SFDR Disclosures

SUSTAINABILITY-RELATED DISCLOSURE

Product Name: Daiwa Securities Living Investment Corporation

Daiwa Securities Living Investment Corporation (“DLI”) 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”). DLI has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan and relies on Daiwa Real Estate Asset Management Co., Ltd. (the “Asset Manager”), to manage and operate the properties in DLI’s portfolio. DLI and the Asset Manager are hereinafter referred to collectively as “we”, “us” or “our” unless noted otherwise. References to “fiscal year” or “FY” are to the 12 months began or beginning April 1 of the year specified in line with the fiscal year of the Asset Manager, unless noted otherwise.

(a) Summary

No sustainable investment objective	The financial products offered by us promote environmental or social characteristics, but do not have as its objective sustainable investment.
Environmental or social characteristics of the financial product	We promote environmental or social (“E/S”) characteristics through our environmental, social and governance initiatives in the belief that our commitment to these initiatives would enhance our medium- to long-term corporate value. With the goal of protecting the environment, we have implemented measures to reduce our properties’ energy and water consumption and greenhouse gas (“GHG”) emissions. To contribute to society, we conduct our business activities with the goal of providing high-quality and comfortable spaces, rental housings and healthcare facilities suitable for each life stage of our customers in partnership with various stakeholders.To maintain governance and corporate ethics, we aim to make transparent and reasonable business decisions not only to fulfil applicable legal and regulatory requirements, but also to meet the ethical standards we have set for our business.
Investment strategy	We take into account sustainability factors throughout our investment decision-making process. Our initial due diligence process includes investigation of the environmental and geological conditions of a potential investment target. In addition, the Asset Manager has established a social finance framework through which we intend to accelerate our efforts to contribute to a more sustainable future as well as to provide investors with investment opportunities with positive social impacts (the “Social Finance Framework"). DLI invests directly or indirectly through trust beneficiary interests in real estate. Therefore, due diligence (including the assessment of good governance practices) in relation to investee companies is not applicable.
Proportion of investments	DLI offers financial products which promote E/S characteristics, but does not have sustainable investments as its objective. As of March 31, 2023, 15.8% of our properties were properties that had received one or more of the Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification, the Building Energy-efficiency Labeling System (“BELS”) certification and the Development Bank of Japan’s (“DBJ”) Green Building certification, (“Green Assets”), and 84.2% were not, in each case based on total gross floor area. As a mid- to long-term goal, we aim to increase the ratio of Green Assets in the entire portfolio to 20.0%.
Monitoring of environmental or social characteristics	In order to monitor and track our performance on E/S initiatives, we rely on certain third-party organizations that assess E/S characteristics performance of investment corporations. We also refer to certifications by certain third-party organizations that evaluate properties’ E/S performances to classify the properties in our portfolio as well as potential investment targets into Green Assets and others. We also value the inputs by a certain third-party social finance framework evaluator that checks our social finance framework’s compliance with certain government/industry-led guidelines.
Methodologies	The Asset Manager has established a management-level committee, the Sustainability Promotion Committee, to lead our sustainability-related initiatives. The Sustainability Committee sets and then adjusts our sustainability goals and policies and shares the results of such targets with stakeholders. The Sustainability Promotion Committee uses reliable third-party performance indicators and other methodologies to monitor and track our sustainability-related performance and targets described above. We have set in place a multi-tier decision making process throughout the life cycles of projects under our social finance framework.
Data sources and processing	The Asset Manager obtains certain sustainability data from third-party consulting firms, issuers of environmental certifications, property managers, other service providers and tenants, depending on the type of data. The Asset Manager seeks to ensure data quality by engaging well-established third-party service providers. Also, the Asset Manager obtains an assurance report regarding energy consumption, GHG emissions and water use from an independent third-party organization each year, which helps to ensure data quality. The Asset Manager uses this data to measure its performance with respect to E/S characteristics as well as for analysis of its action plans to achieve the E/S characteristics to be promoted by DLI.
Limitations to methodologies and data	The primary limitation to methodologies and data is the necessity of reliance on tenants and property managers for data at the property level. In addition, data at the property level provided by the tenants and property managers is generally updated on an annual basis which makes it not fully up to date. Data at the property level is compiled internally by the Asset Manager and, except for data on energy consumption, GHG emissions, water use and waste volume, there is no third-party quality assurance or verification for the data at the property-level. Limitations to the methodologies and data are not expected to affect the attainment of the E/S characteristics promoted by DLI in any material way.
Due diligence	Prior to investing in a property, the Asset Manager conducts due diligence on the property, including ESG due diligence. Our ESG due diligence on a property considers the following ESG factors: (i) use of hazardous or toxic chemicals; (ii) generation and discharge of air pollutants and air quality; and (iii) susceptibility to earthquakes of the property.
Engagement policies	In accordance with our internal policy, the Sustainable Procurement Policy, we consider various sustainability factors in selecting products and services. In addition, the Asset Manager selects property managers and suppliers based on their sustainability framework and ability to cooperate with the Asset Manager’s ESG practices.
Designated reference benchmark	DLI has no benchmark index designated as a reference benchmark to meet the E/S characteristics promoted by DLI.

(b) No sustainable investment objective

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

(c) Environmental or social characteristics of the financial product

DLI’s mission is to support everyone’s life and lifestyle; our goal is to provide comfortable living spaces, rental housings and healthcare facilities, suitable for each life stage of our customers. For this goal, DLI proactively made investments in healthcare facilities, which occupied 29.8% of its portfolio as of March 31, 2023 on an acquisition price basis. These healthcare facilities include elderly care facilities, medical care facilities and life science facilities in various parts of Japan, and DLI aimed to build a portfolio of up to 40% in healthcare facilities. In Japan’s aging society, healthcare facilities that primarily serve the elderly population have significant social value, as recognized by the United Nations Sustainable Development Goals, such as SDG2 (Zero Hunger), SDG3 (Good Health and Well-being), SDG6 (Clean Water and Sanitation), SDG11 (Sustainable Cities and Communities) and SDG13 (Climate Action). Furthermore, we focus on promoting environmental, social and governance, or ESG, characteristics in managing all of DLI’s assets in the belief that emphasis on ESG contributes to the enhancement of DLI’s medium- to long-term corporate value. DLI has implemented a number of environmental initiatives, including resource and energy-saving measures, as described in detail below. 

● Energy Saving Initiatives.
DLI has set the goal to reduce their energy consumption by at least 1% per year (5% over five years) by FY2022 with FY2017 as the base year. In addition, DLI has implemented eco-friendly equipment such as LED lighting, high-efficiency heating equipment and energy-saving air conditioning systems.

● Reduction of GHG Emissions Initiatives.
The Asset Manager continuously makes the efforts and investment to reduce the environmental impact of our properties that emit high levels of GHG. DLI aims to reduce GHG emission intensity for the properties in DLI’s portfolio with respect to both Scope 1 and Scope 2 by 1% per year (5% over five years) by FY2022 with FY2017 as base year. DLI has implemented equipment that contributes to reduction of GHG emissions, such as LED lighting, high-efficiency heating equipment, and energy-saving air conditioning systems.

● Water-saving Initiatives.
DLI aims to reduce water consumption intensity by 0.2% per year (1% over five years) for the properties in DLI’s portfolio. DLI has implemented water-saving equipment such as water-saving toilets and has promoted water-saving among tenants by posting notices to seek cooperation on their water-saving efforts.

● Sustainable Procurement Initiatives.
The Asset Manager takes into account the following criteria in choosing products and services we purchased: (i) low-consumption of fossil fuels and energy, (ii) low usage and emission of substances with adverse effects on environment and human health, (iii) designed to conserve biodiversity and ecology, (iv) designed for long-term usage, (v) designed to be reusable and recyclable, (vi) uses reclaimed material and has environmental certification, (vii) easily disposable, and (viii) reduced procurement amount to reduce waste. Furthermore, the Asset Manager considered property managers and suppliers’ sustainability framework and ability to cooperate with the Asset Manager’s ESG practices, in addition to their creditworthiness, product or service quality and price in deciding whether or not to hire them.

● Sustainability Framework.
In choosing property managers and suppliers, the Asset Manager takes into consideration whether the property manager or supplier (i) has adopted an environmental management system such as ISO14001 and obtains third-party certification, or otherwise fulfills the ESG requirements established by the Asset Manager, (ii) takes into account their sustainability policy when selecting their subcontractors, and encourages them to comply with the Asset Manager’s ESG requirements, (iii) creates and maintains appropriate and employee-friendly work environment, (iv) promotes diversity of human resources and work-life balance, and prohibits unfair labor, (v) has corporate ethics guidelines including anti-corruption policy, (vi) engages in and contributes to the neighborhoods and communities surrounding DLI’s properties, and (vii) has a disaster risk management system.

● Cooperation with the Asset Manager’s ESG practices.
The Asset Manager requires the property manager or supplier to engage in (i) energy-saving, water-saving and reduction of GHG emission, (ii) appropriate waste management and recycling promotion, (iii) control and reduction of hazardous chemical substances and maintenance of health and safety including water quality, and (iv) maintenance of favorable relationships with tenants.

(d) Investment strategy

DLI invests directly or indirectly through trust beneficiary interests in real estate. Therefore, due diligence (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 in relation to real estate and real estate related assets.
The Asset Manager investigates the environmental and geological conditions of each property to determine the possibility of presence of environmental hazardous substances and land pollution. The Asset Manager conducts, with assistance from outside experts, financial, property and legal due diligence review to evaluate investments. DLI only invests in properties that have no environmental hazardous substances. We generally do not invest in properties that exceed the land pollution threshold specified in the Ordinance for Enforcement of the Soil Contamination Countermeasures Act (Act No. 53 of 2002) of Japan (the “Soil Contamination Act”), and when we do, the Asset Manager consults professionals to weigh their impact on the surrounding environment and people against the economic benefits they would bring before making investment decisions.
Moreover, DLI has established the “Social Finance Framework to provide investors with investment opportunities with positive social impacts. This framework provides that the funds raised through social bonds or social loans must be used to acquire and/or to refinance funds used to acquire the following types of assets.
　●  Paid elderly facilities/homes for the elderly with nursing care needs;
　●  Paid elderly facilities/homes for the elderly with mild care needs;
　●  Paid elderly facilities/homes for the healthy elderly;
　●  Serviced senior housings;
　●  Other types of facilities/homes for the elderly;
　●  Medical facilities, including general hospitals, clinics and “medical malls”.
While there is no third-party rating used for assessment of our governance practices, we have implemented the following measures to assess and enhance our governance systems:
Management of Conflicts of Interest. Where we conduct financial instruments businesses or businesses incidental to financial instruments businesses that may involve conflicts of interests, the Asset Manager is obliged to comply with the relevant rules under the Financial Instruments and Exchange Act (the “FIEA”), the Act on Investment Trusts and Investment Corporations and other relevant laws. Our internal policy, Rules on the Prevention
of Conflicts of Interest, sets forth various measures to ensure that judgment pertaining to asset investment and other transactions are not compromised by conflicts of interests.
Transparent and appropriate information disclosure. DLI holds management calls for its overseas unitholders and engages with a wide range of unitholders at its earnings meetings, which are held via teleconference. DLI makes ongoing disclosures in Japanese pursuant to the FIEA and other applicable laws and regulations in Japan and provides English language disclosures or translations where practicable.

(e) Proportion of investments

As of March 31, 2023, 15.8% of the properties in our portfolio were Green Assets, and 84.2% were not, in each case based on gross floor area. DLI aims to increase the percentage of Green Assets among our properties to 20% based on gross floor area. In addition, as of March 31, 2023, 29.0% of the properties in our portfolio based on gross floor area were healthcare facilities. All of DLI’s properties are evaluated against environmental and/or social characteristics promoted by DLI. DLI and the Asset Manager view DLI’s Green Assets as investments aligned with environmental characteristics and DLI’s healthcare facilities as investments aligned with social characteristics.

(f) Monitoring of environmental or social characteristics

In order to monitor and track our properties’ performance on E/S characteristics, we rely on certifications issued by third-party organizations, such as the Global Real Estate Sustainability Benchmark (“GRESB”) Real Estate Assessment MSCI ESG Rating. Using an ESG evaluation framework, JCR Social Finance Framework Evaluation, DBJ Green Building certification, the CASBEE certification, the BELS certification, and other relevant certification.

● Energy Saving Initiatives.
The Asset Manager has tracked and monitored consumption of energy, including electricity, urban and propane gas and steam energy, in common areas of DLI’s properties, and measures the progress against the annual and medium- to long-term targets. These targets were shared with property managers and tenants so that the Asset Manager could collaborate with them to continuously try to reduce such energy consumption.

● Reduction of GHG Emissions.
The Asset Manager has tracked and monitored GHG emissions of the parties in its entire supply chain of DLI’s properties, including direct emissions from burning fuels (i.e., Scope 1) and indirect emissions from power purchases and procurement (i.e., Scope 2) and measured progress against the established targets.

● Water Saving Initiatives.
The Asset Manager has tracked and monitored water consumption in common areas of DLI’s properties. The Asset Manager received an overview of consumption volume of each property and accumulative consumption volume of all of DLI’s properties and measured their progress against the annual and medium- to long-term targets. These targets were shared with property managers and tenants so that the Asset Manager could collaborate with them to continuously reduce water consumption.

(g) Methodologies

The Asset Manager has established a management-level committee, dedicated to our sustainability goals and implemented various internal policies to improve the effectiveness our sustainability initiatives in order to continuously make progress on our initiatives on sustainability.

● Sustainability Promotion Committee. The Sustainability Promotion Committee meets regularly (once a month, in principle) to make management-level decisions on sustainability, sets, modifies, and abolishes sustainability targets for the investment corporations the Asset Managers manages and disclose the progress of the targets. The members of the committee include:

　　〇 President/Representative Director of the Asset Manager as the Chief Executive Officer for Sustainability Promotion,
　〇 Executive Managing Director,
　〇 General Managers of DOI Investment Management Dept.,
　　 DLI Investment Management Dept.,
　　 DRP Investment Management Dept.,
　　 DHP/DLP Investment Management Dept.
　　 and Private Fund Management Dept.
　　 as Chief Sustainability Officers,
　〇 Head of Sustainable Promotion Office,
　〇 Compliance Officer, and
　〇 Others who are appointed by the Chief Executive Officer.

● Social Finance Framework. The Asset Manager’s Finance Department will evaluate and select projects based on sustainability considerations. The project is then examined by the Asset Manager’s Sustainability Promotion Committee, which provides its opinion on it from a sustainability perspective, considered by DLI’s Investment Committee and the Board of Directors, and approved by DLI’s Executive Board.

Third Party Evaluation. A third-party organization conducted evaluation (verification) of our entire portfolio’s environmental performance data (energy consumption, GHG emissions (Scope 1 and 2), water consumption, and waste output) for the FY 2022.

(h) Data sources and processing

The Asset manager uses the following data sources:

● Environmental certifications.
The Asset Manager obtains the relevant data provided by the established third-party organizations that issue environmental certifications for the properties in our portfolio. Obtaining the environmental certifications issued by the established third-party organizations helps ensure the data quality. The Asset Manager calculates and tracks the properties which hold environmental certifications.

●  Environmental initiatives.
At the property level, the DLI Investment Management team of the DLI Investment Management Department of the Asset Manager collects the relevant data from the property managers regarding energy consumption, solar power generation and CO2 emission levels in our portfolio as well as water consumption and the recycling rate in our properties. To ensure data quality, the Asset Manager obtains a data quality assurance report regarding energy consumption, GHG emissions, water uses and waste emissions from an independent third-party organization each year.

●  Installation of LED light bulbs and solar panels.
At the property level, the Construction Management teams of the Asset Manager compiles relevant data internally on an as needed basis.

●  External sustainability evaluation.
GRESB is an independent organization which provides validated ESG performance data. It provides a portfolio-level assessment and the assessment is conducted through submission of our responses and relevant data to GRESB’s questionnaires on ESG matters. For the management components of GRESB assessment questionnaires, the Administrative Department and Sustainability Promotion Office review relevant ESG information and policies, including employee-related information and policies such as workplace harassment prevention policies and trainings and usage rate of flexible work hours and leaves, and prepares our responses and relevant data. For the performance components of GRESB assessment questionnaires, the Asset Manager compiles relevant ESG data and information at the property level from our tenants and prepares our responses and relevant data. Before DLI submits responses to the survey by the GRESB, a consulting firm reviews the ESG-related data and supporting materials used for the responses. The consulting firm also assists the Asset Manager in identifying room for future improvement. Engaging such an well-established consulting firm helps us maintain our data quality. Also, the Asset Manager obtains assurance reports from an independent third-party organization regarding energy consumption, GHG emissions, water use and waste volume, which are used as data to be included in our GRESB reports. GRESB provides an annual assessment, and we generally start collecting and compiling relevant information and data around mid-March and submit our responses and relevant data to GRESB around the end of June each year.

(i) Limitations to methodologies and data

The main limitations to methodologies and data stem from the necessity to rely on tenants and property managers 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 it presents challenges to verify the accuracy of such data. 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 there is no quality assurance or verification for the property-level data.

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

(j) Due diligence

DLI invests only in properties that have no significant environmental risks by conducting significant due diligence review prior to each acquisition. Additionally, the Asset Manager conducts an environmental investigation every five years and addresses any environmental risks discovered in such investigation by implementing appropriate action plans. With respect to a healthcare facility, DLI enters into a long-term lease agreement with a facility operator to mitigate risks associated with unstable operation. The Asset Manager currently has an agreement with AIP Healthcare Japan GK, which provides the Asset Manager with information and proposals on healthcare facility management to help the Asset Manager to monitor sustainability factors for healthcare facilities and mitigate ESG risks.

(k) Engagement policies

In accordance with the Sustainable Procurement Policy, the Asset Manager selects products and services, on a preferential basis, which meet the following criteria in addition to required quality and economic efficiency: (i) low-consumption of fossil fuels and energy, (ii) low usage and emissions of substances with adverse effects on environment and human health, (iii) designed to conserve biodiversity and ecology, (iv) designed for long-term usage, (v) designed to be reusable and recyclable, (vi) uses reclaimed material and has environmental certification, (vii) easily disposable, and (viii) reduced procurement amount to reduce waste. Furthermore, the Asset Manager selects property managers and suppliers based on their sustainability framework and ability to cooperate with the Asset Manager’s ESG practices, in addition to their creditworthiness, product or service quality and price. In addition, the Asset Manager plans to introduce various measures to promote cooperation with stakeholders of DLI,
including green lease clauses, which requires tenants’ cooperation on reduction of environmental burdens through energy saving programs and improvement of the residential environmental in lease contracts between tenants and DLI.

(l) Designated reference benchmark

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

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 base salary, overtime payment and midnight work allowance. Employees may receive increases or reductions after twelve months of their current 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.

● Incentive pay is calculated based on performance of the Asset Manager as well as the employee’s performance and contribution to the performance of the Asset Manager. Moreover, 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 DLI (SFDR ARTICLE 6 DISCLOSURE)

*Scenario analysis is based on currently available information and objective forecast data from third-party organizations and does not necessarily guarantee the accuracy of the information due to the inherent uncertainty of known and unknown risks.

DLI and the Asset Manager address sustainability risks by taking into account environmental, social and governance, or ESG, factors in our investment decision process and on a continuous basis.
As DLI’s investment policy, DLI invests in healthcare facilities such as elderly care facilities, medical care facilities and life science facilities throughout Japan in addition to real estate-related properties for residential use. DLI believes that investments in healthcare facilities address the high and rising demand for high-quality healthcare facilities that service Japan’s super-aging population. DLI selects operators based on their financial strength, management effectiveness, governance and legal compliance to ensure that residents of DLI’s healthcare facilities have stable living arrangements.

The Asset Manager’s investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that DLI’s sustainable investment strategy is implemented on a continuous basis. With each acquisition opportunity, DLI and the Asset Manager review ESG-related due diligence findings. These findings are required to be considered by the Asset Manager’s Investment Committee and Board of Directors before a final decision is made on the investment.

As part of due diligence review prior to investment, the Asset Manager investigates the environmental and geological conditions of each property to determine the possibility of environmental hazardous substances and land pollution. The Asset Manager conducts, with assistance from outside experts, financial, property and legal due diligence review to evaluate investments. DLI invests only in properties that have no environmental hazardous substances and generally do not exceed a certain land pollution threshold, which is specified in the Enforcement Regulations of Soil Contamination Countermeasures Act in Japan. If a property exceeds the land pollution threshold, the Asset Manager consults professionals regarding the impact on the surrounding environment and people weighed against economic benefits before making an investment decision. With respect to a healthcare facility, the Asset Manager investigates the surrounding area to assess demographic trends, and the compliance structure and internal controls of the facility operator, in addition to reviewing its general legal compliance.

In addition, the Asset Manager has established a sustainability promotion system and designated its President & CEO as the Chief Executive for Promoting Sustainability, in addition to establishing a Chief Sustainability Officer to promote sustainability and responsible for executing sustainability measures and managing progress, and a Sustainability Promotion Committee. Meetings of the Sustainability Promotion Committee are held regularly (in principle once a month) to discuss sustainability matters, including policies, goals and measures and social finance framework.

Furthermore, the Asset Manager tracks the sustainability measures including energy saving initiatives, initiatives for reduction of GHG emissions and water-saving initiatives and receives information and proposals on healthcare facility management from AIP Healthcare Japan GK, which operates DLI’s healthcare facilities to monitor sustainability factors with respect to the healthcare facilities.

We believe that taking into account ESG factors alongside traditional financial and operational factors in our investment decision process and on a continuous basis enhance value creation for DLI’s unitholders.