Scenario Analysis

We evaluate impact on business under several scenarios and conduct scenario analysis according to the following steps to assess strategic resilience to climate-related risks and opportunities.

Step 1 Identify material climate-related risks and opportunities and set parameters

We have identified the risks and opportunities for DHR in the future due to unusual weather caused by climate change and increasing social demands for climate change measures.

Category		Type	Contents
Risks	Transition risk	Policy and regulation	Increased costs due to introduction of a carbon tax and expansion of emissions trading system, increased procurement costs for construction materials
		Technology	Increased installation and maintenance costs due to installation of solar power generation equipment
		Market	Decrease in rent income due to changes in tenant demand (declining needs for properties not responding to climate change)
		Reputation	Increased funding costs due to growing stakeholder concerns or negative feedback by delayed response to climate change risks
	Physical risk	Acute	Loss of business opportunities and increased repair costs and non-life insurance premiums due to inundation of buildings caused by increased torrential rain, typhoons / floods, landslides and storms
		Chronic	Increased utility charges due to rising average temperature
Opportunities	Products and services		Increase in rent income (high occupancy, high rent) by providing low-carbon emission equipment and services to tenants

Step 2 Set climate-related scenarios

The scenarios on climate change referenced to formulate our own climate-related scenarios are outlined below.

Category	Summary of scenario	Main reference scenarios
Below 2°C scenario	The scenario that assumes policies and regulations to realize a carbon-free society are implemented and the global warming from pre-industrial levels will stay below 2°C.While the transition risk is high, the physical risk is low compared to the 4°C scenario.	IEA Sustainable Development Scenario (SDS) IEA Net Zero Emissions by 2050 Scenario (NZE) IPCC RCP2.6
4°C scenario	The scenario that assumes announced goals such as national goals under the Paris Agreement will be achieved.No new policies or regulations will be introduced, and global energy-derived CO2 emissions will continue to increase.	IEA Stated Policy Scenario (STEPS) IPCC RCP8.5

Step 3Evaluate impact on business in each scenario

Step 4Evaluate strategic resilience to climate-related risks and opportunities and consider additional measures

Assuming 2030, we analyzed the impact of climate-related risks and opportunities on the business of DHR and formulated countermeasures and resilience.

Category		Summary of scenario analysis results	Impact on business (Note)		Response / Resilience of DHR
			Below 2°C scenario	4°C scenario
Transition risk	Policy and regulation	Indirect costs increase related to GHG emissions in business activities due to introduction of a carbon tax	¥35 million	¥29 million	Increase renewable energy (including green power procurement) ratio Introduce energy-saving equipment and energy management system Set energy consumption / GHG emissions targets (SBT) for portfolio properties Promote GHG emissions reduction by introducing internal carbon pricing
		Service purchase costs indirectly increase related to GHG emissions in repairs and renovation work due to introduction of a carbon tax	¥94 million	¥42 million	Same as above
	Technology	Installation and maintenance costs increase due to installation of solar power generation equipment	¥798 million	¥798 million	Implement planned renovation work Acquire new properties with new technology introduced
	Market	Rent income decreases if the acquisition of environmental certification does not proceed as planned	¥914 million	¥914 million	Obtain green building certification for portfolio properties Disclose information on environmental performance
	Reputation	Investment unit prices fall and funding costs increase due to delays in ESG compliance	¥48 million	¥48 million	Improve ESG ratings Implement sustainable finance
Physical risk	Acute	Building repair costs increase due to increased natural disasters such as floods	¥427 million	¥854 million	Take appropriate measures such as insurance coverage based on risk assessment Perform waterproofing, exterior wall and sealing work ahead of schedule Own or replace properties with high resilience by using the check system for climate change, etc. Install sandbags, water stop plates and tide plates
		Rent income decreases due to increased risk of flooding of buildings	¥42 million to ¥1,000 million	¥84 million to ¥2,000 million	Same as above
		Non-life insurance premiums increase due to increased risk of water damage	¥22 million	¥45 million	Same as above
	Chronic	Water charges and power charges for tenants increase due to rising average temperature	Increase in water charges ¥42 million Increase in power charges ¥271 million	Increase in water charges ¥45 million Increase in power charges ¥272 million	Introduce energy-saving equipment and energy management system Introduce irrigation equipment and water-saving equipment Choose native plants for planting Promote energy conservation activities in collaboration with tenants Promote green leases

• The figures shown are the annual amount of impact estimated by the Asset Manager based on the past results and other factors with reference to the parameters general disclosed; therefore, accuracy of the figures are not guaranteed.

Roadmap for Reduction of Emissions and Achievement of Targets Certified by SBTi

DHR has set long-term targets of reducing total GHG emissions by 42% in the fiscal year ending March 2031 compared to the fiscal year ended March 2021 and net zero in the fiscal year ending March 2051 and formulated a roadmap that includes reduction rates by measure to achieve the goals.