SFDR Principal adverse impacts(PAI) statement

Product Name: Nomura Real Estate Master Fund, Inc.

Legal Entity Identifier: 353800TNNZOQ1CPZE086

Nomura Real Estate Master Fund, Inc. (“NMF”) 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”). NMF 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 NMF relies on Nomura Real Estate Asset Management Co., Ltd. (the “Asset Manager”) to manage and operate the properties in the portfolio. NMF and the Asset Manager are hereinafter referred to collectively as “we,” “us” or “our”. References to “fiscal year” or “FY” are to the 12 months began or beginning March 1 of the year, unless noted otherwise.

Summary

No sustainable investment objective	The financial products offered by NMF promote environmental or social characteristics, but do not have as its objective sustainable investment.
Environmental or social characteristics of the financial product	Based on the belief that a sustainable society is essential for our sustainable growth, NMF has made effort to address social issues through its business in line with the fundamental philosophy of securing stable profit over the medium to long term while achieving steady growth of assets under management. NMF, together with the Asset Manager, has conducted asset management in a manner that takes into consideration environmental, social and governance (ESG) issues in order to enhance unitholder value over the medium to long term. We established our sustainability policy, and in order to implement specific initiatives toward sustainable society, we identified the most material ESG issues to us after reviewing the impact of ESG issues on our business, including our stakeholders' expectations. We subsequently reviewed and updated the list of the most material ESG issues and representative examples of our environmental and social initiatives implemented as a result of this update as described below.
Investment strategy	We directly or indirectly through trust beneficiary interests invest in real estate. Therefore, due diligence (including the assessment of good governance practices) in relation to investee companies is not applicable. The investment policies as described below are related to real estate and real estate-related assets. We invest primarily in the properties used as logistics facilities, retail facilities, office buildings and residential facilities in the three major metropolitan areas and other major cities in Japan to secure stable earnings and steady growth in the properties for the medium to long-term. Our investment strategy takes into consideration sustainability factors described below. We also established a Green Finance Framework (defined below), which allows us to broaden our investor base to include those interested in ESG investment and financing and further promote our sustainability. NMF issues green bonds and borrows green loans pursuant to our Green Finance Framework.
Proportion of investments	NMF offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of February 28, 2023, 58.8% of our properties had obtained Green Certification (3 Stars or Higher) while 59.2% of our properties in the portfolio had obtained any Green Certification, and 40.8% had not, based on floor area. We will continue our efforts to increase the percentage of properties holding Green Certifications to our target.
Monitoring of environmental or social characteristics	We use the following indicators to measure the attainment of the E/S characteristics we promote: Environmental certification of our properties; Sustainability evaluation; GHG emission/Water use targets; Tenant satisfaction survey; Employee satisfaction survey; Number of paid holidays actually taken; and Training hours/job-related certifications.
Methodologies	The Asset Manager has established the Sustainability Promotion Committee to effectively promote the sustainability in our business practice. In principle, the Sustainability Promotion Committee meets at least four times a year to set sustainability targets, measures and other matters, make recommendations related thereto and conduct monitoring (including risk management). The Sustainability Promotion Committee also collects and compiles data and internal reports on sustainability and related issues, and tracks and measures progress for meeting our sustainability targets and indicators. The Sustainability Promotion Committee uses the appropriate methodologies to track and measure our sustainability-related performance indicators and targets described above.
Data sources and processing	The Asset Manager obtains certain ESG-related data from property managers, issuers of Green Certifications and external consulting firms, depending on the type of data. The Asset Manager seeks to ensure data quality by engaging 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 environmental and social characteristics as well as for analysis of its action plans to achieve the environmental and social characteristics promoted by NMF.
Limitations to methodologies and data	The primary limitation to methodologies and data is the necessity of reliance on 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 property managers, and independent verification of accuracy of such data provided by the property managers presents challenges. In addition, some data at the property level is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up-to-date. Data at the portfolio level is compiled internally at the Asset Manager and, except for energy consumption, GHG emissions and water use data, there is no third-party 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 NMF in any material way.
Due diligence	Prior to our investment 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) whether the property has any Green Certification and (ii) the risk of natural disasters.
Engagement policies	We do not generally consider investing in properties (i) where the building engineering report alleges any issue arising from the use or storage of hazardous substances to exist or any potential for soil contamination, (ii) that are not compliant with applicable law, including the Soils Contamination Countermeasure Act of Japan and other environmental laws and ordinances, (iii) that do not meet the eligibility criteria under our Green Finance Framework or (iv) that are involved in the extraction, storage, transport or manufacture of fossil fuels.
Designated reference benchmark	NMF has no benchmark index designated as a reference benchmark to meet the environmental or social characteristics promoted by NMF.

No sustainable investment objective

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

Environmental or social characteristics of the financial product

Based on the belief that a sustainable society is essential for our sustainable growth, NMF has made effort to address social issues through its business in line with the fundamental philosophy of securing stable profit over the medium to long term while achieving steady growth of assets under management. NMF, together with the Asset Manager, has conducted asset management in a manner that takes into consideration environmental, social and governance (ESG) issues in order to enhance unitholder value over the medium to long term.

In December 2015, we established our sustainability policy (the “Sustainability Policy”), and in January 2019, in order to implement specific initiatives toward sustainable society, we identified the most material ESG issues to us after reviewing the impact of ESG issues on our business, including our stakeholders' expectations. We subsequently reviewed and updated the list of the most material ESG issues in January 2020. Below are the representative examples of our environmental and social initiatives implemented as a result of this update.

	Increasing the proportion of “green” properties. We aim to minimize our environmental burden attributable to our portfolio by investing in environmentally-friendly properties and enhancing the efficiency of energy use through eco-friendly and energy-saving measures at our properties. We aim to increase the proportion of properties based on floor area that have acquired Green Certification (3 Stars or Higher) (as defined below) to 70% by 2030.
	Countering climate change. We contribute to efforts to counter climate change with measures to increase the efficiency of energy usage and reduce greenhouse gas (GHG) emissions at our properties. Such measures include increased reliance on renewable energy by installing solar panels or switching to biomass power, reducing energy consumption by installing LED lighting and double sash windows, renovating air-conditioning facilities, and expanding greenery at our properties.
	Improved use of water resources. We make effort to efficiently use water while reducing overall water consumption at our properties. To reduce water consumption at some of our properties, we have renewed toilet equipment before new tenants occupy their space, and we have installed smart sprinkler systems that store and use rainwater in tanks, at some of our “Landport” brand properties. Moreover, rainwater is used to flush toilets and water plants at some of our logistics facilities and office properties. Some commercial facilities are equipped with well-water filtering systems that provide clean water for flushing toilets.
	Improved safety, security and comfort for tenants. Property specifications and services that tenants expect from property owners have changed, as people's lifestyles and work habits have changed in response to the ongoing structural shift in society. To be responsive to changing needs of our tenants, we communicate closely with our tenants by conducting regular tenant satisfaction surveys and, based on the feedback we receive, we upgrade our facilities and improve our services to provide our tenants with safety, security and comfort. Our tenant support services include training programs, shuttlebus services, and a job search website for tenants' staff. We also hold events to strengthen our ties with the local community, such as an annual summer festival and a take-your-children-to-work, in cooperation with tenants.
	A healthy work environment. We make effort to ensure that our employees' work environment is fair and work is rewarding by ensuring that their evaluations are impartial. For example, Nomura Real Estate Group has introduced a system that allows employees to propose and take initiatives in their jobs and work with managers and supervisors to achieving their targets. We have adopted a 360 degree evaluation framework that allows employees to evaluate their supervisors in terms of skills, performance and other qualities. We also respect employees' right of association and right to bargain as basic labor rights. Even though there is no labor union in NMF nor the Asset Manager, labor representatives and officers of our human resource divisions hold periodic meetings to collaborate on improving the workplace environment.
	Human resource development and talent management. We aim to help our employees improve their capabilities by providing them with periodic training and encouraging them to engage in self-directed studies and acquire job-related certification. Our employees can take advantage of Nomura Real Estate Group's use skills development programs to study to obtain real estate-related certifications, such as real estate notary, real estate appraiser, and first-class architect, and other general business-skills programs, such as on finance and language.

Investment strategy

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

We invest primarily in the properties used as logistics facilities, retail facilities, office buildings and residential facilities in the three major metropolitan areas and other major cities in Japan to secure stable earnings and steady growth in the properties for the medium to long-term. Our investment strategy takes into consideration sustainability factors as follows.

	Consideration of sustainability risks at the time of investment. The Investment Committee of the Asset Manager makes investment decisions after taking into consideration climate change risks, contamination risk and other sustainability risks as part of its due diligence process. For example, we consider the possibility of flooding at a target property based on review of the history of flooding at the property and various hazard maps as well as hydraulic engineering work conducted on the property. In addition, we investigate whether the property has environmental and energy-conserving facilities (including whether it has acquired any environmental certification), any business continuity plan, any issues arising from the use or storage of hazardous substances, or any soil contamination risk.
	Urban redevelopment with sponsor. We collaborate with Nomura Real Estate Development Co., Ltd., NMF's sponsor, in the redevelopment of properties to reduce their environmental burden. The sponsor aims to acquire environmental certification for its properties developed for leasing under the following brands: PMO, GEMS, Landport and PROUD FLAT. We actively acquire these properties, and in turn, sell our aged properties to the sponsor for redevelopment. We also contribute to redevelopment by providing the sponsor with feedback on our environmental efforts.
	Access to public transportation. When making investment decisions in properties, NMF considers accessibility to public transportation, which is not only convenient for tenants and visitors but also tends to mitigate carbon footprint.

In May 2019, we also established a green finance framework (“Green Finance Framework”), which allows us to broaden our investor base to include those interested in ESG investment and financing and further promote our sustainability. NMF issues green bonds and borrows green loans pursuant to our Green Finance Framework, which is subject to the following requirements.

	Use of funds. All proceeds from green finance are allocated to (i) acquisition of assets meeting eligibility criteria (“Eligible Green Assets”), (ii) refinancing of loans used to acquire Eligible Green Assets, and (iii) redemption of outstanding investment corporation bonds issued to acquire Eligible Green Assets.
	Eligibility criteria. Eligible Green Assets have acquired any of the following Green Certifications or any recertification thereof within 36 months after the date of receiving proceeds from green finance, or will acquire such (re)notification in the future. DBJ Green Building Certification: 3, 4, or 5 stars BELS Certification: 3, 4, or 5 stars CASBEE Certification for Real Estate: B+, A or S
	Project evaluation and selection process: The eligibility criteria are developed by the Sustainability Promotion Committee of the Asset Manager and adopted by the Investment Committee of the Asset Manager. The NMF Investment Management Group and Finance & Accounting Department evaluate and select the Eligible Green Assets, subject to approval by the Investment Committee or the Head of the NMF Investment Management Group.
	Management of proceeds. We manage any unallocated proceeds from green finance to ensure that such amount does not exceed the Eligible Green Debt Amount, which is defined as the total book value of the Eligible Green Assets owned by NMF, multiplied by total assets loan-to-value ratio as of the most recent fiscal period end. Furthermore, as long as any proceeds from green finance remain unallocated, we will internally track and manage the allocated funds on a portfolio basis.
	Reporting: We disclose on our website the status of allocation and the environmental impact achieved as follows. Reporting on allocation of proceeds The following information is disclosed annually: ・Amount of green bonds outstanding ・Details of issuance of green bonds ・Amount of unallocated proceeds from green bonds Impact reporting As long as the balance of green finance remains, the following indices as of the end of every February are disclosed: ・Number of Eligible Green Assets ・Level of each Green Certification acquired by our properties ・GHG emissions, energy consumption and water consumption at Eligible Green Assets (limited to properties or portions of properties that NMF exclusively occupies) CASBEE Certification for Real Estate: B+, A or S

While there is no third-party rating used to assess our governance practices, we, along with the Asset Manager, have introduced the following measures to assess and enhance our governance systems.

	Internal Audit. The Asset Manager's Internal Audit Department conducts internal audits. The Internal Audit Department formulates an audit plan for each fiscal year and, based on the plan, generally conducts an internal audit of each department once a year. The Internal Audit Department uses a risk-based approach to assess the effectiveness of the risk management, risk control, and governance processes. The Internal Audit Department also confirms whether business is carried out in accordance with internal rules and manuals established in accordance with the Nomura Real Estate Group Ethics Regulations and various laws and regulations related to the business.
	Decision-making process for investment management. The Investment Committee of the Asset Manager deliberates on and makes decisions based on basic policies related to operating the assets of NMF, operation management policies related to assets, and policies regarding important matters such as finance, as well as acquisition or sale of assets based on relevant policies, operation management, and important matters related to operating the assets of NMF such as funds procurement. All proposals submitted to the Investment Committee need to be screened and approved by the Compliance Officer, who reviews such proposals to ensure that there are no violations of or conflict with applicable laws.
	Prevention of conflict of interest in transactions. When the Compliance Officer determines that a proposal to the Invest Committee is an important transaction with a stakeholder or otherwise requires additional detail regarding the transaction, the Compliance Committee meeting is held to deliberate on whether there is any compliance issue. In addition, an acquisition, disposition or lending of securities or real estate between NMF and a related party of the Asset Manager requires approval from the Board of Directors of NMF.
	Timely and appropriate information disclosure. We disclose our corporate information in a timely and accurate manner that conforms with legal requirements. We also proactively disclose any other information, including through our website, in the interest of transparency if we determine that such disclosure would be beneficial.
	Adoption of performance-linked asset management fees. We pay to the Asset Manager asset management fees linked to NMF's performance in order to align the interest of our unitholders and the interest of the Asset Manager.

Proportion of investments

NMF offers financial products which promote environmental or social characteristics, but does not have sustainable investments as its objective. As of February 28, 2023, 58.8% of our properties had obtained Green Certification (3 Stars or Higher) while 59.2% of our properties in the portfolio had obtained any Green Certification, and 40.8% had not, based on floor area. We will continue our efforts to increase the percentage of properties holding Green Certifications to our target.

Monitoring of environmental or social characteristics

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

	Environmental certification of our properties. To track the environmental performance of our properties, we rely on the following certifications issued by third-party organizations (“Green Certification”). We aim to increase the proportion of properties based on floor area that have acquired Green Certification (3 Stars or Higher) (as defined below) to 70% by 2030. DBJ Green Building Certification. The DBJ Green Building Certification is a certification system created by the Development Bank of Japan (DBJ) to support real estate properties with environmental and social consciousness. The certification system evaluates a property based on convenience, comfort, disaster/crime prevention efforts, energy-saving, level of involvement with the local community, in addition to environmental performance. We consider a property to have obtained Green Certification (3 Stars or Higher) if it received 3 stars or higher (out of the maximum of 5 stars). BELS Certification. The Building-Housing Energy-efficiency Labeling System (BELS) is a third-party certification system to evaluate the energy conservation performance of non-residential buildings under the Act on Improving Energy Consumption Performance for Architectural Structures of Japan. The evaluation uses the Building Energy Index (BEI) value derived from primary energy consumption based on the building energy efficiency standards stipulated by the Japanese government. We consider a property to have obtained Green Certification (3 Stars or Higher) if it received 3 stars or higher (out of the maximum of 5 stars). CASBEE. The Comprehensive Assessment System for Built Environment Efficiency (CASBEE) is a method of evaluating and rating the environmental performance of buildings and is being promoted under the leadership of the Ministry of Land, Infrastructure, Transport and Tourism of Japan. The evaluation focuses on five categories: energy/greenhouse gases, water, resource use and safety, biodiversity/sites and indoor environment. We consider a property to have obtained Green Certification (3 Stars or Higher) if it received B+ or higher (on a scale of C (lowest), B, B+, A, S (highest)).
	Sustainability evaluation. GRESB was founded in 2009 by a group of major European pension funds who played leading roles in launching Principles for Responsible Investment (PRI), is an annual benchmarking assessment to measure the ESG integration of real estate companies and funds. The Asset Manager has become a GRESB real estate/company & fund member to contribute to improved sustainability through networking and information sharing with ESG-oriented companies while introducing best practices in Japan. We also participate in the annual GRESB Real Estate Assessment.
	GHG emission/Water use targets: We have established the following sustainability targets in order to counter climate change and address water resources issues: GHG emission: We aim to achieve a 40% reduction in GHG emissions per floor area (intensity) from our portfolio by 2030 compared with the 2016 level (Medium-term goal: Achieve a 34% reduction by 2025); and Water use: We aim to achieve a 10% reduction in water use per floor area (intensity) in our portfolio by 2030 compared with the 2016 level.
	Tenant satisfaction survey. We regularly conduct satisfaction surveys to obtain feedback from our tenants, residents and other property users. The surveys for our residents are conducted each year; and the surveys for our office, retail and logistics tenants are conducted every three years. The results of these surveys are shared with property managers, building managers, developers and other relevant parties, and we use them to improve the properties and services for tenants.
	Employee satisfaction survey. Nomura Real Estate Group, including us, conducts an annual employee satisfaction survey, and we use the feedback received to ensure that our work environment is fair. Employees' satisfaction is measured on a five-point scale with regard to (1) fulfillment in work, (2) workplace satisfaction, (3) satisfaction with superiors, (4) loyalty to the company, (5) extent to which employees gain satisfaction through NMF's growth and success in the market, and (6) level of monotony of work, as well as (7) workstyle reform and wellness management.
	Number of paid holidays actually taken. As an indicator to measure our employees' satisfaction with their workplaces, we use the number of paid holidays which our employees actually take. The target is 18 days per year or more.
	Training hours/job-related certifications. To evaluate our human resource development and talent management efforts, we track the number of hours each employee spends on training provided by Nomura Real Estate Group for improving job skills, such as organizational management or finance knowledge, and the number of employees who hold job-related certifications.

Methodologies

	The Asset Manager has established the Sustainability Promotion Committee to effectively promote the sustainability in our business practice. In principle, the Sustainability Promotion Committee meets at least four times a year to set sustainability targets, measures and other matters, make recommendations related thereto and conduct monitoring (including risk management). The Sustainability Promotion Committee also collects and compiles data and internal reports on sustainability and related issues, and tracks and measures progress for meeting our sustainability targets and indicators. The Sustainability Promotion Committee uses the following methodologies to track and measure our sustainability-related performance indicators and targets.
	Environmental certification of our properties. To assess each property's attainment of social or environmental characteristics, we use Green Certifications, which are issued by third-party organizations. For the properties that have not acquired an environmental certification, the Asset Manager considers potential measures to meet the standards for obtaining a Green Certification with the aim of increasing the percentage of Green Certifications (3 Stars or Higher) on our properties (by floor area) to 70%. The status of Green Certifications held by properties in our portfolio are reported to the Sustainability Promotion Committee and disclosed on our website on a real-time basis. This status is also used as a factor to evaluate NMF's GRESB rating.
	Sustainability evaluation. To assess NMF's attainment of social or environmental characteristics, NMF participates in the GRESB Real Estate Assessment. 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 and prepares an action plan for progressing sustainability goals. NMF's GRESB rating is reported to the Sustainability Promotion Committee and disclosed on our website.
	GHG emission/Water use targets. We continually monitor and track the GHG emissions and water use, and prepare an action plan for each property to achieve the targets mentioned above. The Asset Manager collects and compiles data related to GHG emissions and water use internally. This data is reported to the Sustainability Promotion Committee and disclosed on our website. The Asset Manager analyzes this data and prepares an action plan for progressing sustainability goals.
	Tenant satisfaction survey. The Asset Manager conducts tenant satisfaction surveys, and reviews and compiles the results to improve the properties and services for tenants and to prepare action plans for progressing sustainability goals regarding our properties. The results of these surveys are reported to the Sustainability Promotion Committee, disclosed on our website and shared with related parties.
	Employee satisfaction survey. Nomura Real Estate Group conducts employee satisfaction surveys, and the Asset Manager reviews and compiles the results to ensure that our work environment is fair and to prepare action plans for progressing sustainability goals regarding the work environment at our properties. The results of these surveys are reported to the Sustainability Promotion Committee, disclosed on our website and shared with related parties.
	Number of paid holidays actually taken. We monitor and track the number of paid holidays which our employees actually take in order to measure our employees' satisfaction with their workplaces and to prepare action plans for progressing sustainability goals regarding the workplaces of our employees. This data is reported to the Sustainability Promotion Committee and disclosed on our website.
	Training hours/job-related certifications. We monitor and track the number of hours each employee spends on training for improving job skills and the number of employees who hold job-related certifications. The Asset Manager collects and compiles these data internally. These data are reported to the Sustainability Promotion Committee and disclosed on our website. The Asset Manager uses this data to prepare action plans for progressing sustainability goals regarding employees' skills.

Data sources and processing

	Environmental certification of our properties. The Fund Management Department and the Asset Management Department of the NMF Investment Management Group of the Asset Manager submits relevant data provided by our property managers to established third-party organizations that issue Green Certifications for the properties in our portfolio. These Departments calculate and track the properties which hold Green Certifications on a real-time basis. To ensure the quality of data submitted the third-party organizations, the Asset Manager obtains an assurance report regarding energy and water consumption and GHG emissions from an independent third-party organization. The number of properties which hold Green Certifications are reviewed by an external consulting firm, which helps to ensure the disclosed data quality. Obtaining the Green Certifications issued by the established third-party organizations also helps to ensure the quality of data processing and the credibility and quality of Green Certifications.
	Sustainability evaluation. The Asset Management Department of the NMF Investment Management Group of the Asset Manager prepares and submits responses to the survey of the GRESB Real Estate Assessment. Before the submission, an external consulting firm reviews the ESG-related data and supporting materials used for the responses. The consulting firm also assists the Asset Manager in evaluating any room for future improvement. Therefore, we believe that engaging such established consulting firm helps to ensure the data quality. Also, the Asset Manager obtains, from an independent third-party organization, an assurance report regarding energy and water consumption and GHG emissions, data which is used in GRESB's Real Estate Assessment.
	GHG emission/Water use targets. At the property level, the Fund Management Department and the Asset Management Department of the NMF Investment Management Group of the Asset Manager collect relevant data from our property managers. At the portfolio level, these Departments compile relevant data internally. To ensure data quality, the Asset Manager obtains each year an assurance report regarding energy consumption, GHG emissions, water use and waste emissions from an independent third-party organization.
	Tenant satisfaction survey. The Asset Management Department of the NMF Investment Management Group of the Asset Manager conducts tenant satisfaction surveys. The surveys for our residents are conducted as needed at the time of move-out, and the surveys for our office, retail and logistics tenants are conducted every three years. To ensure data quality, the Asset Manager confirms the results internally.
	Employee satisfaction survey. The Corporate Planning Department of the Asset Manager conducts employee satisfaction surveys once a year, and reviews and compiles the results. To ensure data quality, the Asset Manager confirms the results internally.
	Number of paid holidays actually taken. The Corporate Planning Department of the Asset Manager collects the number of paid holidays which our employees actually take once in a year. To ensure data quality, the Asset Manager confirms the number internally.
	Training hours/job-related certifications. The Corporate Planning Department of the Asset Manager collects the number of hours each employee spends on training for improving job skills and the number of employees who hold job-related certifications once in a year. To ensure data quality, the Asset Manager confirms the numbers internally.

Limitations to methodologies and data

The primary limitation to methodologies and data is the necessity of reliance on 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 property managers, and independent verification of accuracy of such data provided by the property managers presents challenges. In addition, some data at the property level is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up-to-date.

Data at the portfolio level is compiled internally at the Asset Manager and, except for energy consumption, GHG emissions and water use data, there is no third-party 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 NMF in any material way.

Due diligence

Prior to our investment in a property, the Acquisition Department of 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) whether the property has any Green Certification and (ii) the risk of natural disasters. Upon the review of environmental issues discovered through due diligence review, the NMF Investment Management Group decides whether or not we will acquire the property, taking into consideration the potential for improvement in environmental performance.

Engagement policies

We do not generally consider investing in properties that building engineering report alleges any issue arising from the use or storage of hazardous substances to exist or any potential for soil contamination. We also review whether the property we may acquire is compliant with applicable law, including the Soils Contamination Countermeasure Act of Japan and other environmental laws and ordinances.

When investing in properties using proceeds from our green financing, we do not consider properties that do not meet the eligibility criteria under our Green Finance Framework.

Also, we do not invest in real estate assets involved in the extraction, storage, transport or manufacture of fossil fuels.

Designated reference benchmark

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

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 composed of base salary (including regular salary), additional salary (including overtime allowances) and other remuneration (e.g., bonuses).
	Methods of calculation and payment, and timing of salary are determined according to employment regulations and compensation rules.
	Regular salary is determined every April based on the employees' duties, demonstration of their ability, attendance records and other factors, which may relate to ESG considerations. The increases or decreases of regular salary may also be affected by the economic circumstances and the Asset Manager's performance, which may include consideration of ESG factors.

In order to realize sustainability in our asset management while maximizing our portfolio value, we consider ESG factors in our investment and asset management processes.

In our investment decision, the Investment Committee takes into consideration climate change related risks, contamination risk and other sustainability risks discovered in the due diligence process. Also we have established the Green Finance Framework.

As stated above, we have instituted a number of initiatives, at the corporate level, the portfolio level and the property level, to promote E/S characteristics. Such initiatives include climate change initiatives, initiatives for saving/reducing energy consumption and initiatives for employees and tenants. We have established the Sustainability Promotion Committee, which generally meets at least four times a year to set sustainability targets, measures and other matters, make recommendations related thereto and conduct monitoring (including risk management).

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 assets in which NMF invests are exposed to transition and physical risks, such as the following.

Category	Risk Factors	Identified Risks (Possible Financial Impacts on Investment Unit Return)	Initiatives
Transition Risk - Policy	Stricter regulations on total building carbon emissions and energy conservation standards Decreased cost of developing and maintaining energy-generating and energy-conserving buildings as a result of advances in ZEB (net zero energy building) technologies	Increased costs for retrofitting building (modification of existing buildings to increase energy efficiency)	• CO2 (intensity) reduction targets (40% reduction by 2030 compared with FY 2016) and monitoring and disclosure of progress • Promotion of modification of existing buildings • Promotion of green leases in cooperation with tenants, encouragement of energy conservation to tenants • Introduction of renewable energy (including procurement of green electricity) • Replacement of existing properties with and/or investment in properties with good environmental performance
	Introduction of carbon taxes Introduction of emissions trading systems	Increase in carbon tax
		Increased costs to purchase of renewable energy credits
	Expansion or mandating of disclosure systems relating to building energy efficiency assessments	Increased certification and other costs	• Targets for acquisition of environmental certification (70% of our properties with Green Certification (3 Stars or Higher) by FY2030) and monitoring and disclosure of progress
Transition Risk – Reputation	Selection of properties by companies and tenants with an emphasis on disaster preparedness	Lower occupancy rates at buildings with high disaster risks Loss of sale opportunities due to building flooding Increase in repair costs and casualty insurance premiums due to building flooding	• New investment phase: Investigation of risks of climate change (e.g., flood risk) in due diligence process • Property management phase: Regular assessment of sustainability risks including risks of climate change (e.g., flood risk) • Hard disaster measures (e.g., installation of water-stopping plates and/or a heating system that melts snow on the property to make it safe to walk and soft disaster measures (e.g., inland flood risk alert-notification system, business continuity plan, evacuation drills) • Insurance contracts covering disaster risks
Physical Risk – Acute	Increase in concentrated heavy rain, typhoons and floods, landslides, and high tides
Physical Risk - Chronic	Rise in sea level

• SFDR Principal adverse impacts(PAI) statement（PDF:439KB）