Climate Change and Energy

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Climate Change and Energy

As members of the Prologis Group, NPR and Prologis REIT Management K.K. (PLDRM) recognize that global climate change is a scientific fact. We believe that taking legitimate actions to respond to climate change, which would mitigate various potential risks of our portfolio to be caused by climate change, is one of our material management issues.
Per this understanding, the Prologis Group, NPR and PLDRM have categorized the “response to climate change” as one of our material issues that would certainly significantly impact our future business environment.

Prologis’ Carbon Management Approach

Prologis’ Carbon Management Approach hits the sweet spot between creating business value and reducing our carbon impact. It also furthers our efforts toward achieving our science-based target (SBT) for reducing greenhouse gas (GHG) emissions. Prologis' carbon emissions footprint covers emissions from our direct operations (Scope 1 and 2) and all other indirect emissions stemming from our global portfolio/construction activities/other aspects of our business (Scope 3). We focus on emissions reduction across our whole business, both direct and indirect, which includes decreasing emissions from energy use in our offices and customer spaces. Subsequently, Prologis purchases carbon offsets and renewable energy credits (RECs) to neutralize the remaining operational emissions (Scope 1 and 2).

In 2022, Prologis group committed to achieve net zero emissions across its entire value chain by 2040.
The goal represents a significant opportunity for Prologis to serve its customers in new and innovative ways on sustainability initiatives. It includes several interim targets:

1 GW of solar generation capacity (supported by storage) by 2025
Carbon neutral construction by 2025
Net zero for operations by 2030

Prologis’ carbon reduction efforts are driven by our customer-centric initiatives. For example, through Prologis Essentials LED, we unlock energy cost savings for our customers, while reducing our indirect emissions (Scope 3). Through other collaborations, such as Prologis’ Customer Sustainability Advisory Council (CSAC), we are identifying solutions that help Prologis and our customers reduce our collective carbon impacts. The CSAC forum goes beyond the norm to strengthen customer relationships, while also providing insight into their evolving needs on topics like renewable energy and electric vehicles, among others.

NPR shifted to supplying green electricity in 2022 at Prologis Park Tsukuba 1, Tsukuba 2 and Prologis Park Narashino 4, where customers are provided with electricity derived from renewable energy.

Renewable Energy

Beyond identifying ways to consume less energy, Prologis is contributing to a low-carbon future by using our properties as a platform to generate large volumes of clean electricity. Over the past decade, Prologis has emerged as a leader in corporate solar deployment. Prologis group’s long history of investments in energy-related lines of business include EV charging and on-site solar. The group currently has approximately 200 EV charging stations and 325 MW of rooftop solar as of April 2022.
Our emphasis on renewable energy puts us in alignment with the United Nations Sustainable Development Goal 7 (affordable and clean energy), and we set an ambitious new goal of 1GW of installed capacity by 2025. As our customers pursue their own environmental goals and carbon-reduction targets, deploying Prologis installed solar energy at our warehouses is an example of shared value creation made possible by our experience, scale and core business strength.

Prologis Park Zama 1

Prologis Park Osaka 5

Initiatives for Energy Efficiency

In cooperation with building management companies, property managers of Prologis Japan periodically analyze monthly energy consumption by usage in our customer’s leased area and provide energy saving advice to our customers, which include reducing or dimming lighting fixtures, switching to intermittent operation of ventilation fans, and turning on heat recovery features of ventilators. We also recommend using window blinds and setting the temperature of air conditioners at 28 degrees Celsius for summer and 20 degrees Celsius for winter.

TCFD Disclosure

Support for TCFD Recommendations

The Prologis Group has officially expressed its support for the Recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB) to consider how to disclose climate-related information. PLDRM, as the asset manager for NPR, has also officially expressed its support for the Recommendations by TCFD in September 2021.

The TCFD final report recommends that corporates/organizations elaborate the following information in connection with their businesses in their disclosure documents:

Core Elements	Information to be Disclosed
Governance	Organizational governance relating to climate-related risks and opportunities
Strategy	Actual and potential impacts from climate-related risks and opportunities on the organization's businesses, strategies, and financial planning
Risk Management	The organization's climate-related risk identification, assessment, and management processes
Metrics and Targets	Metrics and targets used to assess and manage climate-related risks and opportunities

PLDRM also joined the TCFD Consortium, an organization established to discuss effective disclosure and initiatives that would allow investors to make appropriate judgment of various corporate activities in the area of sustainability. The TCFD Consortium is consisted of corporates/organizations who are the official supporters of TCFD in Japan.

Governance

Please refer to the ”ESG POLICY AND MANAGEMENT SYSTEM” page for the governance structure of PLDRM that promotes ESG initiatives (including responses to climate change; the same hereafter) of NPR.

Strategy

Scenario Analysis

PLDRM conducts scenario analysis to identify the risks and opportunities for NPR to be posed by the climate change, and to assess their potential impact on NPR’s business.

Scenarios	Overview of Scenarios	References
1.5℃ Scenario	Global GHG emissions shall be reduced by the implementation of strict regulations and taxation systems to realize a decarbonizing society. In this scenario, physical risks tend to be low and transition risks tend to be high.	IEA⁽¹⁾ NZE2050 IPCC⁽²⁾ RCP2.6
4℃ Scenario	Global GHG emissions shall not be materially reduced due to the lack of progress in global decarbonization efforts. In this scenario, natural disasters will likely be severe, and therefore, physical risks will likely be extremely high, while transition risks will likely be relatively small due to the lack of progress in strengthening legal regulations.	IEA SPS IPCC RCP8.5

IEA: International Energy Agency
IPCC: Intergovernmental Panel on Climate Change

Risks and Opportunities and Countermeasures

PLDRM has assessed the risks and opportunities which would have potential impacts on NPR’s business and portfolio. The assessment includes probabilities, possible financial impacts and potential countermeasures of the risks and opportunities as set forth in the following table:

Risk and Opportunity Events			Probability		Financial Impacts Potential Countermeasures
Risk and Opportunity Events			1.5℃	4℃	Operating Revenue	Operating Expenses incl. CAPEX	Non-Operating Expenses incl. Capital Cost	Asset Value factored by NCF	Asset Value factored by Cap Rate
Transition Risks	Policies and Laws	Additional expenses incurred based on the amount of GHG emissions such as introducing carbon tax etc.	Middle	Low	-	Small	-	Small	-
			Middle	Low	Enhance countermeasures for reduction of GHG emissions such as minimizing energy uses and procuring green energy etc. Discuss introducing of an internal carbon pricing system so that we can consider to integrate such element into our investment decisions
		Strengthening of energy-saving standards in real estate operation	Middle	Low	-	Middle	-	Middle	Middle
			Middle	Low	Maintain exemplary environmental performance across NPR's portfolio properties and continue to make an investment for new technologies Maintain significant financial capacity within NPR to respond to potential urgent needs to introduce new technologies
	Technology	Deterioration in operating portfolio compared with competitors by rapid innovation regarding energy-saving efficiency	Middle	Middle	Middle	Middle	-	Middle	-
	Technology		Middle	Middle	Maintain exemplary environmental performance across NPR's portfolio properties and continue to make an investment for new technologies so that we can avoid such deterioration Maintain significant financial capacity within NPR to respond to potential urgent needs to introduce new technologies
	Market / Reputation	Customer's increasing demand for properties regarding energy efficiency and climate change adaption etc.	High	High	Middle	-	-	Middle	-
			High	High	Progress response to climate change and improvement of environment performance for each NPR's property Continue to acquire green building certifications and make known the superiority of NPR's portfolio
		Debt/equity investors and lenders' behavior changes in relation to climate change initiatives	High	Middle	-	-	Middle	-	-
			High	Middle	Continue to acquire high rating for various ESG grading so that we can continue to be highly appreciated by debt/equity investors and lenders Accelerate NPR's green financing activities
		Decrease in appetite for investments on properties adapted to climate change adaption inadequately	High	Low	-	-	-	-	Small
			High	Low	Progress response to climate change and improvement of environment performance for each NPR's property Continue to acquire green building certifications and make known the superiority of NPR's portfolio
Physical Risks	Acute Risks	Damages in operating portfolio by increased/intensified typhoons, heavy rains, river floods etc.	Low	Middle	-	Middle	-	Middle	-
	Acute Risks		Low	Middle	Monitor and assess the amount of risks for each NPR's portfolio property by analyzing the latest hazard maps and discuss the necessity of mitigating construction work Enhance geographical diversification to minimize potential risk for NPR's entire portfolio
	Chronic Risks	Submergence of properties located in coastal area due to sea level rise	Low	Low	Large	Large	-	Large	Large
			Low	Low	Monitor and assess the seriousity of risks for each of NPR's portfolio properties by analyzing the latest hazard maps and discuss the necessity of asset disposition Enhance geographical diversification to minimize potential risk for NPR's entire portfolio
		Increase in costs of energy/insurance premium/raw material etc. in response to climate change and tremendous natural disasters	Middle	Middle	-	Middle	-	Middle	-
			Middle	Middle	Continue to procure competitively by diversification of such supplier Minimize natural disaster risk by taking measures for each properties so that we can mitigate potential hike of insurance premium

Events which may bring in positive impacts (opportunities)

Risk Management

PLDRM intends to control and manage the ESG-related risks for NPR with the following procedures:

General Climate Change Risks

The risks and opportunities described in the preceding table are discussed by the ESG Committee of PLDRM. The risks and opportunities are monitored by applicable/responsible departments of PLDRM who are in charge of various sustainability initiatives. When countermeasures are needed, an applicable agenda is proposed and discussed at the ESG Committee.

Investment Decision Making

PLDRM makes decisions for NPR’s new investments through PLDRM’s Investment Committee. As a part of due diligence for the investment decision making process, PLDRM conducts assessment of the climate change risks. For example, PLDRM investigates the risks of potential floods associated with subject investments, utilizing various hazard maps prepared by municipalities. Also, PLDRM prioritizes acquisitions of properties with the environmental certifications and properties equipped with energy-saving systems, etc.

Metrics and Targets

PLDRM stipulates key metrics and targets, or major sustainability KPIs, in an attempt to monitor the progress of countermeasures being taken by the Prologis Group and NPR vis-à-vis the climate change problems.

Sustainability KPIs of the Prologis Group

One of the primary metrics for assessing the climate-related risks and opportunities is represented by the Prologis Group’s SBT to reduce Scope 1, 2, and 3 GHG emissions, as follows:

	2025 Targets (2016 baseline)	2040 Targets (2016 baseline)
Scope 1 & 2	21% absolute reduction	56% absolute reduction
Scope 3	15% absolute reduction	40% absolute reduction

Sustainability KPIs of NPR

In 2021, NPR established the following sustainability KPIs in an attempt to further reduce its environmental footprint which shall contribute to the reduction of GHG emissions.

Goals	Target Years
Installation of solar panels with 45MW power generation capacity	2022
Installation of LED lighting for 80% or more of total net rentable area	2022
Introduction of green lease contracts for 70% or more of total net rentable area	2026
Continuing Eligible Green Project ratio at 95% or more (acquisition price basis)	-