BUILDING RESILIENCE Climate-Related Risk Management MUST's ERM framework identifies, prioritises, and mitigates environmental risks, including climate-related risks and opportunities. This framework is designed to identify the climate-related risks that could significantly impact our operations. To better understand physical climate-related risks and opportunities, we conducted a climate scenario analysis on our portfolio in 2023. The Board oversees risk governance across the REIT, ensuring robust risk management and internal control systems. This includes developing an overall risk strategy based on risk appetite, identification, measurement, assessment, monitoring, reporting, control, and mitigation. The ARC supports the Board in risk management oversight, including climate risks, delegating through a governance framework centered on the three lines of defence model. For more details on the defence model, refer to page 61 of the Annual Report 2024. Our acquisition process evaluates environmental and social risks during due diligence, presenting findings to MUST's management team for investment approval. After property onboarding, we incorporate mitigation strategies into asset plans. We work closely with Asset Managers and Property Managers to monitor environmental performance and address climate risks, aligning with our portfolio ESG targets. Climate-Related Risk, Mitigation, and Opportunity1 In 2020, a portfolio risk study was conducted by a thirdparty tool using both current and forward-looking risk scenarios to assess asset-level exposure to climate-related risks. Resilience measures associated with flood risk management, property features, the property team’s resilience management practices, and emergency and business continuity plans were also assessed as part of the mitigation plan for climate-related physical risks. In 2023, our Asset Manager completed a climate scenario analysis for its global portfolio, which included MUST's properties. The forward-looking climate scenario analysis was conducted by a third-party climate risk provider, to further understand how the identified physical risks could impact future operations. In line with the Asset Manager’s Real Estate Climate-related Financial Disclosure 2023 report, the analysis was conducted based on science and historical data and considers the climate scenarios of IEA NZE, RCP 2.6, RCP 6.0, and RCP 8.5 projected between 2030 and 2100. MUST aligns with the Asset Manager’s definition of short-, medium- and long-term horizons for climate-related issues with short-term referring to 1 to 5 years, medium-term referring to 5 to 10 years and long-term referring to 10+ years. This year, we further streamlined the physical risks that are relevant to MUST. • Scenario 1: failure to act (>4°C) (RCP 6.0 and RCP 8.52) Participants believe that physical climate risks will increase costs and reduce value; supply chain disruptions and market variability from changing climate conditions will also affect our business. • Scenario 2: Paris-aligned (<2°C) (IEA NZE and RCP 2.63) Participants expect sizeable investments to overcome transition risks; despite these costs, participants identified significant opportunities in being an early mover in transitioning to net zero. For each effect of climate change, a climate hazard score was determined. The study found that none of the assets in the portfolio are located in 100-year flood zones currently, and in both scenarios between 2030 and 2100. 1 Represents a non-exhaustive list of the main risks and opportunities currently identified across our real estate portfolio. Risks and opportunities are subject to change over time and are ultimately addressed on a case-by-case basis depending on the individual characteristics of each property. 2 According to Intergovernmental Panel on Climate Change (IPCC), Representative Concentration Pathway (RCP) 8.5 represents a high greenhouse gas emissions scenario in the absence of policies to combat climate change, leading to continued and sustained growth in atmospheric greenhouse gas concentrations. RCP 6.0 represents the intermediate levels of greenhouse gas emissions and result in intermediate levels of warming. 3 According to International Energy Agency (IEA), Net Zero Emissions (NZE) by 2050 Scenario is a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions by 2050, with advanced economies reaching net zero emissions in advance of others. According to IPCC, RCP 2.6 represents low greenhouse gas emissions and high mitigation future to limit global warming to below 2°C by 2100. 78 | MANULIFE US REIT
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