Environmental Risk Management

AA REIT is committed to enhancing the resilience of our portfolio and navigating the future with confidence by adopting a comprehensive approach to understanding the risks that face our business, including those associated with climate change. Climate change presents both physical risks, such as extreme weather events that can cause property damage and operational disruptions, and transition risks related to the shift towards a low-carbon economy, including new regulatory requirements, disruptive technologies and changing market demands. These risks collectively influence investment decision-making and performance outcomes. As we strive to deliver long-term value to our stakeholders, it is essential that we assess the impact of climate change on our business and integrate these risks into our risk management approach.

In line with Monetary Authority of Singapore (“MAS”) Guidelines on Environmental Risk Management for Asset Managers as well as Singapore Exchange (“SGX”) regulations requiring listed companies from the material and buildings industry to provide climate-related disclosures, we have adopted TCFD climate-related recommendations since FY2023 to disclose on the material climate-related risks and opportunities that impact our business.

In FY2025, to prepare for upcoming SGX requirements, we enhanced our climate-related disclosures by conducting a gap analysis against the IFRS Sustainability Disclosure Standards, which are based on TCFD recommendations. These standards aim to support investor-focused disclosures on sustainability-related financial information and provide a comprehensive global framework for addressing the needs of capital markets and ensuring consistent, comparable, and verifiable information on sustainability-related risks and opportunities.

The table below demonstrates how AA REIT approaches the various climate-related risks that may impact our business, with close reference to the four primary pillars of TCFD:

Key Components of TCFD Recommendations	AA REIT’s Response
Governance Describe the board’s oversight of climate-related risks and opportunities. Describe management’s role in assessing and managing climate-related risks and opportunities.	The Board provides strategic direction and oversees the management of the REIT’s material ESG matters, including climate-related considerations. This includes: Assessing the REIT’s environmental risk profile; Approving an environmental risk management framework, material topics, targets and related policies; Setting clear roles and responsibilities of the Board and senior management relating to the oversight of environmental risk; and Enhancing environmental risk management competency within the Board and management. Management, represented by the Sustainability Council, manages the REIT’s sustainability strategies, objectives, initiatives and targets. This includes: Developing an environmental risk management framework and incorporating it across investment research and portfolio construction; Ensuring ESG commitments align with the environmental risk profile set by the Board through short-, medium- and long-term targets; Establishing an internal escalation process for managing environmental risk; and Providing regular updates to the Board on material environmental risk issues, including progress towards targets. Please refer to the “Sustainability Governance” section on page 94 for more information.
Strategy Describe the climaterelated risks and opportunities the organisation has identified over the short, medium and long term. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.	Management has integrated environmental risk into the existing enterprise risk management framework, accounts for environmental risk within the investment process and across the portfolio and manages material risks. Concurrently, the following opportunities have been identified over the short-, medium- and long-term: engaging in renewable energy programs alongside key industry players, such as SP Group and GoNetZero, and embracing smart technologies to enhance the energy efficiency of AA REIT’s properties, all of which have the potential to lower operating expense and increase revenue; responding to the market’s demand for sustainable products by investing into properties with sustainable building certifications and building EV fast charging infrastructure, both of which have the potential to increase revenue; and secured a new unsecured Sustainability-Linked Loan (SLL) of up to S$400 million and A$150 million, with margin reductions tied to the achievement of sustainability targets. The facility supports funding flexibility for AEIs and growth, while directly linking our financing costs to ESG performance—further aligning our financial strategy with our sustainability objectives. Management has conducted a qualitative assessment of the climate-related transition and physical risks facing its properties, considering short-, medium- and long-term horizons per the SGX recommendations for a phased TCFD approach. Please refer to pages 102 to 103 for more information on the scenarios considered. Management and third-party consultants have conducted a quantitative climate scenario analysis to identify and assess the impact of potential physical and transition risks facing our portfolio. In assessing transition risk, we have considered both Net Zero (1.5°C) and business-as-usual (4°C) warming scenarios. Increased pricing of GHG emissions (i.e., a carbon tax) was identified as the key transition risk. When assessing the physical risks to our operations, we focused on the businessas-usual (4°C) warming scenario, as physical risks are most significant under this scenario. Across our portfolio, the most significant physical risks observed are extreme heat and flooding.
Risk Management Describe the organisation’s processes for identifying and assessing climate-related risks. Describe the organisation’s processes for managing climate-related risks. Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management.	The Sustainability Council meet a quarterly basis to discuss climate-related risks, opportunities, oversee sustainability initiatives and review its performance. The Board will periodically review the existing enterprise risk management policy to ensure that environmental and climate-related risks are appropriately captured and addressed. AA REIT conducts training and development programs to enhance the environmental and climate-related risk expertise of our employees and Board members. Please refer to pages 102 to 103 for more information on AA REIT’s climate-related risk identification and assessment process.
Metrics and Targets Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.	Energy consumption and reduction targets and Scope 1, Scope 2 and Scope 3 GHG emissions are disclosed in the Energy and Emissions section of this sustainability report. Please refer to page 104 for more information on AA REIT’s energy and emissions targets. AA REIT currently has long-term emissions reduction goals and is exploring additional metrics and targets to measure relevant environmental risks and opportunities. Please refer to page 104 for more information on AA REIT’s long-term targets.

AA REIT has conducted a qualitative risk assessment and scenario analysis exercise to identify the potential impacts of:

Transition risks, under the Network for Greening the Financial System (“NGFS”) Net Zero 2050 Scenario and a business-as-usual (“BAU”) scenario with “Current Policies” scenario
Physical risks, under the NGFS Net Zero 2050 Scenario and a BAU scenario with “Hot House World” scenario

The identified transition and physical risks were assessed for the whole portfolio of AA REIT (28 assets located across Australia and Singapore) for the following time horizons:

Short-term: Within the next 1 to 2 years (by 2027)
Medium-term: Within the next 2 to 5 years (by 2030)
Long-term: Within the next 5 to 25 years (by 2050)

These are the specific physical and transition risk exposures for AA REIT’s portfolio:

Risk Type	Description	Examples of Possible Impacts	Response
Transition Risk
Regulatory and policy Medium to High Risk	The risk of loss resulting from failure to comply with laws, regulations, contracts or court decisions relating to the impacts of climate change.	Mandatory climate-related disclosures (and stricter sustainability reporting requirements), which can result in additional costs as companies monitor their carbon emissions. Mandatory national carbon tax scheme, which can result in higher operating costs due to the increased price of fuel, energy and waste disposal.	AA REIT captures relevant data and works with stakeholders to improve the quality and timeliness of that data. AA REIT keeps abreast of regulatory updates to ensure timely compliance with reporting requirements AA REIT invests in energy efficient and renewable solutions across its properties. AA REIT seeks to increase the number of properties that are certified under the Building Construction Authority (“BCA”) Green Mark Scheme, where commercially feasible.
Reputational Low to Medium Risk	The risk of damage to an organisation’s image and brand due to its actions or perceived inaction on climate-related issues.	A perceived lack of climate action could dampen investor confidence and decrease the availability of funding.	AA REIT manages potential reputational risks through regular and robust stakeholder engagement. Please see pages 94 to 95 for more information on AA REIT’s stakeholder engagement efforts. AA REIT is increasing its number of green leases signed, which require tenants to adhere to sustainable fitout requirements. In FY2025, 51% of leases signed were green leases. AA REIT regularly assess and implements new initiatives where necessary to reach its SBTi target.
Market Low to Medium Risk	The risk of financial loss resulting from market changes.	Properties in locations vulnerable to climate change may lead to reduced occupier/tenant demand, customer base and/or asset value. Inability to meet or keep up with market expectation for sustainable products may result in losing competitive edge.	AA REIT integrates market-related risks into our investment approach. AA REIT invests into green solutions such as EV fast-charging stations in Singapore to cater to tenants and visitors’ demands.
Technology Low to Medium Risk	The risk of obsolescence or increased operational cost resulting from the failure to adopt new technologies or business practices that address the impacts of climate change.	Delaying the implementation of new technologies that have the potential to address energy, emissions, water and waste demands may lead to loss in market share and stranded assets. Neglecting the adoption of green solutions may lead to increased energy and operational expenditures in the long run.	AA REIT collaborates with ecosystem partners to adopt sustainable technologies such as smart meters to monitor electricity consumption, rooftop solar panel installations and water efficient fittings.
Physical Risk
Acute Medium Risk	The risk of extreme weather events, such as flooding and fire, that cause property damage and business disruption.	Higher costs may be incurred to weatherproof the assets and business.	AA REIT reviews insurance plans in line with our climate risk assessment to ensure adequate coverage for critical assets. AA REIT considers physical risks in the Due Diligence (“DD”) process for future acquisitions.
Chronic Medium Risk	The risk of long-term, persistent impacts of climate change on an organisation’s assets, operation and supply chains.	Higher costs associated with refurbishing assets, preventative measures and property insurance premiums.