The financial products offered by United Urban promote environmental or social characteristics, but do not have as its objective sustainable investment.

United Urban invests directly or indirectly through trust beneficiary interests in real estate and real estate-related assets. Therefore, due diligence review (including the assessment of good governance practices) in relation to investee companies is not applicable, and we have opted to provide information on the governance policies adopted by United Urban and the Asset Manager. The investment policies as described below are related to real estate and real estate-related assets.

United Urban takes into account sustainability in its investment process as follows.

• Investment Policy. United Urban invests primarily in real estate properties such as retail properties, office buildings, hotels, residential properties and other properties throughout Japan. The Asset Manager closely studies impacts caused by environmental factors such as asbestos and soil contaminations, factors on tenants such as antisocial forces and the work environment and social factors such as relationships with community and traffic congestion. Such factors are considered for every investment decision, along with the profitability of the property.
• Due Diligence. United Urban uses third parties for environmental assessment when acquiring properties and evaluating environmental risks before investment decisions. When toxic substances are found, only properties deemed to have sufficient measures to counteract toxic substances will be acquired, in line with the asset management guidelines. In particular, United Urban (i) inspects the usage or storage of asbestos, polychlorinated biphenyl (PCB) and chlorofluorocarbon (CFC), the usage of chemical substances and the possibility of soil contamination in light of past/present usage to review the consistency with asset management guidelines, (ii) acquires engineering reports regarding soil/underground water, CFC, asbestos and PCB, (iii) conducts soil assessment and (iv) reports the result to the Asset Manager’s Investment Committee.
• Selection of Properties. In addition to the review of environmental factors, United Urban takes into account environmental certifications, including whether the property can obtain certification in the future, and energy efficiency assessment before making an investment decision. As a rule, United Urban does not acquire properties that are not appropriately treated for soil contamination and other environmental contamination in accordance with the Soil Contamination Countermeasure Act of Japan and other environmental laws and ordinances.
• Sustainability Finance Framework. United Urban has established a sustainability finance framework to further expand its investors base that have interests in ESG investment and financing, further strengthen our funding foundation for fund arrangements and implement flexible sustainable financing. The Japan Credit Rating Agency (“JCR”) has evaluated the sustainability finance framework and has assigned it JCR’s highest rating, “SU1(F)” in June 2023. The key elements of the sustainability finance framework are as follows:
  • Type and purpose of financing. United Urban’s sustainability finance framework consists of green finance and social finance. Under the sustainability finance framework, United Urban may conduct financing that will be used to acquire properties that meet the Green Eligibility Criteria A (as defined below) (such properties, “Eligible Green Assets”), refinance the funds already used to acquire Eligible Green Assets or renovate the existing properties to satisfy the Green Eligibility Criteria B (as defined below). Under the framework, United Urban may conduct financing that will be used to acquire properties that meet the Social Eligibility Criteria (such properties, “Eligible Social Assets”) or refinance the funds already used to acquire Eligible Social Assets.
  • Eligibility Criteria. The key elements of the eligibility criteria set in the sustainability finance framework are as follows:
    • Green Eligibility Criteria. Under the sustainability finance framework, the properties that have acquired or are expected to acquire one of following certifications are considered eligible for acquisition financing and refinancing (“Green Eligibility Criteria A”):
      1. the Development Bank of Japan’s (“DBJ”) Green Building certification: three stars or better;
      2. the Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) for Building or CASBEE for Real Estate certification: B+ rank or better;
      3. the Building Energy-efficiency Labeling System (“BELS”) certification:
         • Under the previous ranking system: three stars or better;
         • Under the new ranking system implemented in 2024: (i) level 4 or better for non-residential properties, (ii) level 3 or better for residential properties with renewable energy equipment, and (iii) level 3 or better for residential properties without renewable energy equipment in each case subject to certain exceptions; and
      4. Leadership in Energy and Environmental Design (“LEED”) certification: silver rank or better with version 4.0 or later being used for LEED BD+C.
      In addition, under the sustainability finance framework, renovation works that have been completed with the past 3 years from the date of financing or are expected to be completed, and lead to (i) acquisition of a certification under Green Eligibility Criteria A or improvement of 1 level or more in an existing certification under Green Eligibility Criteria A, (ii) reduction of energy consumption, CO₂ and other GHG emissions or water consumption by at least 30%, or (iii) introduction or acquisition of equipment related to renewable energy generation, are eligible for renovation financing (“Green Eligibility Criteria B”).
    • Social Eligibility Criteria. Under the sustainability finance framework’s social finance, the following properties are eligible for acquisition financing and refinancing: (i) health care facilities that provide nursing care and other welfare services to the elderly; (ii) childcare facilities whether the tenants are currently providing childcare services; (iii) medical facilities where the tenants are healthcare and medical institutions; and (iv) public housing facilities where the tenants are government institutions that sublease housing units for affordable living (“Social Eligibility Criteria”).
  • Project evaluation and selection process. The Asset Manager’s Sustainability Committee first evaluates target properties and projects based on the relevant eligibility criteria under the sustainability finance framework. After the initial evaluation by the Sustainability Committee, the Finance Department prepares a proposal for allocation of the funds to the purposes described above, and submits the proposal to the Investment Committee or the Board of Directors of the Asset Managers, and the Board of Directors of United Urban for approval.
  • Management of procured funds. United Urban will manage the amounts procured under the sustainability finance framework so as not to exceed the relevant upper limit. The upper limit of the green finance is set at an amount equal to the sum of (i) an amount calculated by multiplying book value of Eligible Green Assets in United Urban’s portfolio by the ratio of interest-bearing debt to total assets, and (ii) an amount used for project that meet Green Eligibility Criteria B. The upper limit of the social finance is set at an amount calculated by multiplying book value of Eligible Social Assets in United Urban’s portfolio by the ratio of interest-bearing debt to total assets.
  • Reporting. The following items will be disclosed and updated at least once a year so long as there is any remaining balance under the sustainability finance framework:
    • Allocation status of funds; and
    • Green finance: (i) number of properties and acquisition price of Eligible Green Assets; (ii) quantitative indicators of Eligible Green Assets (i.e., energy consumption, CO₂ emissions and water consumption); and (iii) In case of renovation works, one of the quantitative indicators (i.e., energy consumption, CO₂ emissions and water consumption) before and after the renovation work; or
    • Social finance: (i) property names and usage (ii) capacity of properties; and (iii) realizing a sustainable city and contributing to local communities.

United Urban and the Asset Manager use the following indicators to measure progress made on the environmental or social characteristics promoted by United Urban:

• Global Real Estate Sustainability Benchmark (“GRESB”) Real Estate Assessment. United Urban and the Asset Manager have participated in the GRESB Real Estate Assessment since 2012. GRESB, the Global Real Estate Sustainability Benchmark, is an annual assessment benchmarking assessment to measure the level of ESG integration achieved by real estate companies and funds. It was founded in 2009 by a group of European institutional investors that played leading roles in launching Principles for Responsible Investment (“PRI”) advocated by the United Nations. United Urban has been evaluated by the GRESB every year since 2012 and obtained the “Green Star” rating for nine years in a row in 2023.
• Property-level Environmental Certifications. To track the environmental performance of individual properties in United Urban’s portfolio, we rely on environmental certifications issued by third-party organizations such as the DBJ Green Building certification, the CASBEE for Real Estate certification, the BELS certification and other equivalent certifications. We also utilize such environmental certifications as eligibility criteria in our sustainability finance framework described above. United Urban has set a mid-term target of increasing the percentage of the properties with such environmental certification in its portfolio to 80% by the end of November 2024 based on gross floor area.
  • The DBJ Green Building certification was established by the Development Bank of Japan in April 2011 for the purpose of supporting properties which give proper care to the environment and society. The program evaluates, certifies and supports properties that are essential for society and the economy. It conducts comprehensive assessment of the property based on various factors ranging from the property’s environmental features to communications with stakeholders, such as disaster prevention and proper care for surrounding communities.
  • The CASBEE certification is a system for assessing and rating the environmental performance of buildings and their environment, developed under the leadership of Japan’s Ministry of Land, Infrastructure, Transport and Tourism. CASBEE for Real Estate was developed to be used among real estate market participants. The assessment consists of five categories, energy/GHG, water, materials/safe, biodiversity/sustainable site, and indoor environment, which cover 21 items, which reflect international standards advocated by UNEP SBCI (The United Nations Environment Programme - Sustainable Building and Climate Initiative).
  • The BELS certification is a third-party certification system for rating residential and non-residential buildings. BELS is the result of efforts to promote energy efficiency under the Act on the Improvement of Energy Consumption Performance of Buildings of Japan. The assessment is based on the Building Energy Index (BEI) value derived from primary energy consumption using energy efficiency standards established by the Japanese government.
• JCR Green Bond and Loan Evaluation, and Sustainability Bond Evaluation. In addition to United Urban’s sustainability finance framework described above, we utilize green and/or sustainability evaluations by JCR for individual bonds and loans. The JCR Green Bond and Loan Evaluation is the evaluation of United Urban’s green bonds or green loans under the sustainability finance framework conducted by JCR based on the Green Bond Principles of the International Capital Market Association (“ICMA”) and the Green Bond Guidelines of the Ministry of the Environment of Japan (“MOE”) for green bonds, or the Green Loan Principles of the Loan Market Association and the Green Bond Guidelines of MOE for green loans. JCR evaluates whether any given green bond or loan in accordance with United Urban’s sustainability finance framework may be deemed to be a qualifying green project as well as United Urban’s management/operations and transparency of use of the proceeds of such green bond or loan. In 2018 and 2019, United Urban received “Green1”, the highest grade under JCR’s evaluation, for its green bonds and loans issued. Similarly, the JCR Sustainability Bond Evaluation is the evaluation of United Urban’s sustainability bond conducted by JCR based on the Sustainability Bond Guidelines of ICMA. JCR evaluates whether any given sustainability bond in accordance with United Urban’s sustainability finance framework may be deemed to be a qualifying sustainability bond as well as United Urban’s management/operations and transparency of use of the proceeds of such sustainable bond. In 2021, United Urban received “SU1”, the highest grade under JCR’s evaluation, for its sustainability bonds. In addition, JCR has evaluated the sustainability finance framework and has assigned it JCR’s highest rating, “SU1(F)”.
• Participation in Global/Local ESG Initiative. The Asset Manager observes the basic concept of the PRI. The Asset Manager became a PRI signatory in November 2018, and is required to fulfill its ESG responsibilities through its investment activities.
• Environmental Targets and Initiatives. In addition to monitoring and tracking the environmental data of the properties in United Urban’s portfolio described above, the Asset Manager has established the following environmental initiatives and targets for United Urban’s portfolio with the objective of mitigating climate-related risks and taking advantage of climate-related opportunities.
  • Energy Saving Initiatives. The Asset Manager monitors and tracks energy consumption (including gas, steam energy and electricity consumption) of United Urban’s properties (excluding land only properties). United Urban aims to reduce energy consumption intensity every fiscal year by 1% compared to the average energy consumption intensity over the previous five fiscal years for the properties in United Urban’s portfolio. We collect energy consumption data at United Urban’s properties through smart meters installed at the properties and information provided by partner property management companies, and conduct annual energy conservation diagnosis. Based on the results of the diagnosis, the Asset Manager designs and executes operational improvement plan to reduce energy consumption by coordinating with partner property management companies, and a follow-up diagnosis is conducted a year after the initial diagnosis to ensure proper and effective implementation of the operational improvement plan, and identify execution issues in the improvement plan with partner property management companies. Furthermore, the management criteria (manual) stipulated in the Act Concerning the Rational Use of Energy of Japan is regularly reviewed for each property, and efforts are made towards continuous energy saving.
  • Reduction of GHG Emissions Initiatives. The Asset Manager tracks and monitors GHG emissions of United Urban’s properties, including Scope 3 GHG emissions which it started tracking and monitoring starting in FY2021, by estimating GHG emissions based on the energy consumption (including gas, steam energy and electricity consumption) of United Urban’s properties (excluding land only properties) and the adjusted emissions coefficients published by the Ministry of the Environment of Japan. United Urban aims to reduce the combined amount of Scope 1 and Scope 2 GHG emissions of United Urban’s properties by 42% by FY2030 compared to the level in FY2021. In addition, as a long-term target, United Urban aims to achieve net zero GHG emissions including the value chain of United Urban (Scope 3) by FY2050. Based on the current emissions level and the established target, the Asset Manager formulates a five-year facility improvement plan for each property, which includes installation of energy efficient air conditioning equipment and LED light equipment, and allocates appropriate budget for implementation of the plan. In addition, the Asset Manager considers purchases of non-fossil fuel energy certificates to achieve net GHG emissions reduction in United Urban’s portfolio.
  • Water-saving and Efficient Usage Initiatives. The Asset Manager tracks and monitors the amount of water consumption at United Urban’s properties (excluding land only properties). United Urban has set a mid-term target of reducing water consumption intensity of its portfolio by 5% by FY2025 compared to the level in FY2020. We have installed equipment that recycles water at certain properties for reduction of water consumption and effective use of water, in addition to proactive implementation of water conservation equipment.
  • Waste Management Initiatives. The Asset Manager tracks and monitors waste generated by tenants at United Urban’s properties (excluding land only properties) to reduce waste and promote efficient use of resources, reuse and recycling. The Asset Manager also discloses relevant data on the website.
• Social Initiatives - Social Responsibility and Local Community. United Urban reaches out to medical institutions, health clinics and day-care centers to become tenants at the properties in United Urban’s portfolio to enhance tenants’ convenience and contribute to local communities. There are numerous medical institutions/clinics and day-care centers/nurseries in United Urban’s properties. In addition, United Urban has adopted at most of its properties universal design, intended to enable easy use and access by everyone irrespective of age, sex or ability, including multi-purpose toilets, wide corridors and handrails, to help disabled and elderly people in particular. United Urban also offers certain properties in United Urban’s portfolio as disaster prevention or evacuation centers for local communities. Furthermore, United Urban has implemented initiatives to support the local economy and communities, including through collaboration with educational institutions.
• Sustainable Procurement Initiatives. United Urban supports strengthening ESG initiatives throughout its supply chain to contribute to environmentally friendly, healthy and sustainable society. Based on its Supply Chain Sustainability Guidelines, United Urban seeks the understanding and cooperation of its business partners to collaborate with United Urban on its ESG initiatives. United Urban also assists its business partner’s capacity building efforts by making recommendations, providing guidance and sharing good practices. The key elements of the Supply Chain Sustainability Guidelines are (i) legal compliance; (ii) respect for human rights; (iii) conservation of the environment; (iv) fair transactions; (v) safety and health; (vi) quality control; and (vii) information disclosure.

To address ESG issues, United Urban prioritizes ESG initiatives based on their materiality. Each material ESG target and action are monitored and reviewed annually. To identify a material ESG target or action, (i) the Asset Manager’s Sustainability Committee, which is chaired by the President and Chief Executive Officer of the Asset Manager, makes selections upon consideration of third party opinions, asset characteristics and United Urban’s management policies as well as third party ESG evaluations and societal trends, (ii) the Sustainability Committee investigates the issues of concern to each of the Asset Manager’s departments, while the Asset Manager’s management team identifies the issues likely to impact United Urban’s performance, (iii) the Asset Manager establishes long-term and one-year targets and specific action plans in response to each material ESG target for each department to tackle, and (iv) the management team reviews progress and achievement for each material ESG target and discusses goals for the following year and thereafter.

• GRESB Real Estate Assessment. To better assess United Urban’s attainment of environmental and/or social characteristics, we participate in the GRESB Real Estate Assessment, which generally covers a broader scope of sustainability and ESG-related items than those evaluated for our due diligence prior to acquisition of a property. Based on the benchmark report, the public disclosure report and other reports regarding GRESB Real Estate Assessment issued by the GRESB secretariat, the Asset Manager analyzes the details of scores, evaluates any room for future upgrade and other data with the assistance of an external 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 Committee where issues are shared and measures are taken to improve the evaluation in the following fiscal year and beyond.
• Property-level Environmental Certifications. At the property level, 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. For a property that has not acquired any environmental certification, the Asset Manager considers potential measures to meet the standards for obtaining applicable environmental certification for the property while taking into account the portfolio-level mid-term target of increasing the percentage of the properties with such environmental certification in United Urban’s portfolio to 80% by the end of November 2024 based on gross floor area. The progress of achieving this mid-term target is reported to the Sustainability Committee and disclosed on our website and financial results-related documents.
• JCR Green Bond and Loan Evaluation, and Sustainability Bond Evaluation. JCR’s evaluation of our sustainability finance framework generally cover a broader scope of environmental and/or social items than those evaluated for our due diligence prior to acquisition of a property. We utilize JCR’s evaluation to assess each acquisition or renovation opportunity under applicable sustainability finance framework in light of such opportunity’s potential contribution to promotion of relevant environmental and/or social characteristics. In addition, JCR’s evaluation provides assessment of management/operations and transparency of use of the proceeds of such green bond or loan, or sustainable bond. We use JCR’s assessment of management/operations and transparency of use of the proceeds to evaluate and improve our performance.
• Participation in Global/Local ESG Initiative. The Asset Manager observes the basic concept of the PRI. The Asset Manager is a signatory to the PRI, and fulfills the PRI’s reporting obligations by preparing and submitting an annual report on our ESG activities. The Finance Department of the Asset Manager is responsible for preparing the annual report required under the PRI.
• Environmental Targets and Initiatives. As described above, the Asset Manager has established various portfolio-level environmental targets in order to mitigate climate-related risks and to take advantage of climate-related opportunities. The progress for each relevant environmental target and related initiatives is tracked by monitoring the relevant environmental data. The implementation progress and results of environmental initiatives are reported at least once a year to the responsible Departments, which in turn resolve related issues challenges and implement measure to improve such environmental initiatives.
• Social Initiatives – Social Responsibility and Local Community. As described above, we aim to fulfill our social responsibility and maintain healthy relations with local residents, governments and other community members by proactively leasing the properties in United Urban’s portfolio to medical institutions, health clinics and day-care centers. The Asset Manager tracks and monitors the number and status of leases to medical institutions, health clinics and day-care centers in United Urban’s portfolio, and engages with local communities in order to revitalize the local communities in accordance with the characteristics of each property. In addition, United Urban has adopted universal design, intended to enable easy use and access for the disabled and elderly people in particular, at its properties, equips its properties with emergency power generators and emergency provisions and offers its properties as disaster prevention or evacuation centers for local communities. The Asset Manager also tracks and monitors the number of properties in United Urban’s portfolio that has adopted universal design and that have emergency power generators installed and emergency provisions stored.
• Sustainable Procurement Initiatives. The Asset Manager monitors compliance with its Supply Chain Sustainability Guidelines by its business partners, and facilitates sustainable procurement by its business partners by actively making recommendations, providing guidance and sharing good practices. For United Urban’s tenants, the Asset Managers promotes inclusion of Green Lease provisions and other sustainable procurement-related provisions in the lease agreement to encourage United Urban’s tenants to engine in sustainable procurement.

We use the following data sources:

• GRESB Real Estate Assessment. The Sustainability Strategy Office is the responsible unit within the Asset Manager for GRESB Real Estate Assessment and related data processing. The Sustainability Strategy Office 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 Strategy Office also analyzes the details of the GRESB Real Estate Assessment scores and evaluates any room for future improvement with the assistance of an external consulting firm, and prepares an action plan for progressing sustainability and ESG goals in accordance with the GRESB Real Estate Assessment’s framework. The results of these analyses and evaluations are reported once a year to the Sustainability Committee where issues are shared and measures are taken to improve the evaluation in the following fiscal year and beyond.
• Property-level Environmental Certifications. The Sustainability Strategy Office is in charge of the acquisition process for an environmental certification of a property. The Sustainability Strategy Office coordinates with the relevant partner property management company to collect property-level raw data required by the third-party organization that issues the applicable environmental certification. With the assistance of an external consulting firm, the Sustainability Strategy Office compiles relevant data collected, and prepares and submits the required data and supporting materials to the third-party issuing organization by internally reviewing the accuracy of the compiled data and the appropriateness of the responses. The progress at the portfolio level is reported to the biweekly management meetings of the Asset Manager.
• JCR Green Bond and Loan Evaluation, and Sustainability Bond Evaluation. The Sustainability Committee reviews and determines eligibility of each acquisition or renovation opportunity under the sustainability finance framework based on the property-level raw data regarding relevant eligibility criteria collected and compiled by the Sustainability Strategy Office. The Finance Department is in charge of monitoring and disclosing the status of use of proceeds of financings procured under the sustainability finance framework.
• Participation in Global/Local ESG Initiative. The Finance Department is in charge of preparing and submitting the annual report to the PRI based on the data and responses collected and compiled by the Sustainability Strategy Office.
• Environmental Targets and Initiatives. In general, different Asset Management Departments collect and compile relevant property-level raw data from different properties and partner property management companies depending on the type of the properties. The operational and facility improvement plans are formulated by the Asset Administration Department and relevant Asset Management Departments. Data related to waste generation is collected and compiled annually by the Sustainability Strategy Office. In addition, the Asset Manager obtains an assurance report regarding the annually compiled portfolio-level data on energy consumption, GHG emissions, water consumption and waste generation from an independent third-party accounting firm to ensure data quality and accuracy.
• Social Initiatives - Social Responsibility and Local Community. In general, the Asset Management Departments coordinate with tenants, partner property management companies and other stakeholders at relevant properties to study and implement social initiatives based on the characteristics of each property. The status of the implementation is reported at monthly meetings of each relevant Asset Management Department, and the effectiveness of the initiatives is measured, verified and used as a reference when considering improvement and future initiatives.
• Sustainable Procurement Initiatives. The Sustainability Strategy Office collects and compiles property-level data on use of sustainable materials in the building of the subject property at the time of acquisition of an environmental certification. In addition, the Asset Management Departments coordinate with partner property management companies and other stakeholders at relevant properties to promote inclusion of Green Lease provisions and other sustainable procurement provisions in lease agreements with tenants.

United Urban uses third parties for environmental assessment when acquiring properties and evaluating environmental risks before investment decisions. When toxic substances are found, only properties deemed to have sufficient measures to counteract toxic substances will be acquired, in line with the asset management guidelines. In particular, United Urban (i) inspects the usage or storage of asbestos, polychlorinated biphenyl (PCB) and chlorofluorocarbon (CFC), the usage of chemical substances and the possibility of soil contamination in light of past/present usage to review the consistency with asset management guidelines, (ii) acquires engineering reports regarding soil/underground water, CFC, asbestos and PCB, (iii) conducts soil assessment and (iv) reports the result to the Asset Manager’s Investment Committee.

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