Product Name: CRE Logistics REIT, Inc.

CRE Logistics REIT, Inc. (“CRE REIT”) promotes environmental and 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”). We have no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on CRE REIT Advisers, Inc. (the “Asset Manager”), to manage and operate the properties in our portfolio. CRE REIT 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 April 1 of the year, unless noted otherwise. We have no reference benchmark designated for the purposes of attaining the environmental or social characteristics promoted by our investment units.

Summary

No sustainable investment objective

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

Environmental or social characteristics of the financial product

We believe that enhancing unitholder value is possible only while preserving sustainable environment and achieving sustainable society. We make our contribution by investing in high-quality logistics facilities and conducting long-term, stable asset management. Under our sustainability policies and framework, we collaborate with the Asset Manager, to implement a wide range of initiatives promoting environmental, social and governance, or ESG, goals.

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

Such environmental initiatives include the following:

・Setting greenhouse gas emission reduction goals in all properties in our portfolio. We aim to reduce greenhouse gas emission intensity by 46% at our properties from FY2019 by FY2030. Our entire portfolio is subject to annual greenhouse gas emission targets.

・ESG data coverage. We monitor and track energy usage, renewable energy generation, greenhouse gas emissions and water usage of the properties in our portfolio. We plan to continue to monitor and track ESG data for 100% of the floor area of our properties through FY2027.

・Reducing energy consumption. We have installed energy saving equipment at a part of our properties, such as LED lighting, highly-insulated sandwich panels, human sensors, well water-based roof watering equipment, and green walls. We also have increased use of renewable energy through solar panel installations.

・Reducing water use. We have installed high-performance water-saving sanitation appliances to reduce water usage at a part of our properties.

・Including “Green Lease” provisions in our agreements. We have standardized environmental provisions, which we refer to as “Green Lease” provisions, in the leases with our tenants. Our Green Lease provisions include a clause for our tenants to collaborate with us to implement measures for energy conservation, environmental preservation, etc. We plan to increase the number of leases with our Green Lease provisions.

・Collaboration with suppliers. The Asset Manager has established standards for selecting and evaluating suppliers to promote ESG initiatives with suppliers. The Asset Manager evaluates each supplier’s ESG performance prior to entering into a relationship with it, and conducts an annual sustainability review of each supplier.

・Establishment of an environment management system, or EMS. The Asset Manager has established policies concerning important environmental issues to provide practical measures to mitigate our environmental burden. The EMS comprises the framework and processes to implement these policies, based on which the Asset Manager makes on going recommendations on how to reduce our environmental burden. The EMS includes four steps: (i) establishment of environmental targets, environmental action plans and understanding of environment-related laws and regulations, (ii) implementation of measures, performance review and training, (iii) assessment of progress made against environmental targets and environmental action plans, analysis of expenses against budget and implementation of corrective and preventive measures and (iv) management review.

We implement various social initiatives at our properties including:

・Supporting local communities and social development. We have installed fire cisterns at our properties to provide water that can be used to fight fire and a helipad on the roof for firefighters in a disaster. The CRE Group has also cooperated with a local government in the excavation of the remains of 74 5,000 years-old pit houses, which were discovered during the development of LogiSquare Sayama Hidaka, and has collaborated with the local government in the preservation of archaeological records and tours of the site.

・Providing support for business continuity planning. The locations of our logistics facilities support our tenants with their business continuity planning because they are located inland where the risk of liquefaction is low and the risk of flooding based on hazard maps is also low. In addition, we have installed power receiving and transforming equipment at elevated locations as a flood control measure, earthquake early warning systems, short circuit isolators in fire alarms, disaster prevention support systems and AEDs at a part of our properties.

・Providing efficient and comfortable working environment for tenants and their employees. We have helped our tenants become more efficient by providing them with guidelines for incoming and outgoing vehicles to prevent congestion and accidents as well as interior walls with windows between offices to facilitate communication among employees at a part of our properties. A number of our properties have been furnished with cafeterias, rental meeting rooms and retail spaces, restrooms for outside drivers, smoking rooms meeting new legal requirements, women’s restrooms with lockers and recharging corners, warm-color lighting in entrances and truck berths, and signage to improve visual communication. We conduct a tenant satisfaction survey every year to improve amenities and convenience for the tenants and their employees.

・Providing support for employees. The Asset Manager provides compliance training four times a year for all full-time and part-time employees and encourages them to obtain qualifications by covering expenses and providing bonuses upon receiving qualifications. To support asset formation, we have a defined contribution pension plan, a unit investment plan (ESPP) and a restricted CRE, Inc. ("CRE”) stock compensation scheme. The Asset Manager conducts a survey on employee engagement four times a year to confirm that they are proactively engaging in their work and are motivated to contribute to their departments and the company. The President of the Asset Manager interviews each employee every quarter to discuss various matters.

Investment strategy

We invest 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.

Our basic philosophy is to leverage the comprehensive strength of the CRE Group, which boasts more than 50 years’ experience in the logistics real estate business, to invest in quality logistics-related facilities that satisfy tenant needs. We aim to create a stable cash flow and enhance unitholder value through these investments. To this end, we mainly invest in high-quality logistics facilities that meet the tenant needs developed by CRE in order to achieve long-term stable management. We acquire, maintain and manage such facilities and aim to contribute to users of logistic facilities and development of logistics in Japan by leveraging the comprehensive strength of the CRE Group pursuant to the sponsor support agreement between CRE REIT, and CRE. Therefore, we generally intend to have a portfolio consisting entirely of logistics properties.

In order to ensure that our asset management is sustainable while maximize the value of our portfolio assets, ESG factors are given significant consideration in our investment and asset management processes. The Asset Manager has established a green finance framework based on our commitment to exclusively use funds financed through green financing to acquire Green Buildings. Green financing under our green finance framework consists of green loans and green bonds where proceeds are used only to acquire Green Buildings or refinance loans or bonds financed for such acquisition. We intend to use, as a general rule, the green finance framework for future acquisitions. We believe that using such green financing for the acquisition of Green Buildings, which we believe can serve society as infrastructure assets, will contribute to the betterment of society and the environment.

・Selection of projects that qualify for Green Financing. When determining whether to acquire or invest in a property though green financing, we rely on the DBJ, BELS and CASBEE certifications. We use green financing to acquire properties that receive (i) four stars or higher out of DBJ’s five-star ranking system, (ii) A Rank or higher out of the CASBEE ranking system or (iii) four stars or higher out of BELS’ five-star ranking system.

・Third-party evaluation. Our green finance framework has been subject to the Green Finance Framework Evaluation by Japan Credit Rating Agency, which has granted us “Green 1 (F),” the highest grade.

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:

・Adoption of a decision-making process in conflict-of-interest transactions involving independent outside experts. We are not allowed to carry out related-party transactions without the approval of independent outside expert(s) on the Asset Manager’s Investment Committee and Compliance Committee.

・Transparent and appropriate information disclosure. We take into consideration the transparency of the information and the ease with which the shareholders will understand the information.

Proportion of investments

The Asset Manager has established a green finance framework based on our commitment to exclusively use funds financed through green financing to acquire Green Buildings (as defined below). Green financing under our green finance framework consists of green loans and green bonds where proceeds are used only to acquire Green Buildings or refinance loans or bonds financed for such acquisition. We intend to use, as a general rule, the green finance framework for future acquisitions. We believe that using such green financing for the acquisition of Green Buildings, which we believe can serve society as infrastructure assets, will contribute to the betterment of society and the environment.

・Environmental certification of individual properties. To track the environmental performance of our properties, we rely on certifications issued by third-party organizations, such as the Development Bank of Japan’s (“DBJ”) Green Building Certification, Building Energy-efficiency Labeling System (“BELS”) certification, Comprehensive Assessment System for Built Environment Efficiency (“CASBEE”) certification, and other equivalent certifications. We call our properties that receive any such certifications “Green Buildings”. With respect to DBJ certifications, we consider a property to have sufficient environmental certification if it received four stars or higher out of DBJ’s five-star ranking system. With respect to CASBEE, we consider a property to have sufficient environmental certification if it received an A Rank or higher out of the CASBEE ranking system featuring Rank S (excellent), Rank A (very good), Rank B+ (good), Rank B- (slightly inferior) and Rank C (inferior). With respect to BELS, we consider a property to have sufficient environmental certification if it received four stars or higher out of BELS’ five-star ranking system. As of December 31, 2023, 100.0% of our properties were Green Buildings based on total floor area.

Monitoring of environmental or social characteristics

We use the following indicators to measure the attainment of the environmental or social characteristics we promote:

・Environmental certification of individual properties. To track the environmental performance of our properties, we rely on certifications issued by third-party organizations, such as the DBJ, BELS, CASBEE and other equivalent certifications. With respect to DBJ certifications, we consider a property to have sufficient environmental certification if it received four stars or higher out of DBJ’s five-star ranking system. With respect to CASBEE, we consider a property to have sufficient environmental certification if it received an A Rank or higher out of the CASBEE ranking system featuring Rank S (excellent), Rank A (very good), Rank B+ (good), Rank B- (slightly inferior) and Rank C (inferior). With respect to BELS, we consider a property to have sufficient environmental certification if it received four stars or higher out of BELS’ five-star ranking system.

・Environmental initiatives: To mitigate the environmental impact from real estate operations, such as energy and water consumption, greenhouse gas emissions, waste, pollution and other impact on the ecosystem, we promote switch to high-efficiency facilities, optimization of building operations, water conservation, recycling and other initiatives, as well as establishment of a system that manages environmental impact for the preservation of the global environment such as the Sustainability Promotion Committee. The Sustainability Promotion Committee’s responsibilities include review of energy consumption in common areas at our properties and monitoring of energy use optimization.

・Climate change initiatives: We recognize climate-related risks and the opportunities arising from the medium- to long-term changes in society and environment, including the socioeconomic implications of decarbonization and the devastating disasters resulting from climate change, and make efforts to manage these risks and opportunities. We promote reduction of energy consumption at our properties, utilization of renewable energy and other decarbonization measures. We have also improved our disaster preparedness through business continuity planning and installed disaster-ready equipment so that we are resilient when faced with significant environmental change. In addition, the Asset Manager became a signatory as a supporter to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”) established by the Financial Stability Board and joined the Japan TCFD Consortium in February 2022.

・Social initiatives – health, safety and amenities: We endeavor to keep our tenants satisfied with our properties, build positive relationships with local communities and enhance the value of our properties with initiatives that improve the health and safety of tenants and local communities, including through better management of the indoor environment. These initiatives include establishment of guidelines to prevent congestion and accidents, interior walls with windows between offices and warehouses, cafeterias, rental meeting rooms and retail spaces and development of green spaces.

・Social initiatives – stakeholders: It is essential for property managers, other suppliers and external stakeholders including local communities to collaborate with tenants for the implementation of our sustainability policies. We collaborate with each tenant and CRE, the property manager, to collect data on electricity and water consumption, CO2 emissions and generated waste. We have built strong relationships with these stakeholders to be able to pursue effective collaborations.

・Social initiatives – employees and officers: We provide employees on an ongoing basis with professional education and training to develop strong real estate investment and management professionals. We also help them improve their knowledge and understanding of sustainability and ESG issues to implement our sustainability policies. Moreover, we acquire and retain talented personnel by fostering a healthy, safe and comfortable work environment and ensuring that they can achieve a healthy work-life balance and fully demonstrate their capabilities.

・Social initiatives – human rights: The Asset Manager respects human rights and diverse values, and makes every effort to eliminate unfair discrimination in all of its businesses. Moreover, the Asset Manager observes the ILO (International Labor Organization) Declaration of Fundamental Principles and Rights at Work, which includes elimination of discrimination in employment, abolition of child labor, prohibition of forced or compulsory labor, freedom of association and the right to collective bargain.

・Social initiatives – supply chain: We promote sustainable procurement by taking into account not only the suppliers’ economic performance but also their impact on the environment and society and other non-economic factors, to ensure sustainability throughout the entire supply chain supporting our business. We have established the Sustainable Procurement Policy to select and evaluate suppliers. Based on this policy, we evaluate suppliers based on their corporate ethics, legal compliance in relation to the environment and sustainability and respect for human rights.

・Social initiatives – legal compliance and risk management: We conduct our businesses in a fair manner by continuously working to strengthen our governance and ensuring legal compliance, fairness of transactions, information management, and prevention of corruption and conflicts of interest. Additionally, we incorporate into our real estate investment and management processes review of environmental and social risks from the medium- to long-term perspectives.

・Social initiatives – disclosure: To ensure relationships of trust with stakeholders, we disclose ESG information in a timely and appropriate manner and make efforts to achieve or undertake environmental certifications, international initiatives and other external evaluations.

Methodologies

To mitigate the environmental impact from real estate operations, such as energy and water consumption, greenhouse gas emissions, waste, pollution and other impact on the ecosystem, we promote switch to high-efficiency facilities, optimization of building operations, water conservation, recycling and other initiatives, as well as establishment of a system that manages environmental impact for the preservation of the global environment such as the Sustainability Promotion Committee. The Sustainability Promotion Committee’s responsibilities include review of energy consumption in common areas at our properties and monitoring of energy use optimization.

・Environmental certification of individual properties. The Sustainability Promotion Committee receives and confirms reports regarding environmental certification related matters such as the percentage of Green Buildings. We plan to have our investment management department produce such reports annually, going forward. After investing in the properties, we take initiatives such as making capital expenditure in order to introduce LED lighting and putting posters related to energy-saving measures, in cooperation with our tenants.

・Environmental initiatives. The Sustainability Promotion Committee receives and confirms reports regarding environmental related data such as the consumption of energy and water. Such reports are made by our investment management department every 6 months, based on the data collected by property management companies. We ensure the accuracy of such environmental related data by receiving a limited level of assurance from a third-party institution that such data was collected by following certain agreed upon procedures.

・Climate change initiatives. In order to take into account the climate change related-risks of our portfolio, for the purposes of our business strategy, we identify and assess them. We monitor environmental-related data and set environmental targets. The Sustainability Promotion Committee receives and confirms reports regarding climate change related matters such as the material problems to be improved, improvement plan and status of the previous initiatives. Such reports are made by a management officer designated by the Sustainability Promotion Committee.

・Social initiatives – health, safety and amenities. Our investment management department prepares questions for tenant satisfaction surveys and conducts the surveys annually in cooperation with property management companies. The survey results are reported to the Sustainability Promotion Committee and all of our employees and officers. Our investment management department also shares such results with property management companies in order to consider and conduct improvement measures. We use such results to manage and develop our properties.

・Social initiatives – employees and officers. Our corporate planning department conducts sustainability/ESG trainings for all of our employees and officers, multiple times a year. We use the trainings to conduct various sustainability/ESG measures. Every three months, we also conduct interviews with our employees and distribute questionnaires to our employees regarding employee engagement, with the goal of build good relationships with our employees and officers.

・Social initiatives – supply chain. Our investment management department is in charge of building a supply chain that is consistent with our Sustainable Procurement Policy. We monitor the status of our supply chain multiple times a year, for example by conducting surveys and communicating with our property management companies. If we find that our supply chain is not consistent with our Sustainable Procurement Policy, we promptly take improvement measures by requesting trading partners to consider ESG matters, etc.

Data sources and processing

We use the following data sources:

・Environmental certification of individual properties. Our investment management department collects the relevant data and reports it to the Sustainability Promotion Committee. The percentage of Green Buildings in our properties based on total floor area is calculated and tracked internally.

・Environmental initiatives. Property management companies initially collect the relevant data. Environmental related data in our properties such as consumption of energy and water are tracked and monitored internally. We also ensure the accuracy of these data using third-party organizations’ certifications.

・Climate change initiatives. Our management officer designated by the Sustainability Promotion Committee collects relevant data and reports it to the Sustainability Promotion Committee.

・Social initiatives – health, safety and amenities. Our investment management department collects relevant data and reports it to the Sustainability Promotion Committee, in cooperation with our property management companies. The tenant satisfaction status in our properties is tracked and monitored internally.

・Social initiatives – employees and officers. Our corporate planning department collects relevant data and conducts sustainability/ESG trainings for all of our employees and officers. Our employees’ engagement status is tracked and monitored internally.

・Social initiatives – supply chain. Our investment management department collects the relevant data and builds supply chain that is consistent with the Sustainable Procurement Policy. The status of supply chain’s consistency with the Sustainable Procurement Policy is tracked and monitored internally.

Limitations to methodologies and data

The primary limitation to these methodologies and data sources are the necessity of our reliance on our property management companies for raw data at the property level. Like many other real estate investment corporations and asset managers, we rely on raw data provided by our property management companies, and independent verification of the accuracy of such raw data provided by the property management companies presents challenges. In addition, data at the property level provided by our property managers is generally updated on an annual basis. Accordingly, property-specific data will therefore not always be fully up to date.

Data at the property level is compiled internally at the Asset Manager, but the data is confirmed by the relevant departments and the environment-related data at the property level is verified by a third-party organization.

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

Due diligence

When acquiring a new property, CRE REIT and the Asset Manager always check the environmental and social risks such as soil contamination by using outside experts in addition to site visits and investigations before concluding a sales contract, to avoid the risks.

Engagement policies

When investing in properties using proceeds from our green financing, we do not consider properties that do not meet the criteria under our green finance framework. We also do not generally consider investing in properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our environmental standards based on their history of land usage and soil contamination, assessment by experts and examination of presence of harmful substances, unless appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. We also review whether the property we may acquire is compliant with applicable law.

We adequately examine and analyze the status of harmful substances, soil contamination and groundwater contamination and consider the current and the mid- to long-term influence on properties before acquisition. However, from time to time we acquire properties that are designated as contaminated areas that require government notification under the Soil Contamination Countermeasures Act of Japan or that do not otherwise meet our standards. In such cases, appropriate measures are taken under the Soil Contamination Countermeasures Act or we conclude, after appropriate due diligence review, that any health or other ESG risk is limited. In this regard, we consider the possibility that residents living near the property will drink the groundwater.

Designated reference benchmark

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

REMUNERATION AND SUSTAINABILITY RISKS (SFDR ARTICLE 5 DISCLOSURE)

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

・Employees of the Asset Manager receive remuneration (including CRE’s shares and hereinafter the same) according to their academic skills, capabilities, experience, specialized skills and work description, 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 and allowances including overtime allowance, commutation allowance and life plan allowance. Employees may receive increases or reductions of their base salary based on personnel evaluations every July.

・Employees of the Asset Manager generally receive fixed bonuses every June and December. Employees also receive year-end bonuses after the end of the fiscal year. The amount of year-end bonuses is determined upon consideration of the Asset Manager’s performance and each employee’s work performance, including with respect to sustainability targets.

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

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 particular, the Asset Manager has established a green finance framework.

As stated above, we have instituted a number of initiatives, at both the portfolio level and the property level, to promote environmental and social characteristics. Such initiatives include energy-saving initiatives and water resource initiatives.

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

In addition, we aim to further refine and deepen our TCFD scenario analysis, which is described at our website: https://cre-reit.co.jp/en/esg/climate.html

Physical risks

The assets in which the fund invests are exposed to physical climate risks, which can materialize through, for example, floods, storms, heat and limited access to natural resources, causing the value of the assets to decline. Specifically, for CRE REIT, the following risks are particularly relevant.

・Flood risk: Some of the assets in which the fund invests are located in areas subject to a flood risk. Flooding in these areas may have a negative effect on the value of these assets. This risk is assessed as low for CRE REIT because we generally invest in assets located in areas with a low flood risk based on hazard maps disclosed by local governments. For assets subject to a flood risk, we construct an embankment so that flooded water would not easily reach such assets, and we install electrical equipment at elevated places to prevent electricity outage.

・Storm risk: This is a relevant risk because some of the assets in which the fund invests are located in areas subject to a storm risk. A major storm in this area could have a negative effect on the value of these assets. We address this risk by insuring such assets. This risk is estimated to be low for CRE REIT because we believe that our insurance coverage is sufficient to cover potential losses from storms.

Transition risks

The assets in which the fund invests are exposed to physical transition risks, which can materialize through, for example, changes in regulations, technical developments and/or social developments, causing the value of the assets to decline. Specifically, for CRE REIT, the following risks are relevant.

・General transition risk: We generally invest in logistics properties. New government policy, technical developments and/or changes in consumer preferences may affect the results of these properties. We address this risk by monitoring new government policies and technical developments and cooperating with CRE to develop coordinated responses to such policies or developments.

Risk of stranded assets: This is a relevant risk because we may invest in part in properties that are insufficiently prepared for sustainability measures imposed by the government or otherwise. These properties could therefore become stranded assets, i.e. assets that lose their value and/or are no longer marketable or readily marketable. If they become subject to unexpected legal restrictions or unfavorable social developments, this could have a negative effect on the value of the assets. We address this risk by monitoring new government policies and technical developments and cooperating with CRE to develop coordinated responses to such policies or developments.

Principal Adverse Impact Statement

June 29, 2023

Principal Adverse Impact StatementPDF（PDF:219KB）