Maruha Nichiro : Second Opinon of Maruha Nichiro's Blue Finance Framework, by Rating and Investment Information, Inc.

Second Opinion

Maruha Nichiro Corporation Blue Finance Framework

September 29, 2022

ESG Division Senior Analyst: Keisuke Moriyasu

Rating and Investment Information, Inc. (R&I) has confirmed the alignment of the Blue Finance Framework of Maruha Nichiro Corporation (Maruha Nichiro) dated September 2022 with Green Bond Principles 2021 of the International Capital Market Association (ICMA), Green Loan Principles 2021 of the Loan Market Association, the Asia Pacific Loan Market Association and the Loan Syndications and Trading Association, and Green Bond Guidelines 2022 and Green Loan Guidelines 2022 of the Ministry of the Environment (MOE). R&I has also confirmed that the use of proceeds is blue activities identified in the International Finance Corporation (IFC)'s Guidelines for Blue Finance. This opinion is based on the following views.

• Overview of the Opinion

1. Use of Proceeds

The proceeds are expected to be allocated to investments in a land-based Atlantic salmon aquaculture facility in Nyuzen town of Toyama prefecture through a joint venture company with Mitsubishi Corporation (MC). The project aims to commercialize Atlantic salmon farmed from eyed egg to harvest using land-based systems, while avoiding offshore aquaculture that may cause adverse environmental impacts. It corresponds to the project category of "Pollution prevention and control (prevention of ocean pollution)" from the perspective of ocean pollution prevention and the project category of "Environmentally sustainable management of living natural sources and land use (environmentally sustainable fishery and aquaculture)" from the perspective of environmental management in aquaculture operations. Thanks to Maruha Nichiro's industry-leading technological foundation and the facility's location that mitigates adverse environmental impacts, expectations are high that the project will contribute to sustainable marine resource conservation and management. Environmental and social risks associated with project implementation are appropriately addressed. The project falls under the blue project category of "F. Fisheries, aquaculture, and seafood value chain: sustainable production and waste management and reduction measures that meet, keep, or exceed the Marine Stewardship Council certification standards or equivalent" provided in the IFC's guidelines. The use of proceeds is reasonable.

(2) Process for Project Evaluation and Selection

Eligiblie projects are consistent with Maruha Nichiro's management policies such as its group vision and medium-term management plan. The company has an organizational process in which the finance department selects project candidates through coordination with relevant business units and the executive officer in charge of finance makes a final decision after approval by the head of the finance department. The process for project evaluation and selection is clear and reasonable.

(3) Management of Proceeds

The proceeds will be managed and allocated using an internal accounting system. Unallocated funds will be managed in cash and cash equivalents. If unallocated funds are generated for reasons other than delayed allocation, other projects that satisfy the eligibility criteria will be selected. The management of proceeds is appropriate.

(4) Reporting

Maruha Nichiro will report the allocation of proceeds until all proceeds are allocated, and environmental benefits until the proceeds are fully redeemed, on its website, etc. annually. The first reporting will take place within one year of funds being raised. As environmental benefit metrics, Maruha Nichiro plans to disclose the amount (or estimated amount) of farmed fish shipped from the project to be funded, in addition to a project summary. The reporting is appropriate.

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(Contact) Customer Service Department, Sales and Marketing Division: Terrace Square, 3-22,Kandanishiki-cho,Chiyoda-ku, Tokyo 101-0054, Japan TEL [phone] Second Opinions are R&I's opinions on the alignment of a framework, formulated by companies etc. to raise funds for the purpose of environmental conservation and social contribution, with the principles etc. compiled by public organizations or private organizations related to the relevant financing as of the date of assessment and are not statements of fact. Further, R&I does not state its opinions about any matters other than the alignment, certify outcomes, give advice regarding investment decisions or financial matters, or endorse the merits of any investment subject to the financing. R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a Second Opinion and makes no related representations or warranties. R&I is not liable in any way for any damage arising in relation to Second Opinions. As a general rule, R&I issues a Second Opinion for a fee paid by the issuer. For details, please refer to the end of this document.

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Outline of the Issuer

• The predecessor of Maruha Nichiro was formed through the 2007 business integration of Maruha Group Inc. (formerly Taiyo Fisheries Co., Ltd.), a major company founded in Akashi City, Hyogo Prefecture in 1880 and engaged in high-sea fishing, whaling and seafood processing operations, and Nichiro Corporation (formerly Nichiro Gyogyo Kaisha Ltd.), a major northern sea fishing and seafood processing company founded upon the first departure for fishing in Kamchatka in 1907. After business reorganization in 2008 and a merger on April 1, 2014, it became the current Maruha Nichiro.
• Over 140 years since its foundation, the Maruha Nichiro Group has been operating with the group philosophy of "Maruha Nichiro Group aims to be an essential part of society by improving everyone's daily life with wholesome, safe and healthy food." As a beneficiarys of the ocean's bounty, it has corporate responsibilities that go beyond mere improvements in productivity and profitability. The world's marine resources are not limitless. It must help ensure that they are used sustainably, keeping the seas and the rest of the environment healthy and beautiful for future generations.
• To promote sustainability, the Maruha Nichiro Group established the Sustainability Committee, which is chaired by the President & CEO and Representative Director. Members consist of Executive Officers who also serve as Directors of Maruha Nichiro, Executive Officers in charge of related departments, and related Department Heads, with outside directors and auditors acting as observers. The Sustainability Committee is responsible for planning and setting targets for overall group sustainability management and evaluates the activities of group companies

Maruha Nichiro

Basic Policy

The Maruha Nichiro Group will work to reduce the environmental impact of our global business activities and strive to create a sustainable society in order to contribute to the enrichment of people's lives and their happiness.

Principles

We will use sustainable resources effectively and work to minimize our environmental impact and mitigate climate change.

We will actively engage in environmental conservation efforts, taking biodiversity into consideration.

We will provide environmentally friendly products and services.

We will implement our environmental management system effectively and work on continuous improvements to boost our environmental performance.

We will observe environmental laws and regulations.

We will disclose company information related to environmental management as appropriate and work on our communication with society.

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[Source: Maruha Nichiro's website]

1. Use of Proceeds

1. Eligible Projects

• The proceeds from blue finance will be allocated to projects that satisfy the following eligibility criteria:

■ Overview of Eligible Projects

	Eligibility Criteria		Example of Eligible Projects
	[Blue Projects]		Land-based salmon
	Environmentally sustainable fisheries		aquaculture project
	and aquaculture projects

Project Category

・Pollution prevention and control (prevention of ocean pollution)

・Environmentally sustainable management of living natural sources and land use (environmentally sustainable fishery and aquaculture)

Atlantic salmon	 Maruha Nichiro is considering allocating the proceeds
from blue finance to, among others, investments in
	land-based Atlantic salmon 1 aquaculture project
	conducted in Nyuzen town of Toyama prefecture
	through a joint venture company, ATLAND Corporation,
	owned 51% by MC and 49% by Maruha Nichiro. A
	land-based aquaculture facility with a capacity of 2,500
	tons (live weight equivalent) will be constructed in
	Nyuzen town, with the aims of starting operations in
	FY2025 and completing the first delivery in FY2027.
	Note that completion of the establishment of the joint
	venture company is subject to the approval of the
	relevant regulatory authorities, and necessary
	procedures will be undertaken going forward.

• Atlantic salmon is a species of salmon found primarily in the Atlantic Ocean and farmed mainly in Norway and Chile. It is often used for meuniere or deep-fried, and fresh one can be eaten raw. In Japan, it is popular in sashimi and sushi. Most Atlantic salmon sold in Japan is farmed.

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• Maruha Nichiro and MC have been discussing the joint promotion of this project since March 2021. The project is expected to help develop a sustainable and stable land-based production system, efficient digital-tech-based operations, local production for local consumption, and progress in decarbonization. The two companies are dedicated to leveraging their strengths and businesses to simultaneously generate economic, environmental and societal value.
• At present, it is common that salmon is farmed on land until smolts (a growth stage in which salmon can survive in seawater) and subsequently transferred to offshore farms. Land-based aquaculture projects that are currently progressing around the world, including this project, use land-based closed aquaculture systems even in post-smolt production. That said, land-based aquaculture using a large-scale RAS2 has so far accomplished annual production of only around 1,000 tons or less. One of the project's objectives is to commercialize 2,500 tons of salmon annually that are farmed from eyed egg to harvest using land-based systems, while considering business profitability.
• In 1999, the Japanese government enforced the Sustainable Aquaculture Production Assurance Act to ensure sustainable aquaculture production by maintaining aquaculture areas in good condition and preventing the spread of infectious diseases. It also established a basic policy encompassing standards for the water and sediment quality of aquaculture areas (aquaculture environment standards). In accordance with these laws and regulations, fish farmers must prepare aquaculture area improvement plans that specify measures to mitigate aquaculture areas' environmental impacts, obtain authorization of the governor concerned, and strive to prevent deterioration in the aquaculture environment in line with their aquaculture area improvement plans.
• For general offshore aquaculture, appropriate environmental measures are considered to be in place in compliance with the laws and regulations mentioned above. Given the use of oceans in the natural environment, however, such farming may potentially have more-than-expected adverse impacts on the environment. In the past, growing water pollution in areas with many offshore aquaculture businesses in Japan did cause ocean pollution including red tides.
• On the other hand, land-based aquaculture using closed systems can artificially control the farming environment, and appropriate management can reduce adverse impacts on the surrounding environment. In fact, egg-to-harvest aquaculture of salmon, etc. in land-based facilities is underway across the globe. Maruha Nichiro's project also aims to farm Atlantic salmon in a land-based aquaculture facility from egg to harvest. Meanwhile, land-based aquaculture poses challenges such as the high initial cost of system installation and large electricity consumption for water temperature control and other system operations.
• Access to favorable water resources that supply affluent clean, cold water, such as ground water from the Kurobe River and deep seawater from the Toyama bay, makes it relatively easy to keep water temperature in a suitable range for Atlantic salmon farming, which translates into a smaller amount of energy required for land-based salmon aquaculture. Maruha Nichiro is also considering introducing renewable energy-derived electricity to cover part of the energy consumption.

1. Environmental Benefits

• Amid the continuous growth in global demand for seafood, the project contributes to the restoration and appropriate management of marine resources. It is also likely to reduce adverse environmental impacts (e.g., ocean pollution) from conventional salmon aquaculture.
• This local-production-for-local-consumption business model is expected to produce fewer greenhouse gas emissions compared to the practice of importing fresh salmon to Japan by air from salmon-farming countries such as Norway.

1. Consideration for Negative Environmental and Social Impacts

• The contemplated eligible project addresses potentially negative environmental and social impacts by taking appropriate measures for the surrounding environment and local residents in accordance with relevant laws and regulations.

• A recirculating aquaculture system, or RAS, removes sediment and water-soluble organic substances and uses circulated water to reduce new water brought in for aquaculture.

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	Risk of Causing Negative Impacts			Mitigation Measures
	Noise and vibration from facility			Comply with the Noise Regulation Act and the Vibration
	construction work			Regulation Act
				Provide sufficient explanation to local residents
	Soil contamination and spread of			Confirm that such substances are appropriately treated in
	asbestos and other harmful waste			accordance with applicable laws and regulations including the Air
				Pollution Control Act, the Industrial Safety and Health Act, the
				Waste Management Act, the Ordinance on Industrial Safety and
				Health, and the Ordinance on Prevention of Asbestos Hazards
	Water quality deterioration			Control water quality by bringing in new seawater from outside
				constantly
				Discharge water in compliance with laws and regulations
	Adverse influence on ecosystems			If there is a concern about endangered species, etc., conduct a
				habitat survey and cancel construction work in their habitat or do
				construction work outside a breeding season

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