Providing employees with opportunities to promote their work-life balance and career development. The Asset Manager has an employee-friendly environment with initiatives such as conducting employee satisfaction surveys, conducting employee stress checks, establishing a whistleblowing system, providing access to AEON Group’s benefit program, and providing a comfortable and safe work environment by taking steps to prevent infectious diseases. We also hold regular training sessions to develop our human resources, and have a support system for those who wish to obtain professional licenses such as real estate notary, ARES master, and certified real estate consulting master. We also introduced a cumulative investment purchase program for the employees, which helps enhance employee awareness of improvements in results and contributes to the sustainable growth of the Investment Corporation. The Asset Manager was certified by the CERTIFIED 2025 Health & Productivity Management Outstanding Organizations Recognition Program (for SMEs) in March 2025.

Investment strategy

We invest directly or indirectly though trust beneficiary interests in real estate. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment and due diligence policies as described below are related to real estate and real estate-related assets.

Our basic philosophy is to contribute to the enhancement of people’s lives and local communities through investment in retail facilities and related properties. With this philosophy in mind, we aim to ensure stable income in the medium to long term by investing in assets that form the backbone of local communities and their lifestyle infrastructure. To this end, we mainly invest in retail properties in Japan that are operated by the AEON Group, which have generated stable revenues and shown steady growth. Regarding the type of properties we invest in, we divide our properties into three general types: (i) large-scale retail properties, (ii) other retail properties, and (iii) logistics facilities. Therefore, we plan to maintain a minimum investment percentage (based on the acquisition price) of 80% or more for large-scale retail properties, no more than 20% for other retail properties such as supermarkets, and no more than 10% for logistics facilities. As of January 31, 2025, 93.5% of our properties were large-scale retail properties and 6.5% were logistics facilities. We also divide our properties based on location. We plan to maintain a minimum investment percentage of 85% or more for properties in Japan and no more than 15% for overseas properties.

In order to realize sustainability in our asset management and to maximize the value of our portfolio assets, we have emphasized taking ESG factors into consideration concerning our investment and asset management processes. The Asset Manager has established the Sustainability Finance Framework in order to expand financing methods and to enhance the development of sustainability finance. As part of this effort, we have committed to exclusively use funds financed through Green Financing or Sustainability Financing for investments in Green Qualified Assets and Sustainability Qualified Assets, or other projects aimed at promoting sustainability (the “Green and Sustainability Fund”).

Green and Sustainability Financing. As part of Green Financing and Sustainability Financing, we have issued green bonds as well as sustainability bonds. We were the first J-REIT to issue a sustainability retail bond, and we raised ¥18 billion through retail bond financing on December 4, 2020, the highest amount in J-REIT history at the time. We have also financed using green loans.
Selection of projects that qualify for Green and Sustainability Funds. When determining whether to acquire or invest in properties using the Green and Sustainability Fund, the Finance and Planning Department of the Asset Manager determines whether the property qualifies under one of the green qualification criteria or sustainability qualification criteria that we have set and described below:

Green Qualification and Sustainability Qualification Criteria 1: Environmental certification. We use the DBJ Certification, BELS, CASBEE, and any other third-party certification with equivalent ratings for the environmental certification of the properties in our portfolio. As of January 31, 2025, 86.8% of the properties in our portfolio in Japan based on total leasable area had an environmental certification.
Green Qualification Criteria 2: Repair Work. We invest in repair work that aims to achieve effective environmental improvements in terms of energy efficiency and water consumption, etc. at our portfolio properties.
Sustainability Qualification Criteria 2: Social Projects. We invest in social projects that contribute to (i) the socioeconomic improvement and empowerment of the local community through sufficient local employment, or (ii) the improvement in access to essential services. A property will qualify under (ii) if it (a) provides assistance to the local population during an emergency by concluding a disaster prevention agreement with the local government, (b) contributes to the healthy and cultured lives of the local population through tenant childcare facilities or medical facilities, (c) provides basic infrastructure by having public tenants such as a post office, and (d) provides barrier-free or gender-free equipment.

While there is no third-party rating used for assessment of AEON REIT’s governance practices, we, along with the Asset Manager, have introduced the following measures to assess and enhance our own governance systems:

Adoption of asset management fee structure linked to Distribution Per Unit (DPU). We pay the Asset Manager fees based on DPU in order to align the interests of our sponsors and the interest of the Asset Manager.
Adoption of a decision-making process in conflict-of-interest transactions involving independent outside experts. We are not allowed to carry out related-party transactions without the approval of independent outside expert(s) on the Asset Manager’s Investment Committee and Compliance Committee.
Transparent and appropriate information disclosure. We have a policy of disclosing information in an appropriate and timely manner, in accordance to the requirements set by the Investment Trusts Act, Financial Instruments and Exchange Act, the Tokyo Stock Exchange, and the Investment Trusts Association, Japan. Further, in consideration of the unitholder’s needs, we provide disclosure responses with details that go beyond what is required by law. In doing so, we take into consideration the transparency of the information and the ease with which the shareholders will understand the information. To facilitate the needs of all unitholders, regardless of whether they are based in Japan or overseas, we provide press releases and disclosure materials in both Japanese and English.

Proportion of investments

AEON REIT offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of January 31, 2025, 86.8% of the properties in our portfolio based on total leasable area were Green Qualified Assets or Sustainability Qualified Assets, and 13.2% were nonqualified assets (which are the 11 properties in our portfolio in Japan). We plan to increase the number of qualifying assets with reducing each environmental metric by 5% in the five years from FY 2020 to FY 2024.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the E/S characteristics we promote:

Overall ESG performance. To independently assess the overall ESG performance of our portfolio, we submit to the annual review by the Global Real Estate Sustainability Benchmark (“GRESB”). In 2024, we were awarded a 5-Star GRESB Rating for the fifth consecutive year, as well as a “Green Star” certification for the ninth consecutive year.
Environmental certification of individual properties. To track the environmental performance of our properties, we use certifications issued by third party organizations (such as the Development Bank of Japan’s Green Building Certification (“DBJ Certification”), Building Energy-efficiency Labeling System (“BELS”) certification, Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification, and any other third party certification whose ratings are equivalent to the previously mentioned certifications) to rate our properties. We call our properties that receive any of the certifications listed below a Green Qualified Asset and a Sustainability Qualified Asset. For DBJ Certification, we consider a property to have the environmental certification if it received a three stars or higher out of the five-star ranking system of the DBJ Certification. For CASBEE, we consider a property to have the environmental certification if it received a B+ Rank or higher out of the CASBEE ranking system featuring Rank S (excellent), Rank A (very good), Rank B+ (good), Rank B– (slightly inferior) and Rank C (inferior). For BELS, we consider a property to have the environmental certification if it received a three stars or higher out of the five-star ranking system of BELS. We aim to achieve/maintain a percentage of Green Qualified Assets and Sustainability Qualified Assets of 3 stars equivalent or higher properties of 85% or more and a percentage of 4 stars equivalent or higher properties of 80% or more. Furthermore, we aim to achieve the percentage of 4 stars equivalent or higher properties of 90% or more by FY2030. As of January 31, 2025, 86.8% of our buildings based on total leasable area were Green Qualified Assets and Sustainability Qualified Assets. As of January 31, 2025, 83.7% of our buildings based on total leasable area were 4 stars equivalent or higher properties.
Climate change initiatives – energy consumption and efficiency and greenhouse gas emissions: We track and monitor the total annual energy consumption intensity and CO₂ emissions intensity of our properties. We aim to achieve a 5% reduction in each of these metrics over five years from FY2020 to FY2024.
Social initiatives – local community: We offer certain properties in our portfolio as disaster prevention centers for nearby local communities.

Methodologies

The Asset Manager has established a “Sustainability Promotion Committee” for the promotion of initiatives related to sustainability. The committee is chaired by the Representative Director and President of the Asset Manager, who is the final decision-maker as well, and consists of directors, compliance officers, and heads of each department. The committee examines and deliberates on policies related to sustainability, goals for each fiscal year, and specific measures to achieve these goals, etc. The committee is held at least once quarterly in principle and 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 Manager at least once every six months.

Overall ESG performance. GRESB is a portfolio-level assessment and is conducted by GRESB through annual submission of our responses and relevant data to GRESB’s questionnaires on ESG matters. Sustainability promotion officers of the Asset Manager take the lead in answering the questionnaires in collaboration with the relevant departments. The answers and related data are prepared based on the advice of external consultants. The final results are reported at the Sustainability Promotion Committee and then to the Board of Directors of the Asset Manager and AEON REIT.
Environmental certification of individual properties. The Asset Management Department of the Asset Manager takes the lead in collecting data related to the environmental certifications, responding to scoring sheets, and conducting on-site inspections in collaboration with the persons in charge of the subject properties. The department in charge of disclosure and sustainability of the Asset Manager discloses information on new and renewed certifications in collaboration with the Asset Management Department. The acquisition status of the certifications is reported to the Sustainability Promotion Committee, and then to the Board of Directors of the Asset Manager and AEON REIT.
Climate change initiatives – energy consumption and efficiency and greenhouse gas emissions: The Asset Management Department of the Asset Manager collects and compiles the environment-related data (energy consumption and efficiency and greenhouse gas emissions) on our properties through the property management companies and manages the progress of the reduction. The status is shared once a quarter with the Sustainability Promotion Committee and reported once every six months to the Board of Directors of the Asset Manager and AEON REIT.
Social initiatives – local community: Each company of the Aeon Group is investing in facilities that contribute to disaster reduction and registering as disaster prevention centers. The progress of these operations is published in the disclosure media of each company.

Data sources and processing

We use the following data sources:

Overall ESG performance. With regard to data pertaining to questionnaires of GRESB on policies, systems, disclosure information, etc. related to the sustainability management of AEON REIT and the Asset Manager, the information is collected and answered in collaboration with the relevant departments of the Asset Manager. The Asset Management Department of the Asset Manager collects and compiles the property-related data through the property management companies. The environment-related data is verified by a third-party organization.
Environmental certification of individual properties. The property-related data for obtaining the environmental certifications is collected through scoring sheets answered by the persons in charge of the subject properties. The data is confirmed by the Asset Management Department of the Asset Manager and shared with the certifying organizations. The calculation of the certification acquisition ratio is verified by a third-party organization.
Climate change initiatives – energy consumption and efficiency and greenhouse gas emissions The Asset Management Department of the Asset Manager collects and compiles the environment-related data (energy consumption and efficiency and greenhouse gas emissions) on our properties through the property management companies. The data is verified by a third-party organization.
Social initiatives – local community: The status and progress of registration of the properties owned by AEON REIT as the disaster prevention centers is confirmed in collaboration with the companies of the Aeon Group.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on tenants and property management companies for data at the property level. Like many other real estate investment corporations and asset managers, we rely on data provided by the tenants and property management companies. 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 property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third party organization.

Limitations to the methodologies and data are not expected to affect the attainment of the environmental or social characteristics promoted by AEON REIT in any material way.

Due diligence

Due diligence review of a target property, which involves determination of the possibility of environmental hazardous substances and land pollution, is a binding element of the investment strategy.

We also do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances, unless the defects are deemed curable immediately after the investment.

Engagement policies

We do not consider investing in properties that do not meet the standards for soil contamination and other environmental contamination in accordance with the Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental laws and ordinances from our portfolio. However, from time to time we acquire properties not meeting the standards as long as they are deemed fixable promptly after acquisition. We also invest in properties that have been constructed, reinforced, or otherwise modified to meet applicable new earthquake resistance building codes or have been deemed to have seismic capacity equivalent thereto. We invest so that the overall probable maximum loss (PML) of our portfolio in Japan does not exceed 10%. PML indicates the level of damage that may result from an earthquake of the assumed maximum size for the assumed scheduled use period, expressed as a ratio of the replacement cost to the estimated expenses required to restore the damaged property to its pre-earthquake condition. For those properties with PML that exceed 15%, we consider taking out earthquake insurance.

As stated above, the Asset Manager has also established the Sustainability Finance Framework and the framework is a binding element as it involves determination of whether the property qualifies under one of the green qualification criteria or sustainability qualification criteria that we have set. We have committed to exclusively use funds financed through Green Financing or Sustainability Financing for investments in Green Qualified Assets and Sustainability Qualified Assets, or other projects aimed at promoting sustainability.

In addition, we include certain information-sharing and cooperation clauses in the lease contracts with our tenants in order to monitor energy consumption of our tenants and to facilitate and improve ESG certification of the buildings in AEON REIT’s portfolio.

Designated reference benchmark

AEON REIT has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by AEON REIT.

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

The Asset Manager has a remuneration policy in place which aims to support its strategy, values and long-term interest, including its interest in sustainability. The Asset Manager’s remuneration policy is consistent with the integration of sustainability risks as follows.

Employees of the Asset Manager receive remuneration according to their relative contribution to and expectations for the achievement of management targets, including, in some cases, sustainability targets.
Remuneration, methods of calculation and payment, timing of payment, and increases in remuneration are determined according to the Asset Manager’s compensation rules, which are established based on statutory requirements.
Monthly remuneration is composed of job-based pay, merit pay and adjustments. Employees may receive increases or reductions after twelve months of their current job-based and merit pay based on personnel evaluations during the year. Such increases or decreases will be set based on a pay table determined for each job category.
Bonuses are calculated based on sales and performance, and are determined after deliberation by the Asset Manager’s Board of Directors. Bonuses take into account issues including qualifications (pay grades), personnel evaluations, performance, and attendance. Such evaluations take into consideration the employee’s contributions and conduct with respect to sustainability efforts and compliance requirements.

INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISIONS, AND THE IMPACT OF SUCH RISKS ON THE RETURNS OF AEON REIT INVESTMENT CORPORATION (SFDR ARTICLE 6 DISCLOSURE)

We address sustainability risks by taking into account ESG factors in our investment decision process and on a continuous basis.

We have established the Sustainability Promotion Committee, which meets at least once every quarter in order to discuss the implementation of green and sustainable investment objectives in light of sustainability risks for the current year and the following year. At these meetings, a general manager who exerts control over relevant matters will make proposals on specific steps toward implementing and achieving ESG goals to the members of the Committee, which include the president and representative director. The chairperson of the committee, which is the president and representative director, has the authority to make final decisions on such proposals.

Under this organizational structure, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote E/S characteristics. Such initiatives include climate change initiatives, water resources and waste management initiatives, local community initiatives, and tenant and employee initiatives.

While sustainability issues will severely impact our business activities, we believe that such issues may also become potential business opportunities to create new value for sustainable growth. Accordingly, we position our commitment to sustainability as a top priority in our management strategies. We also believe that integrating sustainability factors alongside traditional financial and operational metrics in our investment decision process helps us make a more holistic assessment of a property’s risks and opportunities and is commensurate with the pursuit of superior risk-adjusted returns.

The following tables present the key climate-related risks that may have financial impacts on our real investment management business (including returns) and the initiatives that we have taken to address those risks.

Classification		Timeline	Risk	Potentially Occurring Events	Future Impact	Action
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
	Legal	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
Transition	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
	Market	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

Statement on principal adverse impacts of investment decisions on sustainability factors PDF