Sustainability
Report 2023

Table of contents
Introduction — Looking Back

Deeper roots, greater growth .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 3
— A message from Stefanie Drews, President
A history of our sustainability activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5A snapshot of corporate sustainability in 2022 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6Unwavering commitment to ESG integration .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 7
— A message from Yoichiro Iwama, Chairman of the Board of Directors

Investment Management

A milestone year for sustainability .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9
— A message from Hiroshi Yoh, Chief Investment Officer
ESG approach, philosophy, and governance . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
Implementing ESG principles in investments .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 11
Japan Equity Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
Japan Investment Technology Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
Japan Fixed Income Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
Asian Equity Team (Ex. Japan) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22
Asian Fixed Income Team (Ex. Japan) . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
Multi-Asset Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 26
New Zealand Equity and Bond Teams .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 27
US Investment Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 29
Global Equity Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 30
Global Fixed Income Team .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
Portfolio Solutions Group .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
Stewardship
Engagement on ESG topics .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36
Engagement case studies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
Proxy voting .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 40
Proxy voting case studies . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 41
External ESG speaking events .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43

Corporate Sustainability

Speaking freely .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 45
— A message from Yutaka Nishida, Executive Chairman
DEI at Nikko AM .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
Global Racial Equality Group .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 47
International Women’s Group .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 48
Helping the environment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
Sustainability group initiatives
Japan .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
Asia .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 55
EMEA .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 57
New Zealand .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
Americas . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 59

Looking Ahead

Moving in a good direction .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 61
— A message from Joyce Koh and Daisuke Kono, Joint Global Heads of
Sustainability

Additional Information

External commitments .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 63
Contact information . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 64
Important information .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 65

The covers and dividers show photographs of Nikko AM’s employees across our global
offices. This edition of our Sustainability Report showcases our diverse talent.
Cover: Shelley Roberts, Nikko AM Americas, FinanceNikko AM Sustainability Report 2023

2

Deeperroots,
greatergrowth© J.J. BOS

A message from Stefanie Drews, President

An albizia gummifera tree

Nikko AM Sustainability Report 2023

The albizia gummifera— one of the main tree
species in the Forest of
Nikko AM in Tanzania — isan ideal metaphor for oursustainability activities at
Nikko AM: these trees canreach great heights, they
have roots that grow deep,
and they grow quickly.
Similarly, we are branchingout into new territory,
our sustainability teams
are getting stronger, andwe are quickly advancing
towards achieving ourgoals.
The most significant way
we branched out in ourbusiness activities in 2022
was to establish the Global
Sustainable Investment
team. The members of theteam are ESG (environmental, social, and governance)
specialists dedicated tohelping us deepen integration of ESG into ourinvestment processes. As
they put their expertise towork, we are ensuring that
we can provide our clientswith innovative solutions
rooted in sustainability andmake significant strides
towards achieving ourglobal growth strategy.
Additionally, in September,
Nikko AM became one of

only a few firms
headquartered in Asia toqualify as a signatory to the
UK Stewardship Code. As
we apply the code’s 12
principles — which set
detailed stewardshipstandards for asset
managers globally — weare demonstrating ourcommitment to following
the best market practices.
On the corporate
sustainability front,
we branched out by
establishing two newsustainability groups
in 2022, in response torequests from staff.
One new sustainability
group we started is theInternational Women’sGroup, made up of staff
members from eachinternational officeoutside of Japan. It kicked
off with 27 volunteers,
immediately making it
the largest sustainability
group at Nikko AM.
Through brainstorming
and discussion, the groupaims to propose changes
and initiatives to further
improve circumstances
for women at our offices
around the world, as wellas in the communities
where we work.

“we are branching out
into new territory, oursustainability teams
are getting stronger,
and we are quickly
advancing towards
achieving our goals”

3“One goal we are working quickly to achieve is#30by2030, where we aim to place women in 30%
of our management roles by 2030”

The second is the Japan Philanthropy
Group, a sustainability group for
those who are passionate about
making a difference in others’ lives
through financial contributions andvolunteering. It has held several
events already and has supported
a wide range of causes, including
refugees, the homeless, and children
in need of wheelchairs.
One important measure of our
firm’s deepening commitment
to sustainability is employee
participation in our sustainability
groups, which address our threesustainability pillars of diversity &inclusion, reducing inequalities,
and climate & environment. We saw
this number jump from 8% of total
employees in 2021 to 11% in 2022.
As we continue to develop a culturethat prioritises sustainability, we areconfident that by 2025 we will meetour goal of 15% of all employees
involved in one of our sustainability
groups.
In addition, each member of the
Global Executive Committee has
become an Executive Sponsor of
our various sustainability groups,
underscoring our commitment — at
the highest levels of the firm — toour sustainability activities. Executive
Sponsors are directly involved insustainability groups.
With more involvement comes
more progress. One goal we are

Nikko AM Sustainability Report 2023

working quickly to achieve is#30by2030, where we aim to place
women in 30% of our management
roles by 2030. By the start of 2023,
we saw the number of women in
leadership positions rise to 20.4%,
a 2% increase over 2021. As our HR
team and regional women’s groups
offer increasing support regarding
career progression, we are certain tocontinue at, or speed up, this pace.
Another one of our companywide sustainability goals is cutting
greenhouse gas emissions acrossthe Nikko AM Group by 40% of2019 levels by 2030. To move closer
to achieving this, we revised ouroverseas business travel policy
so that it would take our carbon
footprint into consideration.
It is worth noting that anothercharacteristic of albizia gummifera
trees is that they are used to provide
shade to protect other crops. As oursustainability activities take deeper
root at Nikko AM, we can provide a
better workplace for our employees
to thrive, and can better support ourclients and those in the communities
where we live and work.

•

Stefanie Drews
President4

A history of oursustainability activities
Launched Japan’s first socially
responsible investment fund1999
Became an early signatory of the UN PRI

the first Japanese asset manager to disclose
2007 Became
proxy voting results on our corporate website
Launched the world’s first fund to invest
only in World Bank Green Bonds
Developed a corporate
Environment Policy

2010
Signed the Japan Ministry of Environment’s
Principles for Financial Action forthe 21st Century

2011 Chaired the PRI-Japan Network(April 2011 – March 2014)

Developed Creating Shared Value (CSV)
equity investment strategy (Japan)

2013
Established Stewardship and Voting Rights

2016 Policy Oversight Committee

Formed the Global ESG Steering Committee

Became the first Asian-headquartered asset
manager to support all four areas under The
Investor Agenda
Adopted UN Women’s Empowerment Principles

2018

Established the Corporate Sustainability
Department
Formed local sustainability groups in all offices

Published inaugural Task force on Climate-related Financial
Disclosures (TCFD) Reportmeasuring annual carbon footprint from operations
2019 Started
Established three firm-wide focus areas: Diversity & Inclusion,
Published inaugural annual Sustainability
Report for 2019
Launched first global sustainability group:
the Global Racial Equality Group

Reducing Inequalities, and Environment & Climate

2020
Joined the Net Zero Asset Managers initiative
Revised group-wide environmental policy and2021 set a greenhouse gas reduction target
Established global
Diversity & Inclusion
policyDeveloped Global Engagement
and Stewardship Strategy
Became signatory to the UK
Stewardship Code (UKSC)
Established the Global Sustainable
Investment teamSet 2030 interim target for 2050 net zero goal

Nikko AM Sustainability Report 2023

2022

Lisa Edmundson,
Nikko AM Europe,
Global Equity Fund Management Team5

A snapshot of corporate
sustainability in 2022

Increased internal participation
Number of internal events (by calendar year)
9

JP Abilities

The Global Sustainability Team and 11 sustainability groups

6
8

JP Women

7
3
3

JP LGBTQ

NAM Europe 6

International Women’s Group 27

JP Philanthropy
Sus. groups (ex. Japan)

NAM Americas 13

Global Racial Equality

Global Sustainability Team

OthersTokyo
Singapore

TOTAL

6**
2**

4
2
1

1
4
11
30
37

0

Global Racial Equality Group 13

NAM Asia 12

NAM New Zealand4

CY2022

4

JP Environment

Japan Women’s Group
12
Japan LGBTQ Group
9
Japan Environment Group 13
Japan Abilities Group
11
Japan Philanthropy Group 13

CY2021

4

10

20

30

Percentage of female employees at Nikko AM
Jan 2021

Jan 2023

Sustainability group volunteers

Global Sustainability Team total

Ratio of women in
total workforce*

36.9%

38.6%

(approx. 11% of employees)(dedicated members: 3)

Ratio of women in
managerial roles**

18.4%

20.4%

Ratio of women in
the Board of Directorsof Nikko AM

20.0%

33.3%

110*

*Excluding Global Corporate Sustainability Team. Eliminating double counting of dual members.
**Including members working concurrently in other departments. As of 31 Dec 2022

Nikko AM Sustainability Report 2023

8**

*Permanent full-time employees and directors of Nikko AM and its consolidated subsidiaries.
**Defined as functionally Group Manager / Team Lead or above, or with corporate title of Senior Vice President or above.

6

Unwaveringcommitment to
ESG integration
A message from Yoichiro Iwama, Outside Director and Chairman of the Board of Directors
ESG investment is facing a number of headwinds.
One challenge is the energy crisis caused by the
conflict in Ukraine, which has driven home just how
difficult it is to “meet the needs of the present withoutcompromising the ability of future generations to meettheir own needs” — a core proposition of sustainable
development, according to the United Nations (UN).
There are also concerns over greenwashing,coming from markets and regulatory authorities. If
greenwashing goes unchecked, ESG could become apassing fad or a meaningless formality. Therefore, asset
managers are rightly facing scrutiny as to whether their
ESG integration goes beyond a box-ticking exercise andan evaluation of the extent to which their investments
can consistently generate alpha.
At Nikko AM, we believe that incorporating ESG
factors in the investment management process isa fundamental part of our fiduciary responsibility.
Effective ESG integration can only be achieved with along-term perspective and continuous engagement.
In 2022, we launched our Global Sustainable Investment
team to provide our firm with a source of deep ESG
expertise. Although investment teams at different Nikko
AM offices have been incorporating ESG factors in their

Nikko AM Sustainability Report 2023

investment management process for several years, we
believe that this new framework will deepen their ESG
capabilities because it will further strengthen our ability
to coordinate our practices globally.
Also in 2022, Nikko AM became one of the first Asiaheadquartered asset managers to become a signatory to
the UK Stewardship Code. We are extremely proud that
we are aligned with the principles of this global standard
and, at the same time, we have a strong sense of thegreat responsibility this involves. Maintaining our status
as a signatory to the Code will require an unwavering,company-wide commitment to our ESG initiatives.
It is often said that asset management should be ahumble business. To generate investment results from
ESG, we need to be patient in our efforts over the longterm, be willing to constantly gain new knowledge, andmaintain a sincere and ongoing commitment to ESG. I
believe these are the keys to delivering long-term value toclients and contributing to society as an asset manager.

“Effective ESG
integration can
only be achieved
with a longterm perspective
and continuous
engagement”•

Yoichiro Iwama

Outside Director andChairman of the Board of Directors

7Investment
Management

Edward Ng,
Nikko AM Asia,
Asian Fixed Income Team

Nikko AM Sustainability Report 2023

8

A milestone year
for sustainability
A message from Hiroshi Yoh, Chief Investment Officer
Even before taking over as Nikko AM’s
Chief Investment Officer in October,I knew I had a hard act to follow. The
company has established an enviable
reputation over more than two decades as a Japanese leader in applying
environmental, social, and governance (ESG) principles to its investment
activities. But even against that background, 2022 was a milestone year,with Nikko AM making a major commitment to spreading sustainability toevery part of its activities worldwide.
It was certainly a momentous year
to make that commitment. The
war in Ukraine and growing political tensions in Asia have tested theworld’s pledge to be more sustainable. Tightening energy supplies havetempted some to return to tried andtrusted but environmentally unsoundsources of energy. We believe this is
not the time to turn the clock back,but rather to redouble our efforts tomake our world economy greener,
fairer, and better governed.
The key event of 2022 was theestablishment of our new Global
Sustainable Investment team andthe appointment of a Global Headof Sustainable Investment, reporting
Nikko AM Sustainability Report 2023

directly to our group president andto me. For the first time, all our ESG
resources come under one umbrella.
The department now includes theActive Ownership Group — renamed
as the Japan Sustainable Investment
Department — which had been partof the Japan Equity Fund Management
Department but joined the Global
Sustainable Investment team in April
2023.
This new team significantly expands theresources we commit to sustainability.
Indeed, we have already doubled thenumber of people devoted to sustainability in less than 18 months — and the
expansion will continue.
Other milestones we passed in 2022
concerned our collaboration with othersin the industry. As part of our membership of Net Zero Asset Managers(NZAMi), we set an initial greenhousegas emission reduction target. We havecommitted to reducing greenhouse gas
emissions by 50% by 2030, comparedwith 2019 levels, for 43% of total groupwide assets under management (as ofthe end December 2021).
We were also pleased to have met thehigh standards of reporting set by the

UK Stewardship Code, allowing us tobecome a signatory. The code’s 12 principles place a heavy emphasis on ESG
and sustainability in how asset managers run their operations.
Our Global Equity team, for example,
has been contacting investee companies to ensure they recognise ourobligations as signatories to NZAMi,
encouraging them to provide carbon
emissions disclosures. We also wantto ensure that we understand theiremission reduction strategies and that
their targets are in line with the Paris
Agreement.
There were numerous other ways
our investment teams helped raise
the bar for sustainable investments
at the firm in 2022. For instance,
our Japan Sustainable Investment
Department upgraded the platform it
uses to engage with investee companies, strengthening collaboration andmaking it easier to track progress. Also
in Japan, we changed our guidelines onproxy voting to allow us to vote against
proposed board candidates at companies in our portfolio with relatively
high emissions if they fail to set netzero targets and a roadmap for achieving them. In Singapore, our Asian Fixed

Income team added to the significant
improvements it made to its ESG monitoring system in 2022 with a model to better
understand the ESG risks of sovereign
bonds.
We know that there is plenty more to do.
Our to-do list includes continuing to grow
our Global Sustainable Investment team,deepening our ESG expertise, advancing our ESG integration and stewardship
activities, and providing enhanced ESG
disclosures.
What we have achieved in 2022 has laida firm foundation for a more sustainable
future.

•Hiroshi Yoh

Executive Corporate Officer, Global Head ofInvestment, and Chief Investment Officer
9

ESG approach, philosophy,
and governance
Our ESG approach and philosophy
Our statement of purpose says, “Nikko AM,
as an asset management company, acts
as a fiduciary on behalf of its clients andis firmly committed to putting its clients’best interests first. It places fiduciary andenvironmental, social, and governance(ESG) principles as the highest guiding
themes of its corporate values and actions.”

the group’s ESG activities in line withinternational standards. The immediate
oversight of our ESG activities is the
responsibility of the ESG Global Steering
Committee, which reports to the Board of
Directors, chaired by Yoichiro Iwama, andto the Global Executive Committee (GEC)of senior management, led by Stefanie (seechart below).

We are a global asset manager, but our
origins lie in Japan. Japanese culture
values harmony — both with nature andwith others — so our firm has grown withthe belief that we must be good corporate
citizens. Our approach to sustainability has
evolved with that as our foundation.

Governance over our stewardship and ESG
activities takes place at both the global
and local subsidiary level. The ESG Global
Steering Committee is responsible for all
ESG activities at Nikko AM. It oversees
the integration of ESG within investment

We strongly believe that ESG considerations are inherent to long-term corporate
value creation and contribute to the realisation of sustainable economic growth. An
overview of our ESG policy can be foundon the Fiduciary & ESG Principles pageof our website. The principles listed are
based on the UN-supported Principles for
Responsible Investment.
Governance
Responsibility for sustainability starts
at the top. Both our President, Stefanie
Drews, and our Executive Chairman,
Yutaka Nishida, have been given specific
key performance indicators to enhance
Nikko AM Sustainability Report 2023

teams, sets policy and develops
strategy, makes external disclosures andrecommends ESG-related initiatives andparticipation in external bodies.
The committee is governed by the GEC
but it reports directly to the Board of
Directors. It is chaired by the Global
Head of Investment, Hiroshi Yoh, and its
members are the heads of our investment
teams worldwide, who are in chargeof stewardship implementation in
their individual investment processes,
including ESG integration, company
engagement, and proxy voting, whereapplicable. It is further supported by

the Global Sustainable Investment team,which provides dedicated expertise andadministrative support. In addition tomonitoring and guidance activities, thecommittee drives our implementationof the UN-supported Principles for
Responsible Investment.
Each Nikko AM Group subsidiary has anindependent executive team led by aregional head who reports to the Group
President and is responsible for formulatingand executing targets and plans decided
by the Group Board of Directors and GEC inline with local regulations and customs.

•

Stewardship governance structureGroup Board of Directors
Independent directors

Global Executive Committee

Global stewardship functions

Subsidiary-specific stewardship functions

ESG Global Steering Committee

Stewardship and Voting Rights Policy
Oversight Committee

Stewardship and Voting Rights Policy
Oversight Committee

Independent directors

Independent directors

Local proxy voting oversightGlobal Sustainable Investment teamLocal stewardship oversight

10

Implementing ESG
principles in investments
Implementation is both global
and local
For more than two decades, ESG
has been an area of focus for Nikko
AM, beginning in 1999 when welaunched Japan’s first socially
responsible investment fund. In
2022, we set the goal of enhancing
ESG in our investments across thegroup and, in August, we launched
our Global Sustainable Investment
team and appointed a new Global
Head of Sustainable Investment,
Natalia Rajewska. This has
significantly expanded the numberof people focused on ESG at thefirm. We have added new ESG rolesin the UK, Singapore, and Japan, andthe Japan Sustainable Investment
Department (formerly the Active
Ownership Group) has come under
the wing of the Global Sustainable
Investment team.
The Global Sustainable Investment
team is divided into five functions:— Regional ESG specialists: Theseversatile ESG experts work
closely with the investment
teams, supporting their ESG
integration and stewardshipefforts. They also work closely

Nikko AM Sustainability Report 2023

Natalia Rajewska,
Global Head of Sustainable Investment

with our other departments toensure that we deliver the best
outcomes for our clients.
— Research and integration: Thisfunction, which is still being
developed, is responsible forsupporting our investment
teams and ESG specialists withsubject matter expertise. It will
also include, for example, anenvironmental specialist to help
us continuously enhance our
integration efforts.
— Stewardship: This function
coordinates and supports
our firm-wide stewardshipefforts. It aims to continuously
improve our stewardship andsustainability activities, including

engagement, proxy voting,and ESG research, as well as
respective disclosures.
— Data and reporting: This function
is dedicated to sourcing, storing,
validating, and disseminating
ESG data globally. It supports ourinvestment teams with ESG data
analytics and reporting (see casestudy).
— ESG regulations: This function
is responsible for identifying,assessing, determining, andsupporting our approach to
ESG regulations and standards
globally, with a focus on
regulations in EMEA.

Case Study —Getting thenumbers right

Our global network of more than
200 investment professionals remain
at the forefront of our stewardshipand sustainability activities, aided by
our Global Sustainable Investment
team. Portfolio managers, analysts,
and governance specialists all share
our commitment to sustainable andresponsible investing. They apply
stewardship and sustainability andpractise active ownership in all their
day-to-day activities.
We will further build and develop
our team of ESG specialists in
2023.

•

Global Sustainable Investment team governance structureGroup President

Chief Investment Officer

Global Head of Sustainable Investment

Regional ESG
specialists

Research andintegration

Stewardship

Data andreportingESG
regulations

As part of the creation of
our Global Sustainable
Investment team in 2022,
we established a centralised ESG Data Teamto help provide consistency and accuracy, as wellas improve the coverage of our ESG data andanalytics. To begin thisprocess, we hired our
first specialised ESG data
analyst. These internalchanges go hand in handwith plans to expand our
external ESG data sources.
For example, we acquired
advanced climate analytics tools in 2022.
The ESG Data Team has
initially focused on analysing and integrating
the data sets we acquirefrom our primary data
provider. This work isenhancing our ability toidentify and assess climate-related risks andopportunities, whichlinks to our work for the
Task force on ClimateRelated Disclosures(TCFD), explained in moredetail in our TCFD Report.
The team also generates
a variety of regulatory
reports, plays a key function in providing data toprove our compliancewith the EU’s Sustainable
Finance Disclosure
Regulation, and has been
charged with analysing
the broader data market
to meet our evolving
needs.
11

Japan Equity TeamOur formula: sustainability = survival
Putting theory into practice
We believe that companies today must embracesustainability if they are to survive and thrive in aworld where a healthy environment, a fair society,and good governance are increasing priorities. Thatmakes it incumbent on investment managers to havea robust stock selection process if they are to achieve
excess returns for their clients.
The Japan Equity team’s process combines
both negative and positive screening, as well as
optimisation procedures that incorporate thoroughrisk management.
Negative screening
We use negative screening to exclude companies
from our investment universe that show up as having
governance risk. Such firms include those that havebeen involved in criminal conduct, fraud, accounting
malpractice, or that have caused environmental orsocial problems.
Positive screening
To find the most sustainable companies from theremaining list, we consider environmental, social, andgovernance (ESG) factors in our investment decisions
through a selection process based on Creating Shared
Value (CSV) evaluations. More detail about CSV and its
application can be found in the following articles bymembers of the Japan Equity team.

Nikko AM Sustainability Report 2023

It is not enough to build an initial portfolio withsustainable characteristics; just as important is to ensurethat firms remain on a sustainable path. So, it is vitalthat investment managers engage constructively withcompany management and are active participants in theproxy voting process.

12

Japan Equity TeamWe have very detailed proxy voting guidelines.
They include voting against director appointments
when the firm is facing serious climate change orsustainability risks and where management initiatives
to address them are deemed insufficient and thesituation is not improving.
In 2017, we set up a team dedicated to undertaking
these voting and engagement activities. Currently, theJapan Sustainable Investment Department (previously
known as the Active Ownership Group) has a threefold
remit: first, to promote cross asset class stewardship
activities, including proxy voting; second, to further
enhance ESG integration and promote systematic sustainable investment activities; third, to contribute to the
Global Sustainable Investment team and share global
best practices with Tokyo-based investment teams.
The stewardship specialists in the Japan Sustainable
Investment Department are responsible for
conducting the risk assessments we use to filter out
companies from our investment universe that are athigh risk of governance failings. In collaboration with
our Equity Research Group, with whom they share
responsibility for ESG-focused engagement, the teamalso provides the Japan-based investment teams withother relevant ESG-related information derived fromtheir research and engagement activities.
In 2022, the AOG established an engagement
platform for information sharing to enable the wider
Equity Fund Management Department to carry out
engagement in a systematic and effective manner. We
are now setting up a milestone management system
to monitor progress towards the resolution of certain
issues.

Nikko AM Sustainability Report 2023

Key ESG themes
In May 2023, the Japan Sustainable Investment
Department increased the number of its key ESG themes
from three to six (see chart), as stakeholders and society
at large are expecting us to do more in these areas. The
decision to make this change was arrived at throughdiscussions between our investment teams and the
Global Sustainable Investment team about criticalsustainability issues the world is facing.

Environment

Action for a decarbonised society

Environment

Biodiversity

SocialHuman capital and productivity

SocialDiversity

SocialHuman rights

Governance

Effective governance“The stewardshipspecialists in theJapan Sustainable
Investment
Department are
responsible for
conducting therisk assessments
we use to filter out
companies from ourinvestment universethat are at high risk ofgovernance failings”

These key ESG themes are primarily used as a framework
to help us prioritise the companies that we need to focus
on and to help us follow a specific engagement agenda
when we meet with these firms. We are always building
on our knowledge of identified issues to ensure we haveconstructive dialogue.
We aim to increase medium- and long-term investment
returns, and address environmental and social issues, bymaking every effort to enhance the corporate value ofour portfolio companies.

•

13

Japan Equity TeamHow we use CSV to identify
sustainable value
Creating Shared Value
The Japan Equity Fund Management Department’s
assessments of the financial performance andsustainability of major Japanese companies are
grounded in the concept of Creating Shared Value (CSV),
a form of corporate management proposed by Professor
Michael Porter of Harvard University in 2011.
Professor Porter proposed that companies should playa central role in solving social challenges and that thesolutions they provide can result in innovation, thereby
creating social as well as economic value. He alsoemphasised that companies performing these sociallycentred activities would exemplify a preferred form ofcapitalism. Nikko AM was an early supporter of CSV andstarted conducting CSV-based evaluations of major
Japanese companies in August 2013. Professor Porterhas stated that, to his knowledge, Nikko AM was thefirst asset manager to introduce CSV-based corporate
evaluations.
As shown in the chart, we divide CSV into three broad
fields: ESG, market competitiveness, and financial.
Firms are evaluated on a total of 12 items across thesethree fields. While the social challenges and business
opportunities of a company differ greatly depending on
the industry to which it belongs, our corporate analysts
evaluate each company’s ability to create shared value
as a CSV score, in line with the firm’s key issues andbusiness environment. In the field of ESG, evaluations
are based on a cross-functional approach that includes

Nikko AM Sustainability Report 2023

Yasushi Ishikawa,
Head of Japan Equity FundManagement Department

ESG— Human Resources —— Carbon Neutrality —— Environmental & Social —— Management Implementation —— Resilience —Financial

12 CSVevaluation
factors

MarketCompetitiveness— Entry Barriers —— Shareholder Return —— Financial Discipline —— Brand Equity —— R&D/CAPEX —— Cost Advantage —— Market Growth Potential —impartial assessments from the managers of the Japan
Equity Research Group, as well as the Japan Sustainable
Investment Department, which is primarily responsible
for ESG-focused engagement.

Pricing in shared value
We started calculating CSV stock prices in 2021 toestablish the appropriate price levels that would apply if
CSV evaluations were fairly reflected in the market. The

14

Japan Equity Team

move was intended to strengthen our ability to integrate
CSV evaluations into our investment process. The
graph on the right shows how CSV scores have become
increasingly important to stock price valuations in recent
years.

Importance of CSV scores in stock valuations
7

Statistically significant

6

Engaging for shared value
When engaging with investee companies, our analysts
and fund managers coordinate with each other and
the Japan Sustainable Investment Department asneeded. In 2022, we streamlined our approach bybuilding an engagement platform that provides a morecomprehensive picture of our process and enhances
organisational engagement to resolve issues.
The platform lists companies that have room to improvetheir enterprise value and that need to better manage
their progress on addressing issues they are facing. Asof the end of December 2022, we were managing 136
material issues for 117 companies through the newplatform. The CSV-score classifications of these material
issues are shown in the chart below. In many cases, theresolution of material issues through engagement isaccompanied by an improvement in the evaluation ofeach item of the CSV score. We believe that this will leadto an increase in enterprise value through the grantingof premiums and the elimination of discounts in stock
price valuations.

•

Nikko AM Sustainability Report 2023

4

3

2

Feb-22Aug-22

Feb-21

Aug-21

Feb-20Aug-20Feb-19Aug-19Feb-18Aug-18

Feb-17Aug-17

Feb-16Aug-16

Feb-15Aug-15

Feb-140Aug-141

Aug-13t-value

5

These scores started to become statistically significant
in the Japanese market in the second half of 2017, whenawareness of ESG investment began to rise, and havebeen particularly marked since 2021. This means that, inrecent years, there is a greater tendency for companies
with high CSV evaluations to trade at a premium andthose with low evaluations to trade at a discount. We
discuss the application of CSV evaluations in more detailin the article by Masanori Hoshino, Group Manager of
the Japan Equity Research Group, on the next page.

Case Study —The fallout from a falling CSV score

Note: The level of statistical dominance indicated meets the 1% dominance level.
Analysis period is Aug 2013-Jan 2023.

Management
effectiveness
44%

ESG
18%

CSV classifications ofmaterial issues

Financial
policy32%

This company is a major manufacturer of analyticaland measuring instruments. As the global market
leader in automotive engine emissions measurement
equipment, its instruments were used to expose
Volkswagen’s emissions fraud. However, theJapan Equity team grew concerned that the firm’s
automotive measuring equipment business would
lose money in 2022 as car manufacturers increasingly
shift to electric vehicles. There is a clear threat that thebusiness will shrink as economies move towards a lowcarbon environment.
Our sector analysts cut our CSV score for the company
in September 2021 from 20 to 13 (out of a possible24), largely as a result of the risks facing its automotive
instrument businesses. This followed a decision
by MSCI to reduce the firm’s ESG rating from A to
BBB in August 2020, mainly due to the company’scontroversial sourcing and labour management
policies. We continued to monitor the company
through 2022, although there were no further changes
to the CSV score or MSCI’s ESG rating.
It turned out that the semiconductor-related market
was strong in 2022, with income from measuring
equipment for semiconductors boosting thefirm’s profits and more than offsetting automotive
measuring equipment, which remained in the red, as
in the previous year.

Marketcompetitiveness6%

Despite the overall increase in profits, the share pricevaluation fell. Our analyst believed that there was little
room for any upward re-rating due to the climaterelated risks in the business and the automotive
market. As a result of this evaluation and thefundamentals of the stock, our fund manager sold all
the shares in 2022.
15

Japan Equity TeamCSV scoring provides
greater insight
Masanori Hoshino, Group Managerof the Japan Equity Research Group

Evaluating non-financial information
The most distinctive feature of our investment scoringprocess is the calculation of CSV (Creating Shared Value)scores. This is based on the key issues deemed most
likely to materially impact the enterprise value of eachstock.
As non-financial information can have a material impact,
our framework provides a process for directly integratingsuch information in the scores we use to calculate
theoretical stock prices. Indeed, non-financial criteria
dominate the five items in the ESG fields of the CSV
scoring process — human resources, carbon neutrality,
environmental & social, management implementation,and resilience.
We calculate stock prices based on CSV scores andcompare them with the target stock values that analysts
set when making recommendations, based on moreconventional investment criteria. This helps the teamto judge whether valuations have been set too high or
too low. In view of the challenges involved in applying
non-financial information to earnings forecasts andstock valuations, the CSV evaluation process provides
analysts with useful tools for considering investment
opportunities and risks from different angles.

Nikko AM Sustainability Report 2023

Valuation verification
In 2022, we started providing explanations for deviations
between target stock values and CSV stock prices in the
research reports issued by our analysts.
The target stock values set by our analysts are impacted
by different factors, such as earnings momentum andthe investment themes deemed applicable at thetime they are set, so it is not unusual for gaps to occur
between those values and CSV stock prices. When we
take into consideration the reasons for such gaps, it
can help to enhance the accuracy of analysts’ stock
recommendations.
We have seen several examples where a company’s CSV
valuation has exceeded its current stock price because
our enterprise valuation has increased following an
adjustment to the company’s ESG evaluation. It is thiskind of perspective that offers additional insights into
earnings prospects and risks, and can also help ouranalysts to ensure that they do not overlook investment
opportunities.

“non-financial criteria
dominate the five itemsin the ESG fields of the
CSV scoring process— human resources,carbon neutrality,
environmental &social, management
implementation, andresilience”

In the future, we expect to both extend the coverage of
our CSV valuations and refine their application, further
enhancing our investment scoring process and therefore
our stock selection.

•

16

Japan Equity Team

Lessons to be learned assustainable finance flows
into the mainstream
Sustainability is an ever-more
important factor in asset management.
There is a growing recognition that, as constraints
on human and natural capital become more evident,
companies have social responsibilities. Given thecurrent slowdown in global economic growth andthe emergence of universal owners — a few large
shareholders that dominate capital markets — there isalso an increasing need for investment managementthat extends beyond traditional financial measures
to enhance companies’ value by avoiding emerging“diseconomies”, such as ESG risks.
At Nikko AM, we have been actively involved inthese developments for more than two decades. Our
Research Active Management team launched Japan’s
first socially responsible investment fund in 1999 andcontinues to manage it. As a primarily environmentthemed product, the fund’s main focus is on carbon
neutrality, with an emphasis on decarbonisation, energysaving technologies, and recycling, which we regard asparticular strengths of Japanese companies. With thisexperience of managing sustainable investments, ourteam has learned to keep three points in mind:

Nikko AM Sustainability Report 2023

Tailor the approach to the company
It is not beneficial to take a uniform approach. Given thevariety of economic circumstances and rules in different
countries, regions, and sectors, it is important to use
engagement, working in close cooperation with eachfirm, to understand the different problems companies
face and to consider the best approach for each one.
Tailor the approach to the circumstances
The nature of sustainability changes according to theera and the environment. One example is the current
reconsideration of nuclear power and natural gas assources of electric power in response to soaring fossil“Japan faces many challenges …
However, these challenges also
provide a wealth of opportunities
to create new businesses thatcan develop products, services,
and approaches aimed at solvingthem”

Tatsuhiko Ikeda,
Fund Manager, Research
Active Management teamfuel prices and the growing need for energy security.
This could just as easily change back, so it is important
to be ready to update one’s strategy to keep it inconformity with the latest thinking on ways to realise asustainable society.
Avoid being dogmatic
We should not impose a particular view on others.
It is most effective to take a bottom-up approach tosustainability, accompanied by a regular exchange of
information between a large range of people, including
members of our investment management teams,
investee company management, and external experts. It
is important that these various parties share results andissues with each other.
Japan faces many challenges, including its low level ofenergy self-sufficiency and its rapidly ageing population.
However, these challenges also provide a wealth ofopportunities to create new businesses that can develop
products, services, and approaches aimed at solving
them. We will continue to build stock portfolios featuring
companies that are working to realise a sustainable
society, are seeing growth in their earnings, and arecompetitive in the market in order to provide attractive
returns for our investors.

•

17

Japan Investment Technology Team

Fundamental research
drives sustainable
investments
What we do
Our 20-strong Investment Technology Fund Management
team consists of the Passive Fund Management team and
the Quantitative Investment Management & Development
team. The Passive Fund Management team provides passive management products for a wide range of asset

classes, including fixed income, equities, real estate investment trusts (REITs), commodities, and multi-asset. The
Quantitative Investment Management & Development
team offers quantitative active strategies and smart beta
strategies for domestic and international equities.

How ESG issues impact stock prices(1) ESG, a partial indication of a company’s attributes(future earnings risks)

Present (point in time t)

Satoru Ikeda, Senior Fund Manager
Leader of Quantitative Investment Management & Development Team
Deputy Head of Investment Technology Fund Management Department

Our approach
ESG factors can impact shareholder value over time andin a wide variety of ways (such as the impact on future
profits and cost of capital), so we believe it is importantto understand them both theoretically and empirically(see chart). To this end, we continue to conduct in-depth
research on the environmental (E), social (S), andgovernance (G) components of ESG investment using aquantitative approach, which also draws on the expertiseof our Global Sustainable Investment team. The findingsof this research are used to integrate ESG considerations
into existing products and to develop new ESG products.

Current shareholder value = f (future earnings t, capital cost t, mispricing t)

ESG(2) Changes in universal macro factors(e.g. tax, regulations, consumer trends, etc.)

Changes in
expected
earnings

Changes incapital cost(3) Changes in specific factors

Future (point in time t+1)

Future shareholder value = f (future earnings t+1, capital cost t+1, mispricing t+1)

Masayuki Teraguchi
Head of the Investment Technology
Fund Management Department

We also contribute toacademia by submitting
research papers and giving
lectures at universities.
For example, Masayuki
Teraguchi, Head of theInvestment Technology
Management Department,
has given lectures to working
adult students at Waseda
University on its accounting
and ESG course for financial
management teams.

Created by Nikko Asset Management for illustrative purposes.

Nikko AM Sustainability Report 2023

18

Japan Investment Technology Team“in December 2022, we established our Climate Change Solutions – Japan Equity Strategy,
which aims to achieve a portfolio with 50% reduction in GHG emissions versus the TOPIX
index average while minimising tracking errors against the index”

Environmental research
Our environmental research focuses on therelationship between a company’s greenhouse gas(GHG) emissions and shareholder value. We believethat Scope 1 emissions (direct emissions from thecompany’s operations) and Scope 2 emissions(indirect emissions, such as those from electricity
providers) are not sufficient to evaluate the full
effect of GHG emissions on shareholder value. It
will therefore become increasingly important toevaluate shareholder value by considering Scope 3
emissions, those indirect emissions that occur acrossthe entire value chain of a firm, such as suppliers’
emissions. However, companies that disclose Scope 3
emissions are extremely rare, and there is still room for
improvement in the reliability of these figures.
Because of this, we decided to develop our own
in-house model to estimate all three types ofemissions. Based on this model, in December 2022,
we established our Climate Change Solutions – Japan
Equity Strategy, which aims to achieve a portfolio with50% reduction in GHG emissions versus the TOPIX
index average while minimising tracking errors against
the index (read more about this on the next page).

Social research
Our social research focuses on the relationshipbetween the efficient use of human resources andshareholder value. To conduct this research, first,
we defined human resource investment efficiency
at Japanese companies as the sensitivity of labour
productivity change to the total employee growthrate. Then, we examined the impact of human resource
investment efficiency on shareholder value, mainly
stock returns. We found that stock returns are relatively
high for companies with high human resource
investment efficiency and that this trend is stronger
for companies with a high labour share ratio, which isa measure of the amount of value added that a firm
allocates for employee compensation. The labour shareratio can also provide insight into a company’s labour
practices and the extent to which it prioritises the wellbeing of its workers1. This research formed the basisof our Japan equity human resources strategy, whichinvests in stocks of companies that excel in humanresources investment.

Governance research
It is difficult to objectively measure corporate
governance, as individual factors generally have alarge impact on how well companies are governed.
The result is that the ratings among ESG data
providers vary widely2. While it is undisputed that
directors play a major role in corporate governance,
the team believes that it is important to evaluate theappropriateness of the composition of the boardof directors, taking into account the attributes andsize of the company, as well as the status of directors
serving concurrently on the board. Specifically, we
analyse the relationship between variables related
to effective governance, such as shareholder andboard composition, and subsequent corporate
performance. We have presented some of ourfindings to pension sponsors and other institutional
investors in Japan and abroad3. Furthermore, weare developing a Japan equity stable growth ESG
strategy that reflects this knowledge.

•[Notes]
1. Ishikawa, Y., and K. Hasegawa, 2019, “Efficiency of Japanese Corporate Investment in Human Capital and Shareholder Value”, Securities Analysts Journal, 57(6), 67-79. (FY2019 Securities Analysts Journal Prize)
2. Gibson, R., P. Krueger, and P. S. Schmidt, 2021, “ESG Rating Disagreement and Stock Returns”, Financial Analysts Journal, 77(4), 104-127
3. Teraguchi, M., 2021, “ESG Investment for Pension Funds: Discussion Points and Practical Solutions to Challenges”, Pensions & Investments’ 15th Global Pension SymposiumThis document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments or participate in any trading strategy.

Nikko AM Sustainability Report 2023

19

Japan Investment Technology Team

Climate Change Solutions – Japan Equity Strategy
Carbon dioxide and other greenhouse gas emissions
have risen significantly with industrialisation and population growth. These emissions contribute to global
warming and have various effects on our living environment. Against this backdrop, the Paris Agreement
was adopted at the Conference of the Parties to theUnited Nations Framework Convention on Climate
Change (COP21) in 2015 as a new international framework for reducing greenhouse gas emissions, which
entered into force in 2016. Many countries, including major emitting countries, have joined in pursuingefforts to reduce GHG emissions in order to combat
climate change.
Like many other countries, Japan has set an ambitious
goal of net zero GHG emissions and carbon neutrality
by 2050, and Japanese companies are now required
to make various changes to achieve net zero
emissions. Nikko AM also believes that companies
need to play an active role in addressing climatechange. To that end, we established our Climate
Change Solutions – Japan Equity Strategy.
There are three key points to this strategy:
1.	The portfolio will aim for 50% reduction in GHG
emissions versus the average for the TOPIX, thestock market index that includes Japan’s largest
companies.
2.	Investors are able to track the main index closely
as the portfolio aims to reduce tracking errors
compared with the TOPIX.
3.	The fund will address climate change by supporting
Japanese companies in their efforts to decarbonise.

investors who want to invest in funds and assets
with lower GHG emissions. It is a distinctive strategy
because it is tied to a commitment that we will
engage with investee companies specifically on theissue of GHG emissions. In addition to providing
relatively low GHG emissions compared with themarket average, the portfolio aims to encourage
Japanese companies to work towards the realisationof a decarbonised society.

“This climate change strategy... is tied to a commitment that
we will engage with investee
companies specifically on theissue of GHG emissions”

An illustration of the Climate Change Solutions – Japan Equity Strategy
Investors• Wish to invest in funds and assets with lower GHG emissions• Keen to support companies’ efforts to realise a decarbonised society

A simple and easy-to-execute strategy

Climate change-focused Japanese equity strategy

Covers all sectors with construction of
low-GHG portfolio
Lower GHG emissions than TOPIX(benchmark) with reduced tracking error

Urging Japanese companies to realise adecarbonised society
Engagement
Leveraging data and analyses, etc. usedin strategy
Messaging to investee companies
Promoting emissions reduction andinformation disclosureThis climate change strategy is a response to ourThis document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments or participate in any trading strategy.

Nikko AM Sustainability Report 2023

20

Japan Fixed Income TeamKey criteria for strong
investment decisions
Akihiko Yoshino,Group Manager of Credit Research

The focus of our ESG analysis
In the Japan Fixed Income team, we believe ESG
considerations are key factors when analysing qualitative risks that cannot be covered exhaustively
by financial analysis. We focus on eight ESG items,
displayed in the diagram below: two of these are
related to the environment, three are related tosociety, and three are related to governance.

Environment (E)Society (S)Governance (G)Changes inenvironmental
regulations

Human capital

Corporate
governance

Environmental
pollution

Manufacturer
responsibility

Accounting fraud

Relationship with
antisocial forces

Corporate ethics

We began this type of analysis in 2009, and we periodically review and update these focus areas basedon case studies we conduct.

Nikko AM Sustainability Report 2023

Integrating ESG analysis
Our credit analysts consider ESG factors in addition
to the fundamentals of each issuer. ESG factors areintegrated into investment decisions for the industries
and issuers we cover.
ESG integration: An investment case study
Over the years, we have been engaging with a credit
card company to better understand their sustainability
strategy and its materiality. The issuer has set six
key topics in their sustainability policy, including
contributing to the development of sustainablecommunities and contributing to the realisation of ahighly convenient cashless society that offers safety
and security.
The analyst in charge has focused on analysing thefirm’s sustainability strategy as well as how it cancontribute to improving corporate value. In our
opinion, the issuer’s unique quality assurance systemis the most important factor in its overseas businessdevelopment.
In terms of social impact, the company — with its
highly established credit management capability —can play an important role in enabling car ownershipand, therefore, improve mobility in its overseas market,
particularly in Southeast Asia.

In some Southeast Asian countries, car ownershipis not an option for many people due to financial
constraints. These factors can lead to a demand
for auto loans. However, in some instances, local
banks are not willing to provide financing for usedcars. At the same time, the poor quality of used cars
is hindering the expansion of the secondary car
market, and there is also a lack of vehicle inspection
systems with equivalent standards as those in Japan.
Under these circumstances, the credit provider cancreate social value in emerging markets: it aims
to differentiate itself from other companies in theindustry by independently guaranteeing the qualityof used cars when providing loans to people in thesemarkets.
Another key initiative for the issuer is supporting
local medium-sized companies by guaranteeing
accounts receivable settlements.
Engagement has helped us gain further insights into
the issuer’s sustainability strategy as well as value
creation. We have also shared with the firm that we
expect its sustainability activities to be extended
to other parts of the business. We will continue
monitoring and engaging with the issuer on theseimportant topics.

•

21

Asian Equity Team (Ex. Japan)

A nuanced approach to ESG
Our approach to ESG
The consideration of ESG factors is a core part of our
Asian equity investment process and they are integrated
throughout. This is linked to our fundamental belief thatcompanies with strong or improving ESG will performbetter financially in the long term. ESG analysis isincorporated into company research, security selection,and portfolio construction.
Our ESG Materiality Map focuses on the material
issues and opportunities for each of the companies
we cover, based on ESG factors from the Sustainability
Accounting Standards Board and MSCI.
As part of our in-house proprietary ESG scoring
methodology, individual companies are scored on
ESG pillars, alongside fundamental analysis, which isaggregated to provide a company-level score. ESGfocused research is also used to identify areas forcompany engagement and improvement.
While Asian companies have been improving on ESG
data disclosures, there is still an overall lack of consistentand verifiable data in much of the region. This means
we need to focus on the most material ESG factors that
impact a company and, therefore, shareholder returns.
As a result, we rely on our research analysts and their
engagement with companies to research and identify
material ESG risks and opportunities.
Additionally, with the many complex, diverse, and fastchanging economies and societies that make up Asia,
we believe ESG is more nuanced in the region andcannot be viewed with a one-size-fits-all approach. We
assess materiality through a uniquely Asian lens, being
Nikko AM Sustainability Report 2023

cognisant of the differences in ownership, culture,and stages of development when compared with
developed markets.
In 2022, we continued to enhance our ESG-integrated
investment framework, which involved conducting
more in-depth research on various ESG topics andcalibrating our research to ensure consistency. Thisenhancement process also helped us keep up to datewith the ever-evolving global regulations to better
understand if there is potential material impact onshareholder returns. We conduct this research inclose collaboration with a dedicated ESG Asia (ex.

Japan) analyst and the broader Global Sustainable
Investment team.
Engagement
A key aspect of our ESG-integrated investment
framework is engagement. Throughout 2022, we
continued to engage with companies not only tobetter understand their ESG risks and opportunities,
but also to educate and encourage them to improvetheir ESG-related disclosures and performance. In
addition to direct engagement, we have expanded
our participation in collaborative engagements as partof investor coalitions such as Climate Action 100+,22

Asian Equity Team (Ex. Japan)

Improving ESG disclosures— In 2022, Linklogis published their first sustainability/
ESG report for FY2021— This was a good first step for the firm, but we would
like to encourage the team to continuously improvetheir ESG-related disclosures. Given that their firstreport primarily focused on environmental andsocial factors, we are specifically looking for them toimprove their disclosures around governance© ULTRATECH CEMENT LTD“we arecollaboratively
engaging with
UltraTech Cement,
India’s biggest
cement company”

an investor-led initiative aimed at getting the world’s
largest greenhouse gas emitters to reduce emissions.
For example, we are collaboratively engaging with
UltraTech Cement, India’s biggest cement company. The
investor coalition continues to enhance our engagement
approach, helping us to ask more in-depth questions inrelation to topics such as energy transition, decarbonisation strategies, and biodiversity preservation.
While ESG disclosures in Asia still lag those of developed
countries, we have seen improvements. In ourinteractions, we notice that companies are not only
more aware of their ESG-related risks and opportunities,
but some have implemented mitigation efforts in
response to the risks.
Engagement case study
We aim to identify companies where ESG factors are
improving and there is scope for an uplift in valuation

as these improvements become evident to the market.
Additionally, when we see opportunities a company cancapture in the global transition towards a lower carbon
economy, we communicate that as part of our ongoing
discussions. An example is our investment in Linklogis. It
is the first and largest cloud-based and blockchain-backed
supply chain financing (SCF) technology solution provider,with a 21% market share. Its operations span China, withoverseas operations in Hong Kong, Southeast Asia, andIndia. When we first evaluated them, they were just startingon their sustainability journey and were light on their ESGrelated disclosures.
Engagement with Linklogis has been conducted directlywith the company’s CEO/Co-Founder and CFO. Our
discussions thus far have focused on improving their ESG
disclosures, the opportunities we felt that they could
capture in the transition towards a lower carbon economy,
and their board structure.

Capturing opportunities in the energy transition
Given Linklogis’ data collecting capabilities and its
exposure to small and medium-sized enterprises (SMEs),
we believe that it has the ability to explore further growth
opportunities with regard to supply chain transparency.
— In 2022, the firm started trialling a new product,
CarbonZeroChain, to facilitate green loan origination
for financial institutions— Financial institutions are incentivised to offer green
loans to SMEs and, to provide a green loan, theyrequire the SMEs to submit a set of pre-defined
ESG disclosures, which are collected by Linklogis’
CarbonZeroChain— The CarbonZeroChain platform aligns well with theregulatory push for financial institutions to provide
more green loans and with the launch of China’s own
carbon trading system
Improving its board structure
Linklogis’ current board includes three independent
directors, and one board member is a woman. As the firm
is looking to increase its presence in overseas markets, we
encouraged the leadership team to introduce overseas
and/or independent experts to the board.
— The company’s executives understand there is a needto improve the current board structure. They notedthat in the future, when there is an opportunity forthem to increase board seats, their preference is to ask
another woman to join to improve gender diversity.

•

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

23

Asian Fixed Income Team (Ex. Japan)

The value ofcollaboration
ESG approach
The integration of ESG analysis in our credit research
process supplements our bottom-up fundamental
analysis and provides us with a stronger, more holistic
Internal Credit Rating. We believe that material ESG
factors can impact a company’s financial performance,and companies with strong and/or improving ESG
performance financially outperform over the long term.
Our ESG Materiality Map focuses on the material
issues and opportunities for each of the companies
we cover, based on ESG factors from the Sustainability
Accounting Standards Board and MSCI. The material
ESG issues are taken into consideration as part ofour credit research process, alongside fundamental
analysis.
Our credit research analysts conduct their own ESG
analysis, as there are sectoral and regional nuancesthat need to be taken into account when looking at
the materiality of various ESG factors. When an analyst
Nikko AM Sustainability Report 2023

covering specific sectors can understand and interpret
relevant materiality factors, it allows for a more
informed differentiation between the industry’s ESG
leaders and laggards.
In 2022, we embarked on a project to improve how
we assess sovereign bond issuers’ exposure to,and management of, ESG risk factors. To that end,
we reviewed existing market practices, guidance,
and available data, in close collaboration with the
Global Sustainable Investment team. Following thisreview, we developed a proprietary ESG sovereign
rating model using public data from sources suchas the World Bank, the United Nations, and theEuropean Commission Emissions Database for Global
Atmospheric Research.
Going forward, we will continue to enhance our ESGintegrated investment framework, diving more deeply
into research on various ESG topics and keeping up todate with the ever-evolving global regulations. Doing
this will help us to better understand if there is potential
material impact on us or the companies we invest in.
We conduct this research in close collaboration witha dedicated ESG analyst on the Asian Fixed Income(Ex. Japan) team and the broader Global Sustainable
Investment team.
Engagement
Engagement has always been an important aspectof our credit research process. Throughout 2022, we
engaged with companies not only to better understandtheir ESG risks and opportunities, but also to educate
them on how to improve their disclosures andencourage them to improve their ESG performance.
We have enhanced our engagement approach,asking more in-depth questions to better understandhow issuers have identified and incorporated ESG
risks and opportunities into their strategy, as well24

Asian Fixed Income Team (Ex. Japan)

as the mitigation efforts they have considered. Our
engagement has also evolved to include topics such as
biodiversity and energy transition.

peers in certain areas. The Indonesian government
appoints half the directors of the board, limiting its
independence.

From our engagement, we have seen a marked
improvement in companies’ understanding of theirown material ESG risks and opportunities. We willcontinue to work on enhancing our engagement
approach and educating our investee companies on
the impact of ESG risks and opportunities as part of ourstewardship activities.

As part of our collaborative engagement, we areengaging with PLN’s senior management and its
board to encourage them to commit to several
measures:— Strengthen their governance framework
to ensure the board’s accountability andoversight for climate change risks and ESG
opportunities — specifically, to clarify the roleand responsibility of the Sustainability Committee
in the implementation of PLN’s decarbonisation
strategies— Draft action plans to reduce greenhouse gas
emissions in line with the Paris Agreement, which
requires that less-developed economies follow atimetable to phase out coal-based emissions at
the latest by 2040, with similar commitments fornatural gas— Provide enhanced corporate disclosure in line withthe final recommendations of the Task Force on
Climate-Related Financial Disclosures— Outline the physical risks the company faces fromclimate change and what strategies it is adopting
to mitigate these risks— Engage with public policy makers and otherstakeholders to support cost-effective policy
measures to mitigate climate-related risks andfacilitate low carbon investments in line withachieving net zero emissions by 2050 or sooner

Case study on engagement
In addition to direct engagement, we have expanded
our participation in collaborative engagement as
part of investor coalitions. In 2022, we joined the
Asian Utilities Engagement Programme (AUEP) on
a collaborative engagement with PT Perusahaan
Listrik Negara (PLN). This programme is organisedby the Asian Investor Group on Climate Change(AIGCC), an industry body creating awareness andencouraging action among Asia’s asset owners andfinancial institutions about the risks and opportunities
associated with climate change and net-zero investing.
PLN is the only vertically integrated electricity utility
in Indonesia and is 100% owned by the Indonesian
government. It is the dominant power generation,transmission, and distribution firm in the country,
accounting for more than 70% of electricity power
production. PLN is also the sole buyer for Indonesia’s
independent power producers. With a total installedcapacity of around 45.9GW, PLN has close to 90% of
its production powered by thermal sources, exposing
it to high risk in the transition to zero carbon. Not
surprisingly, the company scores poorly among
APAC utilities for both absolute and relative carbon
emissions. In addition, PLN’s governance lags its global

In September 2022, we participated in our firstcollaborative engagement call with PLN’s Climate
Change team, together with other members of the
AIGCC. The team presented five possible routes thatthe company’s decarbonisation pathways might“From our engagement,
we have seen a marked
improvement in companies’
understanding of theirown material ESG risks andopportunities”
follow. The accelerated scenario outlined in detail thecompany’s roadmap to net zero by 2060, which would
see its emissions peak in 2030, in line with Indonesia’snational target. As part of these plans, the company
has committed itself to building no new unabatedcoal-, oil-, or gas-based power plants after 2030,
making hydropower the dominant energy source in its
renewables mix.
PLN responded by noting four key issues that need tobe addressed to accelerate its net zero target. These are:— ensuring supportive electricity pricing— maintaining favourable finance channels— deploying new technologies, such as carbon
capture, utilisation, and storage, as well as hydrogen
power, on a large scale in Indonesia— increasing support from public policy, such as
incentives for electric vehicle adoption
We understand that in this part of the world, with amajority of the countries still reliant on fossil fuels,
the energy transition will take place gradually andrequire policy support. However, our role as investors
is to encourage companies to accelerate their energy
transition. As such, we will continue our ongoingcollaborative engagements with PLN through AIGCC
and actively monitor PLN’s progress.

•

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

25

Multi-Asset Team

Multiplying opportunities
to integrate ESG
In the Multi-Asset team,
we are constantly seeking
ways to enhance our
integration of ESG factors
in our investment process.
We believe this is vital tocreate the sort of sustainable
portfolios that are neededboth to mitigate the risks
from emerging threats
like climate change and to
generate alpha from theopportunities presented by
the changing investment
landscape.
Multi-asset investing, by definition,
involves a wide range of assets, including
equities, fixed income securities, and realestate investment trusts (REITs), and we
often use collective investment vehicles
such as exchange-traded funds or mutual

Nikko AM Sustainability Report 2023

we rely on our in-house bottom-up ESG
analysis conducted by our underlying
specialist teams.
Our top-down analysis involves ourthird-party data provider, which uses
ESG screens to identify companies thatbreach social safeguards such as theUnited Nations Global Compact, theOrganisation for Economic Co-operation
and Development (OECD) Guidelines,
and international treaties on controversial weapons. Companies that have been
flagged as being in breach of social safeguards will be further assessed, whichmight entail engagement to clarify areas ofconcern before we divest as a last resort.
ESG screenings flag
companies in breach ofsocial safeguards

funds. This makes it difficult for us to havethe same leverage over the direction of
our portfolio as some other investors.
For instance, collective investment
vehicles do not generally give us accessto the underlying investments or their
management.

Nonetheless, using the tools at our
disposal, we can construct multi-asset
portfolios that take into consideration ESG
factors. We do this at a sub-asset class level
for risk mitigation purposes, adopting botha bottom-up and a top-down approach.
When we invest in Nikko AM’s own funds,

UN Global
Compact violations‘Very severe’controversies

TobaccoControversial
weapons

In 2022, we identified several
companies found to be in breachof our social safeguards. This led us
to conduct further due diligence tobetter understand the controversies
or rationale behind the breach. As partof our evaluation, we assessed thecontroversy, the steps taken by thecompanies to remedy the issue, andtheir mitigation efforts to prevent such
events happening again.

•

26

New Zealand Equity and Bond Teams

Wellequipped
ESG integration
Nikko AM New Zealand’s equity and bond teams
have a united voice on ESG issues. We are primarily
medium- to long-term investors with a fundamentally
driven bottom-up approach. We seek to understandhow industry and company ESG factors may impact
investments and, ultimately, client portfolios. The ESG
risks and opportunities faced by a company form an
important element in understanding investments
but cannot be managed in isolation. The qualityof a management team, for example, must also be
carefully assessed.
We use our extensive experience to help us
understand and evaluate the materiality of ESG
factors. While on some occasions ESG factors may
not be material enough to alter our conclusions, a
specific understanding of ESG analysis can help us
build a picture of the risks and opportunities faced
by a company. There is no set formula for quantifying
the importance of each ESG factor or adjusting how
we value each company. We rely on the experienceof team members to understand ESG impacts anddocument them in our investment research reports.
Engagement and proxy voting
On a quarterly basis, we screen the investments wehold across all portfolios — together with investments

Nikko AM Sustainability Report 2023

on watch or under active assessment — using the
MSCI ESG Research tool. This process assists the teamby adding another layer of scrutiny to our knowledgeof companies. Many debt issuers are also listed on
the NZX and, therefore, also captured during thisscreening.
The outcome of this process is that companies are
rated on a scale from AAA to CCC relative to thestandards and performance of their industry peers.
We engage with companies in an effort to raise thebar in relatively weak areas or areas where ongoing

improvement is beneficial to stakeholders. These
areas could be identified by MSCI research or our own
research. A rating of BB or less does not necessarily
make a company un-investable from our perspective
but does necessitate active company engagement on
the main issues underlying the relatively poor rating.
A higher MSCI rating does not alone dictate a higher
investment weight. The primary driver of a company’s
weight in our portfolios will still be determined by
the relevant portfolio manager, given a range of bothquantitative and qualitative factors. The current MSCI
rating is explicitly assessed as a quantitative factor

27

New Zealand Equity and Bond Teamsconsistent with our established investment process.
Companies that have higher ratings or are actively
improving their ESG standards will ultimately berecognised by market participants, so our process islikely to highlight these opportunities.
We also monitor the carbon footprint and weighted
average carbon intensity of our portfolios. This
information helps to form a baseline for monitoring
trends. We use this baseline to find opportunities inareas that we can invest in and then influence thesefirms to move towards a lower carbon future.
In our opinion, voting is an integral part of being
responsible stewards of capital. Analysis of acompany’s corporate governance structure helps toform our view of the quality of a management team.
We exercise proxy voting rights independently andsolely in the interests of our clients and beneficiaries.
When we exercise voting rights against company
resolutions, it is our policy to write to investee
companies to explain our reasons in an endeavour toadvance the company’s development.

•

Nikko AM Sustainability Report 2023

Issue
Unfortunately, slavery in New Zealand, andglobally, is much more widespread than is generally
acknowledged or understood. In light of this, in
April 2022, the New Zealand government launched
a consultation on planned legislation addressing
slavery and worker exploitation. As proposed,
the legislation would create due diligence anddisclosure obligations for many companies
operating in the country, with additional
responsibilities for larger organisations. This willaffect a big part of our portfolio and investible
universe.
Activity
Our New Zealand office decided to get ahead of
the issue by engaging an ex-detective who is now
a consultant helping private and public companies
map their exposure risk to modern slavery, as wellas uncovering and addressing slavery and people
trafficking in their supply chains. He has provided
training and information to our analysts, equippingthem to better interrogate company management
and boards about the issue and help them withways to deal with it. Typically, this involves looking
closely at contractors and sub-contractors.
OutcomeBy working with companies, raising awareness,and facing the problem rather than ignoring it, we© NIKKI DENHOLM, TEARFUND

Case Study —Taking a stance against modern slavery in New Zealandhope to see more change, both legislatively andpractically, at companies and in their supply chains,here and abroad. On the back of our training andinformation sessions, we have regularly discussed
the modern slavery environment in New Zealandwith management teams, especially those in riskier
industries like agriculture and construction. These
insights are generally well received. In one instance,
as a direct response of our engagement, a listed
healthcare provider has shared the information we
provided to help inform their own teams of the risk
assessment process.

28

US Investment Team

Looking for sustainable collaboration
ESG integration
The US Investment Team has increasingly focused on
ESG considerations in its investment process. We do
this through our sub-advisers who provide us withinvestment advice for managing our different equity
mandates. They help us to understand the short- andlong-term risks of the business environment for eachstrategy, helping us to make informed strategic decisions.
Each sub-adviser has their own dedicated approach toanalysing companies in relation to ESG. We hold monthly
and ad hoc conversations with them, where we discuss
the potential risks to the investment strategies as wellas the opportunities that may arise from the changing
environment. We use various tools and metrics to assess
ESG risks and opportunities, including ESG ratings fromthird-party providers.
The investment team’s philosophy is based on the belief
that companies with strong ESG practices are better
positioned to deliver sustainable, long-term financial
performance. We recognise that addressing ESG risks
and opportunities is critical to managing risk andmaximising returns.
Each sub-adviser has a slightly different approach toincorporating ESG considerations into the investment
framework. However, they all integrate ESG into theirinvestment process by considering a broadly similar
range of factors, such as environmental impact, labour
standards, and business ethics. In practice, someadvisers place more focus on these factors than others.
An important part of the process is engagement. Bothour sub-advisers and our investment team engage withcompanies to encourage them to adopt sustainablebusiness practices.
Nikko AM Sustainability Report 2023

Another key pillar of the ESG framework is finding
innovative companies that are developing new ways toaddress ESG issues. We believe that companies that arefocused on innovation and new technologies are more
likely to be sustainable and have a positive impact on
the environment and society. They are also more likely tooutperform financially in the long term.
Making every vote count
The area where we believe we can have a significant
impact in implementing our ESG philosophy is throughproxy voting. We take our proxy voting responsibility
seriously and work as a team to review all ballots before
voting. We also use a proxy adviser who recommends how
we should vote, and their recommendations are based on
our group voting policy. Several new and evolving trends
were apparent during the 2022 proxy voting season,
including increased scrutiny of ESG matters.
When assessing proxy ballots, we find it useful to engage
with companies to complement the proxy adviser’s
recommendations. We have seen an increase in “sayon pay” and “say on pay frequency” proposals and findexecutive compensation one of the most important areas“Both our sub-advisers and ourinvestment team engage withcompanies to encourage themto adopt sustainable businesspractices”

for engagement. Executive compensation plans varyby company and often have different goals, dependingon the size of the company, the business sector, or thestage of the company’s development (whether, forinstance, it is still founder-led, has recently launched on
the stock market, or is a more mature and establishedbusiness). Additionally, as ESG metrics are increasingly
used in incentive compensation, we believe it isimportant for investors and proxy advisers to question
companies on the use of such metrics and whether
they have achieved any related goals.
Engaging for enlightenment
Engagement can be vital in gaining a proper
understanding of the issues underlying a company’s
policies. One example relates to an engagement
meeting we had with a biotech company that has an
unusual business structure — it has its headquartersin Europe but is listed in the US. Such a company
structure does not fit perfectly under either US or
European policy guidelines. We found this led toconfusion over both pay and benchmarking.
The proxy adviser was using European biotech
companies as the peer group for assessing executive
compensation plans, although the company itself
based its compensation philosophies and practices on
those of US-based biotech companies. There are slightdifferences between how US companies structure
payment plans compared to their European peers,which resulted in the proxy adviser recommending
voting against the management’s plan. However,following the meeting with the company, we had
a better understanding of the compensation plan
and agreed that it was appropriate to vote for the
management’s proposals.

•

29

Global Equity Team

Seekingsustainable
quality
From floods in Pakistan and heatwaves
in China to drought in Ethiopia andhurricanes in the US, the devastating
extreme weather events of 2022
underscored the need for all investors
to focus on sustainability.
Our Future Quality investment approach helps us to
identify those companies we think are well positioned tosustain high returns into the future while creating value
for all stakeholders and our planet. Our underlying belief
is that the market will increasingly recognise that thesecompanies will not only weather future challenges but beable to deliver solutions to the problems that we face.
ESG analysis is undertaken by each portfolio manager
and analyst, and it is fully integrated into the stockselection process. This ensures that we can robustly
evaluate the materiality of each factor and its potential
impact. We rely on our four-pillar Future Quality
analysis, which includes in-depth evaluations of ESG
factors, to determine their effect on the company’s
risks and returns. Our research includes an analysis of acompany’s corporate governance, social practices, theenvironmental sustainability of its products or services,
and its ability to fund its growth and ESG commitments.
Nikko AM Sustainability Report 2023

Engaging across the board
In creating a sustainable portfolio, picking the rightstocks is only part of the job. It is also crucial to make surethe chosen companies remain committed to pursuingsustainable practices. Our investment team engages withinvestee companies to help promote better ESG practices if
we believe there is room for standards to improve (see ourcase study below). These meetings can occur at any pointin the investment process — from initial research throughto portfolio inclusion and beyond — and can involve thewhole portfolio.
An example of significant engagement in 2022 was when
our team contacted all our investee companies to discuss
the issue of climate change. There were several specificobjectives:— to ensure that investee companies understood
Nikko AM’s commitment to supporting the transition
to a low carbon future, as well as our stewardshippriorities and those of our clients— to ensure that the investee companies were awareof our obligations and expectations as signatories ofindustry initiatives such as Climate Action 100+ and
the Net Zero Asset Managers initiative— to ensure our team had a baseline understandingof the strategies being employed by each of theinvestee companies during the transition to a lower
carbon environment— to verify greenhouse gas emissions under Scope
1 (direct emissions), Scope 2 (indirect emissions),
and, where possible, Scope 3 (indirect emissions

30

Global Equity Team

Multi-stakeholder model

Consumers

Customers

Employees

PlanetShareholders

SocietyStrong financial
performance

Purpose-led
Future Quality

GrowthCash flow

Return on capitalfrom a company’s value chain, such as
suppliers) that have been reported byour primary third-party ESG data vendor,
as well as to learn about any associatedreduction targets— to establish whether management had
performed assessments of the physicaland transition risks associated withclimate change and/or the effect ofcarbon pricing, were it to be introduced
The team received good responses frommany investee companies. As expected,
some are further along this journeythan others. Overall, our portfolio has asignificantly lower carbon footprint thanthe benchmark. Given the importance ofclimate change, this is an issue the team willcontinue to raise with investee companies
in the years to come.

•Case Study —Helping to build a moresustainable future
Carlisle Companies is a US building products groupheld in some of our Global Equity portfolios. It has beendivesting non-core segments of its business and allocating capital to higher-return products that aim to meetcustomers’ environmental and energy requirements.
We believe this new direction for the group could benefit
all stakeholders and lead to strong share price appreciation over time. It also makes sense from an ESG perspective, as buildings account for about 28% of greenhousegas emissions globally and Carlisle’s products help
reduce heat and energy loss.
We engaged with management towards the end of2021, highlighting a number of ESG improvements thecompany could make. We followed this up in June 2022
when we met the Head of Investor Relations and the Vice
President of Sustainability. It was evident that Carlisle
had progressed on its ESG journey. The company had
committed itself to adopting Science Based Targets, aUN-backed initiative to get companies to reduce theirgreenhouse gas emissions to prevent the worst effects ofclimate change. It now has a 2030 goal of reducing scope
1 and 2 emissions by 70% and an ambition to set further
targets for 2050, including those that fall under Scope 3.
We reiterated our previous recommendations anddiscussed disclosure requirements from European
investors in relation to the EU’s Sustainable Finance
Disclosure Regulation. The Vice President of Sustainability
responded that our requests would be explored further.
Although progress has been made, it is clear that thefirm will need to make more changes to reach net zero.
Carlisle is partnering with universities and technology
leaders to undertake carbon sequestration and develop
new bio-based and recyclable products. We will continue
to engage with the company to help it adopt best practices in 2023 and beyond.

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy

Nikko AM Sustainability Report 2023

31

Global Fixed Income Team

Extending ESG in
fixed income

ESG implementation is driven by clients
ESG factors are considered across all our products at
the research and screening stage of the investment
process. Our assessment of corporate governancefocuses mainly on general management quality, whileenvironmental and social analyses tend to capture risks
and opportunities linked to a specific industry or region.
Given that the majority of our fixed income assets are in
AAA-rated bonds, it is sometimes challenging to ensurethat the environmental and social aspects of a businessalign with every one of our investors’ wishes. However, we
strive to make sure we meet the standards set out by theUN-supported Principles for Responsible Investment.
ESG considerations are incorporated where they are
deemed material to the investment case and in linewith our clients’ risk appetite and perspectives on ESG
investing. For example, for clients with high sustainability
expectations, our Global Green Bond strategy hashistorically invested strictly in green bonds from global
AAA-rated sovereigns, supranationals, and agencies(SSAs) with the strongest sustainability credentials.
Issuers include the World Bank, the European Investment
Bank, and KfW, the German state-owned investment anddevelopment bank.
In 2023, we will be expanding the investable universe for
our Global Green Bond fund to include corporate credit
issuance in order to support the growing desire of ourclients to help fund the transition to a net-zero future.

We start from the premise that theworld economy is gradually moving,albeit rather haphazardly, towards
sustainability.
Therefore, it is incumbent on us — for the benefit ofboth our clients and the planet — to incorporate ESG

Nikko AM Sustainability Report 2023

principles into our investment process. We have always
believed in employing a consistent process that relies
on quantitative and qualitative inputs to generate
ideas and construct high conviction portfolios, whichshould reward us suitably for the risk we undertake. In
2022, we continued our efforts to direct capital towards
issuers that are implementing a sustainable transition
programme to a zero-carbon future.

Getting the message acrossFixed income is an area where it can be more difficult
to have a direct influence on the direction of investee
companies. A bondholder lacks the voting rights that
accompany equity ownership. Even so, it is important
to engage with management to encourage positivechanges when we see areas that can be improved.
Our fixed income teams have been active in extending32

Global Fixed Income Team

“Where we have identified
company-specific or systemicrisks, we may raise these concerns
through meetings, conference
calls, or email to gain assurance
that risks are being managed”
our stewardship and sustainability activities in a
number of areas during the year, particularly ESG.
In 2022, we engaged with several finance ministries
and municipalities in relation to their green bondissuance programmes. For example, we spoke toissuers in Canada and New Zealand about the growing
importance of biodiversity to the wider market as wellas to our own clients. We also spoke of the growing
importance of the social component of ESG and theconcept of a just transition to a zero-carbon society. We
will continue this dialogue.
With respect to corporate credit, our Global Fixed
Income portfolio managers and research analysts
work alongside our ESG analysts to engage with thecompanies in which we invest. These discussions cover
the firms’ corporate earnings and financial strategies, aswell as other non-financial information, including their
management policies, business strategies, and material
ESG matters, as part of an assessment of corporate
value that ultimately informs our investment decisions.
Where we have identified company-specific or
systemic risks, we may raise these concerns throughmeetings, conference calls, or email to gain assurance
that risks are being managed. The priority and levelof engagement depends on our holding and thegeographic region. Given our relatively small exposure

Nikko AM Sustainability Report 2023

to corporate bonds and emerging markets, we are realistic
about the practical limits to our influence, and we avoid
situations where we might end up in corporate actions
that would disproportionately tie up resources and time.
Sharpening our tools
In 2022, the team continued the development of our
proprietary ESG monitoring tools. We are increasingly
taking ESG considerations into account at a bondselection level, regardless of whether they are explicitly
outlined in investment mandates. Our rationale is that
we want to avoid situations where the market moves infavour of issuers with superior ESG scores, causing client
portfolios to be left holding underperforming bonds. As
a result, if there is a choice of issuance that would fulfil
a specific need in terms of duration positioning and risk
profile, we will opt for the higher ESG scoring bond.

•33

Portfolio Solutions Group

Overseeing external managers’
ESG integration
Philosophy and policy
The Portfolio Solutions Group evaluates, selects, andmonitors external managers. We believe that ESG
factors are inherent to long-term corporate value
creation and sustainable economic growth so it isnecessary to consider these when investing. We
embrace ESG as a means to better manage investment
risk, deliver better quality long-term investment
returns, have a positive impact on our communities,
and be good stewards of our environment. We upholda high standard in integrating ESG considerations into
our investment process.
We have had most external managers sign letters ofintent affirming their commitment to integrating ESG
in their investment management. They are expected
to implement a process for assessing and observing
current and future ESG-related investments. At thesame time, our team continues to regularly monitor
whether external managers are fully integrating ESG
factors in their investment management process and,if necessary, encourage them to step up their ESG
integration. Given our process to conduct periodic
assessments of external managers’ ESG initiatives —in terms of their companies, personnel, research, andinvestment processes — ESG already plays a key role inour manager selections.
The Portfolio Solutions Group operates an interregional ESG Working Group — specifically for
Nikko AM Sustainability Report 2023

managing external managers — which comprises
members from our Tokyo, Singapore, and New York
offices. This working group is led by Naoyuki Murota of
the Portfolio Solutions Group in Tokyo. In view of therapid changes occurring in ESG investment in the asset
management industry, the ESG Working Group conducts
research into the changes that are taking place andkeeps up to date with the ongoing evolution of ESG
investment requirements.
Based on this research, we regularly review our
ESG evaluation framework to properly reflect ESG
requirements for the asset management industry. We
include those considerations in our assessments ofexternal managers and work with them to ensure that ESG
is integrated effectively into their investment activities.

“our team continues
to regularly monitor
whether externalmanagers are fully
integrating ESG factors
in their investment
management process”

Updating our ESG evaluation framework
In the asset management industry, attention to ESG
factors is increasing year by year, especially aroundclimate change. There is an urgent need to accelerate
the transition towards global net zero emissions and we
firmly believe asset managers need to be at the forefrontin driving that change. In order to better evaluate how
external managers are supporting the transition to net
zero emissions, we revised our ESG Evaluation Frameworkand ESG Due Diligence Questionnaire (DDQ) in 2022.
We will continue to review and update these documents
every year to improve our ESG evaluation methodologies
of external managers.
34

Portfolio Solutions GroupEngagement
We believe that engaging with investee companies andexercising voting rights are powerful tools for us to fulfil
our stewardship obligations. For funds managed under
discretionary investment contracts, we exercise voting
rights in line with Nikko AM’s proxy voting policy rather
than delegating proxy voting to external managers. When
exercising our voting rights, we refer to recommendations
from Institutional Shareholder Services Inc. (ISS), a major
proxy voting advisor, and conduct stringent checks
on proposals relating to matters including investee
companies’ remuneration of officers, the composition of
their boards, and officer reappointments. In 2022, Nikko
AM exercised voting rights on issues at more than 1,000
companies held by funds managed by external managers,
and the Portfolio Solutions Group supported the firm withthese activities.
Improving external managers’ ESG integration
Each external manager integrates ESG factors into theirinvestment process to differing degrees. If we find a lack ofintegration, we encourage them to improve in this area.

“In 2022, Nikko AM exercised voting rights on
issues at more than 1,000 companies held byfunds managed by external managers”

For example, there was one external manager who did
not sufficiently consider ESG factors in their process wheninvesting in fast-growing small cap companies. Thesefirms tend not to disclose much ESG-related information,
especially environmental data. As a result of our repeatedengagement and advice with the external manager
about their ESG processes, they developed a deeper
understanding of ESG and improved ESG research in theirstock selection process by creating a proprietary ESG
checklist.
We will continue to encourage external managers tofurther enhance their ESG integration as part of theirinvestment processes.

•

Nikko AM Sustainability Report 2023

35

Stewardship — Engagement on ESG topics

Steering companies
towards sustainability
As a leading asset manager, we
recognise that engagement andstewardship are important parts ofour fiduciary duty, particularly withreference to sustainability.
We engage with our investee companies on their strategy,
operations, and financial decisions, as well as theirperformance and management with respect to material
ESG issues. Through these meetings, we wish to shapecorporate behaviour and influence positive change.
Investment teams engage with companies on relevant
ESG issues, both before and during the period ofinvestment. Our Global Sustainable Investment team also
conducts thematic engagement, for example, in relation
to our responsibilities under the Net Zero Asset Managers
initiative and Climate Action 100+. However, the analysts
and portfolio managers in our investment teams areultimately responsible for assessing the ESG risks andopportunities that inform portfolio buy and sell decisions
and for engaging with the companies they cover.

Nikko AM Sustainability Report 2023

Several key factors decide how we prioritise companies forengagement, which can differ by region and asset class.
The factors considered include:— the size of holding and/or our influence— a poor ESG score or the scope for improvement— the nature of an issue and/or the severity of a breach— materiality— a voting event— our ESG thematic priorities— the client’s priorities— the company’s openness to dialogue
Details about our engagement — including engagement
objectives, methods, execution, prioritisation,
documentation, monitoring, collaborative engagement
approach, and escalation processes — are outlined in
our Group Engagement and Stewardship Strategy . This
global strategy was developed in 2021 then reviewed
and approved by the ESG Steering Committee in 2022.
It formalises our engagement and stewardship activities,
ensures unity across regions, and allows us to share withthe market our global engagement commitments.

•

36

Stewardship — Engagement case studies

CASE STUDY 1

Improving ESG disclosures at a large Singaporean
agribusiness (Asian Equity)
We aim to identify companies where ESG factors are
improving, as there is then scope for an uplift in valuation
once the improvements become evident to the market.
An example is the history of our investment in Wilmar
International, a Singapore-based agribusiness, which
we hold in our ASEAN and Singapore portfolios. Wilmar
International is an integrated agribusiness encompassing
the entire value chain of agricultural commodities,
from cultivation to the processing and distribution ofagriproducts. Its products range from food to industrial
chemicals, such as oleochemicals and biodiesels.
Issue
As a leading palm oil plantation owner, refiner, anddistributor, Wilmar International operates in a highly
controversial sector. It deals with a number of material ESG
issues, including carbon emissions, land conservation, andlabour practices. The chart shows our investment team’s
ESG Materiality Map for the company.
Engagement
Since 2018, we have been engaging with Wilmar
International directly and, before that, as a member of theInvestor Working Group on Sustainable Palm Oil set up by
the UN-backed Principles for Responsible Investment (thiscollaboration has now concluded). Over the past few years,
we have seen big improvements in the company’s response
to ESG considerations. These have included addressing deforestation, being certified by the Roundtable on
Sustainable Palm Oil (a stakeholder industry group), ensuring traceability in its supply chain, and aiding developmentin the communities from which its labour is sourced. We
have also witnessed a substantial improvement in the company’s attempts to improve food safety and nutrition practices, which we had previously highlighted as an area where
there was an opportunity to improve sustainability.

Asia ex Japan team ESG Materiality Map
Environmental Pillar (50%)

Social Pillar (30%)

Climate Change

Nature Capital

Pollution& WasteManagement

Environmental
Opportunities

Human Capital

Product Liability

GHG Emissions
from Operations

Water

Toxic
Emissions &Waste

Clean Tech

LabourManagement

Product Safety &Quality

GHG Emissions
from Products /Customers

Land &
Biodiversity

Packaging
Material &Waste

Green Building

LabourDevelopment

Privacy & Data
Security

Physical Risk

Resource
Management

Electronic
Waste

Renewables

Health & Safety

Responsible
Investment

Supply Chain
Management

Financial System
Instability

Financing
Environmental
ImpactPrimary Risks - Issues that can
put a company out of business

Secondary Risks - Issues that can have amaterial impact on shareholder return

Social: In China, the company continued to play animportant role in ensuring food security during Covid
lockdowns in 2022. In Indonesia, it has invested in areas

SocialOpportunities

Access to Basic
Services (Food, HC,
Finance, Power,
Comms, Education)

Corporate
GovernanceCorporate
Behaviour

Governance
Opportunities

Beneficial Ownership Assessment(Individual, SOE or Capital Market)

Ownership &Management
ChangeMinority Interest
Alignment

Business Ethics &Fraud

Opportunities in
Health & Wellbeing

Principal-Agency
Alignment

Anti-Competitive
Practices

Community
Development

Board

Corruption &Instability

Pay

Past Transactions

Accounting
Practices

Transparency &Disclosure

Opportunities - Issues that can lead toa material enhancement in shareholder returns

OutcomeThroughout 2022, we have continued to engage with
Wilmar International to better understand the company’s
ESG disclosures and push it to improve the information
it provides. Developments in each of the three ESG areasthat we noted in 2022 include:
Environment: The company agreed to provide moredata about its emissions ahead of announcing its goal
to become carbon neutral by 2030. It has also madea commitment to provide more definitive ESG data
and targets in its 2023 Sustainability Report, and it has
also agreed to put more effort into reducing methane
emissions and improving methane disclosures.

Governance Pillar (20%)

Pre-Defined General Secondary Risks Climate Change and ESG-Governancesuch as education and housing for farmers who havestruggled with pandemic-related difficulties. Further
details will be announced in its 2023 Sustainability
Report. We have encouraged Wilmar International to
be more public in highlighting its social contributions,
given its big role as a supplier of consumer goods
in China and the under-appreciation of Wilmar’s
contribution in recent years towards the betterment of
the farming community.
Governance: The company continued to maintain a goodstandard of governance and respect for minority shareholders, while its annual accounts were more transparent.
We believe Wilmar International made progress with its
ESG development in 2022 and has been receptive tofeedback in our meetings with the company.

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

37

Stewardship — Engagement case studies

CASE STUDY 2

CASE STUDY 3

Decarbonising executive compensation at aJapanese oil group (Japan Equity)

Setting concrete targets at India’s biggest
cement company (Indian Equity)

This company is a major Japanese oil wholesaler held insome of our Japan Equity portfolios.

In 2022, we participated in a collaborative engagement
group organised by Climate Action 100+ (CA100+), an
investor-led initiative aimed at getting the world’s largest
corporate greenhouse gas emitters to reduce emissions.
The target of our engagement was UltraTech Cement,
India’s biggest cement company, which is held in some of
our Indian Equity portfolios.

Issue
Given the carbon intensity of its business, the company
urgently needed a strategy to address climate change.
Engagement
In April 2022, we met one of the executives andexchanged views on the company’s efforts todecarbonise its businesses. Our focus was on executive
compensation, and we pointed out that financial
incentives should include an assessment of progress inmeeting the needs of a decarbonised society, which thecompany had highlighted was a priority management
issue.
Currently, executive compensation is linked toperformance, mainly based on achieving operating
income and net income targets in a single year. These
are, in turn, mainly dependent on previous investment
in fossil fuels and on current commodity prices. The
director responded that the executive compensation
system was a key area for review in a new medium-term
management plan to be announced in the autumn.
He added that our views were helpful as the company
debated how to improve its approach to executive
compensation.
OutcomeIn November, the company announced its new mediumterm management plan, which included a new targetof cutting revenue from the fossil fuel business to
below 50% by 2030. It also announced that executive
compensation would now be linked to the company’s
progress on its greenhouse gas reduction target.

Issue
UltraTech operates in a hard-to-abate sector in a country
whose electricity supplies are dominated by coal-fired
power. As a result, its carbon intensity is one of thehighest, both in Asia and among its global peers. Over theyears, there has been little material improvement in thecompany’s carbon intensity, and it had yet to announce a
strategy to move towards a lower carbon future.
In 2021, the company’s high emissions had caused us tosell the shares held in our Asian Equity (Ex. Japan) regional
portfolios, where emission intensity benchmarks are
relatively tight. However, we continued to hold them insome of our Indian Equity portfolios, where benchmark
emission intensities are relatively high and where UltraTech
is part of the index. Having already engaged with thecompany directly ourselves with little noticeable effect, we
believed the company represented an important target fora collaborative effort by CA100+.
Engagement
In our previous direct engagement meetings with
UltraTech, our focus had been on getting the company
to improve its current carbon emissions. The focus of
our collaborative engagement was more on strategy
and, specifically, the Disclosure Framework Indicators
established by CA100+. As a result, we set a number ofpriority targets for UltraTech:— Reduce greenhouse gas emissions over the years to2025 on a clearly defined path (Indicator 4)— Lay out a decarbonisation strategy that explains how
the firm intends to meet its medium- and long-term
greenhouse gas reduction targets (Indicator 5)— Make a commitment to aligning capital expenditureplans with the firm’s long-term greenhousegas reduction target, or to phase out planned
expenditure in unabated carbon-intensive assets or
products (Indicator 6)— Introduce an executive remuneration scheme that
includes climate change performance elements(Indicator 8.2)
— Acknowledge that the firm has a responsibility tohelp achieve a just transition to a net zero economy(Indicator 9)— Make a commitment to implementing therecommendations of the Task force on Climaterelated Financial Disclosures (TCFD) (Indicator 10)
Outcome
We were encouraged by the last CA100+ investor
group meeting in 2022, noting that UltraTech had
been receptive to what participants had to say and hadsince incorporated some recommendations in its latest
sustainability report, including:— Adopting TCFD disclosures and conducting physicaland transition risk analyses— Having its carbon targets verified by the UN-backed
Science Based Targets initiative, with the aim of
reducing greenhouse gas emissions by 27% by 2032
— in line with the global target of cutting climate
warming to 2°C— Committing itself to net zero carbon by 2050
We will continue to engage UltraTech, both directly andcollaboratively, and monitor the company’s progress indelivering its transition strategy in accordance with its
interim and long-term targets.

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

38

Stewardship — Engagement case studies

CASE STUDY 4

Keeping the heat on an Indian steel maker to begreener (Asian Fixed Income (Ex. Japan))purchase agreements through its JSW Energy offshoot. The
plan is to ultimately develop renewable power capacity of
958 MW, of which 225 MW of solar power was commissioned
in April 2022. The company has yet to specify a target for
renewable power.

In our Asian Fixed Income (Ex. Japan) portfolios, we holdbonds issued by JSW Steel, an Indian-based integrated steel
manufacturing company that ranks among the largest steel JSW Steel has also committed itself to using more steel scrap
as it shifts to potentially greener electric arc furnaces (EAF),
producers in the country.
and to use more low- and medium-grade iron ore. As part ofits steel scrap commitment, the company has entered intoIssue
a 50–50 joint venture with National Steel Holdings, a New
JSW Steel’s production processes involve high energy consumption, large greenhouse gas emissions, and a significant Zealand metal recycling group, to set up scrap shredding
plants using industry-leading machinery. Its plans should beamount of waste products. We wanted to understand thecompany’s decarbonisation strategy and track its execution boosted by the Indian government’s vehicle scrappage policy,
which aims to phase out polluting vehicles over time. Thisand progress.
should help the development of an ecosystem of steel scrap
collection and recycling, for which JSW’s environmentally
Engagement
friendly EAF-based steel production should be well placed.
We engaged with the company several times in 2022.
During these discussions, the company identified 17
While the company discloses data on Scope 3 emissions (frompriority ESG areas to be addressed and has set some
suppliers and the like), it has no specific targets for reductions,specific sustainability targets, including:nor has it established a firm-wide net-zero target or roadmap.
— Reducing Scope 1 (direct) and Scope 2 (indirect) CO2
While the company’s MSCI ESG Rating was upgraded fromemissions by 42% from 2005 levels by 2030
— Reducing energy consumption by 19% from 2005 levels CCC to B, it admits that it remains on the low end of the rating
band. It has been making efforts to improve its score, includby 2030
ing appointing an independent auditor and increasing the— Achieving carbon neutrality at JSW Steel Coatednumber of female board members. As we engage with theProducts by 2030
firm, we will continue to make the case for further action on
ESG priorities.
Outcome
The company is clearly trying to make progress, although
CASE STUDY 5
there is still more to do. For instance, greenhouse gas emissions and energy consumption showed a small uptick inControversial sourcing policies at an IT company
2022 after a new plant was commissioned at its Dolvi works.
(Global Equity)
However, we expect that both will come down again in 2023
Hexagon is a global provider of design, measurement, andthrough a combination of measures, including an increase in visualisation technologies held in our Global Equity portfolios.
green energy consumption.
Issue
This is evidence of the seriousness of the company’s commit- MSCI had given Hexagon a low ESG score compared withment to systematically increase the share of renewable power other companies in the same sector on account of its sourcused in production. It has entered into solar and wind power
ing policies and the lack of traceability of its raw materials.
The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

Engagement
We discussed the issue in early 2021 with the Head ofInvestor Relations and Sustainability. Since then, the company has published its first annual sustainability report.
This states that appropriate sourcing policies are now inplace, with close to 50% of its suppliers being covered by a
new audit scheme, introduced in 2020.
The firm’s Conflict Minerals Policy commits it to identifying
products that may include minerals from countries where
there is conflict and the policy extends to suppliers, where
possible. It is also required to make reasonable efforts toavoid purchasing raw materials that directly or indirectly
finance armed groups that violate human rights. Hexagon
is also implementing a sustainability programme and a
supplier qualification process, and it is encouraging suppliers to adopt guidance from the OECD on responsible
supply chains.
Following the company’s response to our engagement,
we decided to leave our investment recommendation
unchanged, with no change to our Future Quality assessment. However, we will continue to engage with management on procurement as part of our regular interaction
with portfolio companies. We plan to focus particularly on
the firm’s degree of progress in auditing its suppliers.
OutcomeHexagon has since shown steady improvement in thearea of ESG. In August 2021, MSCI upgraded its controversial sourcing score for the company to close to the industry average. MSCI also gave it a top score on its commitment to avoiding controversial materials. In May 2022, wefollowed up on our initial engagement and were pleased
to see that, despite Covid restrictions, Hexagon had carried out 24% of planned supplier audits and was on track
to meet its target of 100% of direct suppliers audited by
the end of 2023. Based on the numbers to date, Hexagon
has seen the level of non-compliance per supplier remain
stable, while, in a more recent report from MSCI, controversial sourcing has ceased to be a key issue at the firm.

•
39

Stewardship — Proxy voting

Making votes matter
Proxy voting is a key part of being a good steward of ourclients’ money, and ESG principles guide how we vote. We
take great care to ensure that our voting serves the interests of both companies and clients, particularly in sustainability matters.
Voting is particularly important when we invest throughpassive strategies, as we do not have the ultimate authorisation of selling the stock. Therefore, we strive to exercise
our stewardship through proxy voting and the engagement process. In our fixed income investments, where we
do not have the voting rights that are available to shareholders, we aim to be active owners of assets by using
other stewardship tools, such as issuer engagement.
The Nikko AM Group Proxy Voting Policy establishes ourcompany-wide approach to proxy voting decisions. This
policy establishes the principles we use for determining
how we exercise our voting rights at the group level.
Implementation of the group-wide policy is undertaken
by our regional offices, with the freedom to interpret therules to suit local conditions. This gives our investment
teams the ability to tailor their approach to stewardship
according to the attributes of the local market.
As a result, there are some variations in how stewardship activities, including voting, are implemented acrossthe group. For example, our UK entity has a supplemental proxy voting policy that applies to our Global Equity
strategy for addressing our environmental and social
principles.
Our detailed Guidelines on Exercising Voting Rights(as well as our supplementary Standards for Exercising
Voting Rights on Japanese Stocks) forms part of the groupproxy voting policy. Some of the considerations it covers
include:Nikko AM Sustainability Report 2023

Japanese voting
Our Japanese operations represent more than half of Nikko
AM’s business, so we devote a great deal of resources to governance and stewardship in Japan. The Stewardship andVoting Rights Policy Oversight Committee supervises andmonitors our engagement with Japanese investee companies and our proxy voting, ensuring that both of these activities remain in line with our fiduciary and ESG principles —A summary of our firm-wide voting records for 2022 is listed
and that they truly meet the interests of investors. Four ofin the table below. During the year, we attended 7,274 share- the committee’s seven members are from outside the Nikko
holder meetings and voted on 75,242 resolutions. Overall,
AM Group, making it highly independent. It reports directly
across all regions, we voted against management on 12% of
to the Board of Directors on matters such as the governanceresolutions. The most common reason for voting against man- of our stewardship activities and conflicts of interest. For
agement was in relation to the election of directors.
example, it ensures that proxy votes are used in line with our
Conflict of Interest Control Policy.
The firm uses Institutional Shareholder Services (ISS) to execute our proxy voting. ISS also provides research and cusOur Standards for Exercising Voting Rights on Japanese
tomised voting recommendations based on our voting andStocks establish detailed decision criteria for this part ofresponsible investment policies, although the ultimate deci- the firm. The Japan Sustainable Investment Department ission on how we vote is taken in-house. For the majority of
responsible for overseeing all voting proposals for holdings
resolutions, the portfolio manager or analyst responsible for in both actively managed and passive portfolios. It makes
the security in question will review the advisory research and voting decisions on proposals after taking into account past
recommendation from ISS and then conduct further research engagement with investee companies.
on any issues that have been flagged. ISS has benchmark
policy guidelines that are regularly updated.
— shareholder return— the separation of executive and supervisory functions— the size and composition of the company’s board of directors— the auditors— executive compensation systems— new share issuance— company control and takeover defences•

Breakdown of voting records by region, January to December 2022
Number ofmeetings

Number of
resolutions

Votes formanagement(%)

Vote against
management(%)

APAC ex Japan

2,452

19,498

86%

14%

EMEA

1,124

17,024

91%

9%

Japan

2,399

24,90485%

15%

RegionLatin America

216

2,003

90%

10%

North America

1,083

11,813

90%

10%

TOTAL

7,274

75,242

88%

12%
40

Stewardship — Proxy voting case studies

Issue
At Amazon’s annual general meeting in May 2022,
a number of proposals were put forward by bothmanagement and shareholders. Below, we discuss the
background to some of these votes and explain how wevoted and why.
Activity
Executive pay: We voted against a management proposal
to ratify the compensation of the new CEO and othernamed executive officers (NEOs). This was driven by alarge equity grant for the new CEO and large time-vested
awards to be granted to other NEOs. We believe that theselacked objective performance criteria, exacerbating a
misalignment between pay and performance. The votepassed with an approval rating of just under 56%.
Shareholders’ resolutions: We voted for a number ofshareholders’ resolutions on human rights issues because
we felt that investors would benefit from increasedtransparency and disclosure on how the company was
managing risks in this area. Resolutions we voted on
included:— The commissioning of a third-party report to assess
Amazon’s human rights due diligence process. The
vote failed, gaining just under 40% of votes in favour.
— Increased reporting on how the company wasprotecting the rights to freedom of association andcollective bargaining. This was proposed in response
to increasing public scrutiny and high staff turnoverand injury rates in its domestic warehouse operations,as well as allegations of anti-union activities andsourcing from forced labour. The vote failed, gaining anapproval rating of just under 39%.
— The commissioning of a third-party study and report

Environment: We voted for a resolution requesting anannual report on plastic packaging pollution, which
would include any company strategies or goals to
reduce the use of plastic packaging. There is growing
concern over the environmental damage caused byplastics, and regulations may come into force in several
jurisdictions that would limit the use of single-use
plastic packaging. Disclosures in line with the resolution
would therefore help shareholders gauge whether thecompany is appropriately mitigating related risks. The
vote failed, but with nearly 49% in favour.

on Rekognition, the company’s facial recognition
technology. The report would look at the extent
to which the technology could threaten privacy
and civil rights, unfairly target people of colour, bemarketed and sold to authoritarian or repressive
foreign governments, and the financial or
operational risks associated with these human rights
issues. This vote also failed, garnering favourable
votes from just over 40%.
We also supported shareholder resolutions related toworking conditions, such as:— The adoption of a policy that would include nonmanagement employees as board candidates, which
could put the firm on a path to better helping toresolve worker grievances. This vote failed, with justunder 13% of votes in favour.
— The commissioning of a third-party audit to evaluate
working conditions following reports of unsafe
working practices and unfair treatment of workers.
Among these reports are the 2021 findings of the US
Department of Labor that relate to the serious healthand safety issues Amazon warehouse employees
face. This resolution failed, gaining an approval
rating of just under 44%.

Lobbying: We voted for a proposal requesting disclosureof direct and indirect lobbying payments and policy.
We felt that this would help shareholders better assess
risks and benefits associated with the company’s
participation in the public policy process. The votefailed, but it had an approval rating of 47%.
Diversity: We supported a resolution requesting a reporton the median pay gap at the company by gender andracial breakdown, including information on its policy
and goals to reduce compensation disparities basedon gender and race. In light of lawsuits and fines overhiring and pay practices, we believed that increased
disclosure would allow shareholders to better assess thecompany’s management of related risks and benefits.
The vote failed with just under 29% of the vote.

© AMAZONCASE STUDY 1

Unease over a range of concerns at Amazon, fromhuman rights to political lobbying (Global Equity)

We do not doubt the power of Amazon’s retail businessor the enduring growth offered by Amazon Web
Services. However, the company’s premium valuationand our increasing concerns about the company’s ability
to sustain high returns on capital, caused us to sell our
position in Amazon during the second quarter of 2022.
Therefore, we will not be taking further action on theseresolutions.

The individual issue names identified on this page are not a recommendation to sell or purchase an individual issue, and that it does not guarantee holding or non-holding in a fund or strategy.

Nikko AM Sustainability Report 2023

41

Stewardship — Proxy voting case studies

CASE STUDY 2

Voting to improve investment efficiency at an
IT group (Japan Equity)
This company, a large independent IT solutions
vendor in Japan, is held in our Japan Equity portfolios.
Issue
At the firm’s annual general meeting in March 2022,
a large institutional shareholder proposed theappointment of two additional outside directors
to the board. This investor argued that, instead ofreinvesting profits in its core business or returning
funds to shareholders, the company had for sometime directed investment to areas where synergies
with the core business were unclear. It had neglected
to allocate capital in a way that contributed tosustainable growth or medium- to long-term
corporate value, resulting in a depressed valuation
and a return on equity that had fallen to half the levelof its peers. The investor believed that strengthening
the board with two outside directors with experiencein finance, accounting, and capital allocation would
boost independent oversight, help improve capital
allocation, and enhance corporate value.

Nikko AM Sustainability Report 2023

Activity
We interviewed the candidates proposed by theshareholder and concluded that they would be awelcome addition to the board and could help tostrengthen management oversight. We therefore voted
in favour of the shareholder resolution. However, theresolution failed, gaining only 39% of the vote.
Outcome
Although the resolution failed to pass, it led to positivechanges. In August 2022, the company established a
Corporate Value Enhancement Committee with the aimof evaluating advice and adopting suggestions fromstakeholders on how to improve the company’s value.
In September, we had a meeting with a company director
and told him why we had voted for the shareholder
proposal and against management. Despite the failureof the proposal, we said we still expected that the firm’s
management would include independent outside
directors on the board to improve oversight of thecompany’s management.
Subsequently, the activist shareholder that had made theoriginal proposal nominated four independent directors
at an extraordinary general meeting in November. Twoof them were accepted by the company and are now on
the board.

CASE STUDY 3

Boosting independence on the board of aJapanese electronics group (Japan Equity)
Issue
We identified the independence of the board as a clear
area for improvement for this company. One outside
director was a senior manager at the company’s
biggest lender, from which outside directors had been
accepted for over 20 years.
ActionFor at least five years, we have consistently voted
against the appointment of this director. Since there
was no indication that the company planned to stop
this practice, we increased pressure on the firm to act,
telling management that we could not regard directors
appointed from the same major lender for decades
to be genuinely independent. We said we needed it
to appoint outside directors who could demonstrate
guaranteed independence.
OutcomeAt the general meeting of shareholders in June 2022,
the controversial outside director was not put up for
re-election and a more independent outside director
was appointed instead. As a result, all of the company’s
outside directors can now demonstrate genuine
independence.

•42External ESG speaking events

Part of the discussion
Nikko AM participated in several
events in 2022, with senior staff
members presenting on various topics
ranging from stakeholder capitalism to
ESG investing.
One such event was the Japan Investor Forum 2022
on 15 June 2022, where Equity Fund Management
Department Head Yasushi Ishikawa spoke in a panel
discussion titled “ESG Investing: Responding to the
Growing Data Needs”.
In his presentation, Yasushi gave an overview of
Nikko AM’s proprietary CSV score, emphasising theimportance of setting assessment criteria that are in linewith a company’s business and having a framework witha certain degree of flexibility. He also gave details on thepossibilities of using financial data to extract ESG data
— such as the internally developed human resource
investment efficiency measure — while stressing theimportance of verifying the relationships between ESG
data and corporate value or performance.

Johnny Russell speaking at Pensions & Investments’ 16th Global Pension Symposium

Another prominent event was Pensions & Investments’
16th Global Pension Symposium held in Tokyo from 16–18
November 2022. Nikko AM Joint Head of Global Multi-Asset
Rob Samson and Global Equities Portfolio Manager Johnny
Russell spoke at the event, which focused on the theme“Leveraging Opportunities in Japan and Around the Globe”.
Johnny gave a keynote speech titled “Stakeholder Capitalism— What Is It and Why Should Investors Care?” in which henoted that companies adopting stakeholder capitalism areenhancing their competitive positioning. He highlighted
that these companies have higher retention rates thantheir peers and are successfully fighting the war for talent,
while some are discovering new solutions needed to solve
many of our current problems, such as climate change. He
concluded that, for asset managers, there are opportunities
to add value by gaining a deeper understanding of theseismic shift taking place towards stakeholder capitalism.

Masayuki Teraguchi, Head of
the Investment Technology
Fund Management
Department, gave a lecture on
ESG investing to an audienceof business professionals at
Waseda University Graduate
School of Accountancy on 23
December 2022. It was partof a programme establishedby Waseda University Visiting
Professor Ryohei Yanagi —Masayuki Teraguchi, Head of the Investment
known for the Yanagi Model,
Technology Fund Management Department
which demonstrates the link
between ESG and enterprisevalue — and Waseda University Graduate School
Professor Takashi Shimizu. The three-hour lecture, which
included a lively Q&A session, was attended by about 50
professionals and was featured in the Nikkei Shimbun, amajor Japanese financial newspaper.
All three of these events emphasised the importanceof integrating ESG in our investment decisions. Nikko
AM will continue to seek opportunities to be part ofthe discussion amidst the rapidly evolving landscape ofsustainable investment.

•

Yasushi Ishikawa participating in the Japan Investor Forum 2022

Nikko AM Sustainability Report 2023

43

Corporate
Sustainability

Jayne Ruane,
Nikko AM Asia,
Marketing Department

Nikko AM Sustainability Report 2023

44

Speaking freely
A message from Yutaka Nishida, Executive Chairman
Diversity drives innovation. We prove this all the timeat Nikko Asset Management — thanks to the diverse
skills of our people, who represent more than 30
nationalities. We also understand that diversity does not
immediately translate into inclusion.
Our ability to create a truly inclusive culture rests on
our ability to listen and respond to everyone’s voice.
So, we must actively encourage open and honest
communication; we must have a culture where
everyone feels they can speak freely. And as we further
grow our business globally, it is essential for all of us
at every level of the firm to have a good grasp of ourstrengths and be aware of the issues that need to beaddressed. We will only find out about these throughthe constructive exchange of opinions and ideas.
In 2022, I learned a great deal about our organisation bymeeting one on one with a large number of employees.
These experiences have brought home to me just how
important it is for senior managers to take time to speak
directly with colleagues in the workplace instead ofsimply reading reports. Now, sitting down to talk with
employees is part of my routine. In our discussions, I
encourage them not only to tell me about the positives
but to have the courage to talk about anything they
feel should change or be improved. I have also told
managers that they will be accountable for creating
and sustaining a workplace environment where people
on their teams feel like they can speak freely about
anything that is on their mind.

Nikko AM Sustainability Report 2023

The involvement of senior management is crucial
to promoting inclusivity and helping to create anenvironment where more employees feel they canshare their thoughts. We are supporting our Human
Resources Department with its series of Career Café
events, which are small groups that discuss ideas
and concerns about women’s careers and workstyles.
Additionally, we have launched a mentor system inwhich senior managers from different functions are
assigned to mentor others.
In 2022, senior managers became Executive Sponsors ofeach of our sustainability groups, actively participatingin their discussions. This demonstrates our management
team’s commitment to sustainability and has helped toraise the profile of the groups within the company.
Creating a corporate culture with inclusivity at its heart
is not something that happens overnight. It is essentialthat we continue working towards creating the mostinclusive organisation we can — where all employees
communicate openly, have opportunities to connect
with each other, and feel they are making a difference.
We can only deliver long-term performance as an
asset manager when we are diverse, inclusive, andcommunicating.

•“a corporate culture
with inclusivity
at its heart is not
something that
happens overnight.
It is essential that we
continue working
towards creating
the most inclusive
organisation we can”

Yutaka Nishida

Executive Chairman

45

DEI at Nikko AM

The key to sustainable growth
At Nikko AM, we believe that diversity,
equity, and inclusion (DEI) are criticalfactors for our sustainable growth andlong-term success.
Our diverse teams offer a broad spectrum ofperspectives, and this strengthens decision-making,allowing us to bring our clients an even better rangeof progressive solutions. We have also seen that ouremployees are happier and more productive because
they are working in an environment where they know
they are accepted and valued for who they are. So,
we are committed to creating an inclusive workplace
where everyone is treated equally and has equitable
opportunities, regardless of their gender, sexual
orientation, age, race, or ethnicity.
DEI at our firm is founded on our Global Diversity &Inclusion Policy. This states that DEI is one of our corevalues and that we are committed to fostering andpreserving a culture of diversity and inclusion among
employees. Our Global HR Department assists the firm’s
leadership and employees to ensure that we live by thispolicy and further improve DEI across the firm globally.
“DEI guides so much of what we do in the Global HR
Department because we know it is fundamental tosustainable growth at our firm,” says Taka Miyawaki,
Global Head of HR. “For example, across our offices,
all employees are evaluated and recognised by their

Nikko AM Sustainability Report 2023

performance — specifically, business outcomes andthe behaviours that lead to them — and our evaluation
and reward systems support this. We also provide thenecessary training, such as unconscious bias and antiharassment, to ensure our employees treat one anotherwith respect.”
Two international sustainability groups regularly
challenge us to improve DEI in the areas of genderand racial equality. One of these is the International
Women’s Group, our newest — and already the largest— sustainability group. It exists to identify issues
affecting women at the firm and propose possible
solutions.

“we are committed tocreating an inclusive
workplace where everyone
is treated equally and has
equitable opportunities,
regardless of their gender,
sexual orientation, age, race,or ethnicity”

Taka Miyawaki,
Global Head of HR“The most important goal we are working towards
right now is #30by2030, which aims to have 30% ofmanagerial positions held by women globally by 2030,”
notes Taka. “We have made significant improvements inthis area over the past three years, and it will be a very
important milestone for the firm when we achieve it.”
The other is the Global Racial Equality Group, which
was formed in 2019 to help promote a deeper
understanding of the importance of racial equality
across the firm. In 2022, it conducted a company-wide
survey to evaluate the DEI experience as it relates torace at Nikko AM, and the results are helping us to
identify ways we can better support employees.
“Racial diversity is a key strength for Nikko AM,” states
Taka. “We have around 30 nationalities in our global
workforce, and this shows how diverse we already are.”In the coming years, we will continue to strengthen
DEI at the firm, based on the suggestions of these twosustainability groups and others, and ensure that all our
employees have equitable opportunities without any
discrimination.

•

46

DEI at Nikko AM — Global Racial Equality Group

Findings that will help
promote equality
Participants in a GREG meeting

The Global Racial Equality Group is
Nikko AM’s first truly global sustainability group in that it comprises members
from each of Nikko AM’s global offices,
including headquarters in Tokyo.

The results provide a comprehensive overview of the DEI
experience at our company. Of the survey participants,
89% have not experienced racial inequality at Nikko
AM. Some 92% of employees also said they enjoyedstrong and trusting relationships with their co-workers
and managers, and they recognised senior leadership’s
commitment to, and support for, the DEI agenda.

Its aims are to raise awareness of the importance of
racial equality and to help the firm understand areas
where it needs to improve support for employees on
the basis of race.

However, the survey results highlighted some areas for
improvement. These included creating a safer culture
in some of our offices for staff to speak up, stronger
communication about HR policies and practices to ensure
their fair application, and opportunities for more training
and education on racial issues. The results were sharedat sessions organised for senior management and for
employees around the world.

Global Racial Equality Survey
One of our most exciting achievements in corporate
sustainability in 2022 was to undertake our first everfirm-wide survey about racial equality. The Global Racial
Equality Group (GREG) and the Global Sustainability
Team — together with the support of the Human
Resources Department and in partnership with theconsulting firm Mercer — conducted the survey in April
and May, and there was an overwhelming response.
A total of 587 employees, which is close to 65% of ouremployees worldwide, submitted answers.

Nikko AM Sustainability Report 2023

“We need to ensure that we have values, support, anddeliberate systems that strive to achieve and sustain racialequality,” said Tony Glover, Global Head of International
Sales and Global Head of Consultant Relations, theExecutive Sponsor of GREG. “This year-long project could
not have been done successfully without the team.
The survey findings signify what we are doing well as acompany, and they have given us clues about how we canstrive to be better.”Global Racial Equality Group
GREG was launched in 2020 to promote and raiseawareness about racial equality, both within the firm
and in our communities. It is a diverse group made up
of members from each of our global offices.
“GREG strives to help Nikko AM identify ways to create
the most inclusive and supportive work environment
for all employees,” said Kevin Gaines, co-lead of GREG.
“Together with HR and the regional sustainability
groups, we hope to develop programmes geared
towards breaking down communication barriersand enhancing the collegial nature of our company’s
culture.”Olga Bobrova, co-lead of GREG, stated, “As shownin the survey and evidenced through our internal
discussions, our colleagues genuinely want to do more
to enrich the lives of the people in their communities
and promote positivity in the workplace. There is also
a hunger among our employees for more training andeducational opportunities focused on diversity, equity,and inclusion. I believe that through our activities, GREG
will contribute to further embedding a DEI mindset
into our company culture and, ultimately, greater
enablement of our diverse workforce.”•

47

DEI at Nikko AM — International Women’s Group

Empowered and empowering
In late 2022, Nikko AM formed theInternational Women’s Group (IWG),
comprising staff from each international
office outside of Japan. A total of 27
staff members volunteered to join
this new group, making it the biggest
sustainability group at Nikko AM.
The IWG complements the existing Japan Women’sGroup and serves to unify our diverse talent in finding
solutions to local and global problems affecting women,both at Nikko AM and in our communities. It is facilitatedby regular group discussions at the regional office level,
creating a safe space for volunteers to openly share ideas,
discuss challenges, and brainstorm possible solutions.
The regional groups connect back to the global level,
proposing initiatives to be considered and given support
by Nikko AM’s top leadership.
To date, the IWG regional leads have observed a highlevel of passion for, and commitment to, this crucial area.
“I have been fortunate enough to have had supportive
managers and allies of both sexes in my career, and I
would like to be an impactful voice for fellow colleagues,”
said Samantha Yeo, IWG Asia Lead. “IWG members arealigned with the same ideal that gender equality is ashared responsibility for both men and women, andwe hope to be able to address the unique challenges
that working women face in our career progression —whether we are single, married, childless, mothers, or
caregivers of elderly parents.”
Nikko AM Sustainability Report 2023

The IWG will continue to work closely with the global
Human Resources Department and broader Nikko
AM management team to firm up initiatives to be
implemented in 2023 and beyond.

Members of the International Women’s Group at the New York office with Stefanie Drews

Katelyn Hedden, IWG US Lead, added that, “As the lead,
you always want to make sure you are representing
your group accurately and to the best of your ability.
The subject of women’s issues is vast and complex, as
there are countless avenues to take when considering
where you can make the most impact. To have so many
passionate people with tons of different ideas is hardly
a problem to have! The challenge lies in taking all that
passion and harnessing it into a single, direct pathwhere we can develop a focused plan and concrete
steps toward our goal. Creating actionable steps is the
only way to really make a difference, and I believe weare going to do just that.”
Some of the activities considered by the IWG so far
include:— Reviewing the parental leave policy— Providing a menopause policy— Offering more training and development
opportunities— Introducing women’s mentoring programmes

Power Pact – A Promise for the Future
Nikko AM continued to put a spotlight on the need tofurther nurture the career development of female talent,as part of our #30by2030 female leadership target. In fiscal
2022, the IWG held the “Power Pact — A Promise for the
Future” women’s empowerment series. This series of fourinternal events focused on enabling our female staff totake charge of their career development and to learn new
skills for overcoming common career challenges.
Power Pact builds on a previous series called Power Chat,which aimed to energise and empower female colleagues
through stories of challenges and successes told by seniorleaders at Nikko AM. This time around, we engaged aprofessional coach from outside the firm to facilitate theevents, who educated employees and set next steps
across four interrelated topics:— Taking charge of career development by overcoming
limiting beliefs— Harnessing the value of personal branding— Emotional intelligence for the workplace— Navigating challenging conversations
The sessions were held virtually and involved staff acrossAsia, New Zealand, Europe, and the Americas. On average,
each session saw 130 participants, and the post-event
Q&A provided further opportunities for questions to beaddressed.

•

48

Environment

Helping the environment
Nikko AM Group greenhouse gas emissions
With the help of a UK-based third-party consultant,
Carbon Footprint Limited, we measure greenhouse gas(GHG) emissions from the Nikko AM Group’s corporate
operations based on firm-wide energy consumption andtransportation data.

Scope

Activity

The assessment covers our direct emissions fromour operations in Scope 1 (i.e. fuel combustion) andindirect emissions in Scope 2 (i.e. consumption ofpurchased electricity), as well as certain indirectemissions in Scope 3 (e.g. business travel, as well asactivities not included in scopes 1 or 2 that require fueland energy use).

% changefrom 20192019 tonnes
CO2e2020 tonnes
CO2e2021 tonnes
CO2e2022 tonnes
CO2e(Baseline Year)

8.6

8.0

10.0

8.5

-0.3%

Scope 1Site gas

Scope 2

Electricity generation

785.3

624.3

502.0

259.1

-67.1%

Home-workers

N/A

352.6

446.6

442.8

N/A

Flights

4,491.7

755.8

95.2

802.5

-82.1%

Rail travel

95.3

32.5

28.9

76.2

-20.1%

Electricity transmission &distribution

40.1

29.4

24.6

14.7

N/A

Taxi travel

23.9

10.8

12.8

42.7

78.3%

Non-controlled site
electricity

N/A

5.9

4.8

5.2

N/A

Hire cars

18.6

3.6

2.5

6.3

-66.2%

Employee owned car travel(grey fleet)

4.2

N/A

N/A

0.2

-96.4%Bus travel

1.9

0.0

N/A

0.0

-99.9%

Scope 3 Sub Total

4,675.7

1,190.5

615.3

1,390.5-70.3%

Total tonnes of CO2e5,469.5

1,822.8

1,127.3

1,658.1-69.7%

Tonnes of CO2e per employee

5.9

2.1

1.2

1.7

-70.9%

Scope 3We have set a goal to reduce our GHG emissions from
corporate operations by 40% per employee by the year
2030, compared with 2019 levels.
For 2022, our total market-based carbon footprint —which recognises a reduced emission factor for green
energy contracts — was 1,658.11t CO2e (1.71t CO2e per
employee) compared with 1,127.22t CO2e in 2021 (1.21t
CO2e per employee). Compared with our baseline yearof 2019, when we generated 5,469.5t CO2e (5.9t CO2e
per employee), this represents a 70.9% reduction per
employee.
Business flights accounted for 48% of the total carbon
footprint, while electricity usage from our offices andremote-working employees’ homes accounted for 16%
and 27%, respectively.

Other 4%
Rail 5%Siteelectricity(marketbased)
16%

2022 Market-based
GHG emissions
breakdown

Flights
48%

Homeworkers
27%

Including full time staff & directors, contract and part time staff of Nikko AM Group (as of 31 Dec). Past performance is not indicative of future results.

Nikko AM Sustainability Report 2023

49

Environment“we need to remain vigilant as the world normalises, and we willcontinue to address our two main sources of emissions: electricity
usage and business travel”
Compared with 2021, there was a marked increasein emissions from business flights. However, this was
expected, as 2021 was in the midst of the pandemic
and global travel was at a standstill. The 2022 result
was partially offset by the introduction of green energy
contracts for the Tokyo office, which cut the site’s total
market-based electricity emissions by 48% comparedwith the previous year.
Carbon offset projects
We offset greenhouse gas emissions from our operations
through an equivalent amount of carbon credits fromcertified projects that reduce carbon emissions. To offset
our 2022 emissions, we purchased Gold Standard-verified
carbon credits from a methane gas capture and electricity
production project at the Kubratovo Wastewater
Treatment facility in Sofia, Bulgaria.
Reducing GHG emissions
Our 2022 carbon footprint results were well below ourlong-term target. However, we recognise that this wasachieved under abnormal circumstances, as many partsof the world were still grappling with the effects of thepandemic. We need to remain vigilant as the world
normalises, and we will continue to address our two
main sources of emissions: electricity usage and businesstravel.
For site electricity, we intend to continue with the green
energy contracts or equivalent where they are available
and pursue similar arrangements in other locations.
To raise awareness of the effects of air travel on our
carbon footprint, we invited our consultant, Carbon

Nikko AM Sustainability Report 2023

Footprint Limited, to give a talk to employees in
November. A representative from the organisation
explained the fundamentals of climate change and themethodology behind the carbon footprint calculation.
We also introduced new measures for approving
overseas business travel requests. Applicants are
required to include the carbon footprint of theirinternational flights, so that employees and their
managers can see how each flight adds to our firm’s
carbon footprint.
Adding to The Forest of Nikko AM
As part of a campaign linked to our Sustainability
Town Hall event in September, we asked colleagues
attending online to use a special Zoom background toshow support for our corporate sustainability initiatives.
Over 350 people attended using the background, andthe firm donated USD 50 for every background used
to three different causes, one in each of our threesustainability pillars.
For our environment & climate pillar, we chose to
donate to reforestation projects in The Forest of Nikko
AM through Tree-Nation, a platform that supports treeplanting projects around the world. This year, we added
projects in two new locations: a US project that helps
forests recover from wildfires and infestation, and a UK
project that enables communities to plant native trees
in local public spaces.

Native seedlings were planted in areas lost to three severe 2020 fires in Cameron Peak, East Troublesome
and Williams Fork, US

We will continue to look for other ways we cancontribute to reforestation efforts in the regions where
we operate.

•50

Sustainability group initiatives — Japan

Effecting realchangeOur sustainability groups provide forums for employees
from various departments to have open discussions on thesustainability issues that interest them.
These groups are bottom-up initiatives
that provide educational opportunities
for employees and can effect real change
at the company through the proposals
they make. Participation in our sustainability groups, which employees join
voluntarily, is steadily increasing; we currently have 11 groups with more than 100
members globally.
Japan LGBTQ GroupThe Japan LGBTQ Group had a busy 2022.
Within the firm, it worked to broaden its
focus to introduce employees to a morediverse range of voices. In March, thegroup hosted a session with a femaleto-male trans individual who is alsopresident of OUT JAPAN for a screening the film Zero as You Are. The film
relates the nine-year journey of a transperson, addressing sensitive topics suchas gender reassignment surgery and the

Nikko AM Sustainability Report 2023

legal hurdles faced by the trans community in Japan. Through this event, ouremployees gained a deeper understanding of the trans community and learned
to better appreciate the importance ofdiversity.
In November, the group celebrated Pink
Friday — a global campaign to raiseawareness of LGBTQ allyship — by hosting a hybrid event with Maeve DuVally,
who worked in corporate communications at Goldman Sachs for nearly 18
years and who came out as a transgender woman in 2019. This event provided
the company with insight into life in a
Western country, where the laws andcustoms could be seen as more progressive, and inspiration for our own actions.
Employees who attended the event wore
pink clothes, and those online used pink
virtual backgrounds.

Outside of the firm, the group has beenworking to create stronger ties withorganisations within the finance industry and beyond it. It continued the annual
tradition of participating in the Tokyo
Rainbow Pride festival and parade in April

Pink Friday hybrid event

as part of LGBT Finance for the sixth year
in a row. In June, in celebration of Pride
Month, Nikko AM became the first Japanheadquartered asset manager to joinLGBT Great, a global alliance of financial
institutions.
Additionally, the group published an article on our website in which three LGBTQ
employees and four allies discussing
the company’s initiatives, where we aregoing, and what still needs to be done.
This article is notable as it is rare to see“out” employees in Japan discussing this
topic openly.

For the fourth year running, Nikko AM
was awarded Gold from work with Pride(wwP), the highest award on wwP’s rating
index. The organisation scores companies
based on their commitment to addressing issues that the LGBTQ community isfacing and on how they promote equality in the workplace and beyond. We werealso awarded with JobRainbow’s Best
Workplace Award for the second year ina row.
Japan Women’s GroupThe Japan Women’s Group exists toaddress gender-related issues and provide
support for women’s career progression at
Nikko AM. In 2022, the group planned andheld several informative events — online,
in person, and hybrid — where speakers
from outside the company gave talks tolarge numbers of employees.
In February, Sayaka Tanaka of the organisation Waffle spoke about closing thegender gap in the IT industry throughempowerment and education. She told
attendees that, in order to address thegender gap, companies first need tounderstand the issue and update theirvalues to reflect an appreciation ofequality. Then they need to cast theirnets wider in the hiring process while
also consciously providing more career51

Sustainability group initiatives — Japanof Nicolas Tours, based in Okinawa, gave
a talk on the company’s custom tours,
which are also accessible for people withdisabilities.

advancement opportunities to minorities.
In March, the Japan Women’s Groupmarked International Women’s Day with atalk by Reiko Abe, Chairperson of Oriental
Consultants India Pvt., Ltd. A strong
female leader, she told stories of her
experiences undertaking infrastructure
projects in emerging countries, which
encouraged attendees. The group sent
participants a special Zoom backgroundas a way to communicate solidarity on
International Women’s Day and took acommemorative photograph during theevent.
In May, Professor Yuko Yotsumoto of the
Graduate School of Arts and Sciencesat the University of Tokyo was invited todeliver a seminar exploring the idea that
there are differences between the malebrain and female brain. She cited data andempirical results to refute the popular view
— based on long-standing gender roles— that men’s and women’s brains have different characteristics. She also emphasised
the importance of ending structural discrimination through education.
In August, the Japan Women’s Group
partnered with the Global Racial Equality
Group to show Ainu: My Voice, a shortfilm about Ainu (the indigenous peopleof northern Japan) women, and hold atalk show-style event with the film’s producer, Chuk Besher. Drawing on his own
experiences, he spoke on topics such associetal indifference, white privilege, andexclusionism.

Nikko AM Sustainability Report 2023

In April, the group hosted a talk by Shinji
Negi, Vice President of the Paralympians
Association of Japan. A former wheelchairbasketball player — who also served as
Associate Mayor of the Tokyo Paralympic
Village — he is working to realise a society in which everyone can reach theirfull potential. Another seminar held in
April was with Toru Kishida, President of
the NPO Cancer Note, who spoke about
undergoing treatment for an illness whileworking. This talk built on an event thatwas held in 2021.

Members of various sustainability groups

The Japan Women’s Group will continue
to deliver thought-provoking activities
for employees while it also continues todiscuss how to improve the firm’s internal
policies and workplace culture.
Japan Abilities GroupThe Japan Abilities Group works to ascertain the needs of Nikko AM employees,
including those living with physical ormental disabilities, those who have illnesses or family members with illnesses,
and those who are caregivers.
The aim of the group is to ensure thatthe company provides a comfortableworkplace environment for all employees. It also plans initiatives to enhance

employees’ understanding of the social
issues faced by people living with disabilities or illness. Deaf and hard-of-hearing
members can participate in the group’s
activities by using the MS Teams captionfunction in meetings and with captioning
during seminars.
In February, the Japan Abilities’ Grouphosted a seminar provided by the NPO
Maggie’s Tokyo, which Nikko AM supports through its employee charity programme. Representatives from the organisation reported on their work to provide
facilities where cancer patients and theirfamily and friends can talk to professionals, such as nurses and psychologists. Also in February, a representative

The Japan Abilities Group also held aseries of sign language seminars, as a
training initiative for small groups of participants, which followed on from a previous, well-received series of sessions.
To conclude the series, Hisano Tezuka, a
Nikko AM employee who was born without the ability to hear, gave a talk using
sign language about her experiences
as a competitor in the Deaflympics (theOlympics for the deaf and hard-of-hearing). The event was very well received.
Outside of the office, Katsuya Hashimoto,of Nikko AM’s Marketing Department,
captained Japan’s wheelchair rugby teamfor the first time at the Mitsui Fudosan
2022 Wheelchair Rugby Shibuya Cup in
November. Nikko AM employees helped
run the event as volunteers.

52

Sustainability group initiatives — Japan

Japan Environment GroupThe Japan Environment Group discusses
and implements activities through which
both the company and individuals canhelp to conserve the environment andaddress climate change.
In 2022, it continued its ongoing programme of talks with various experts
to educate employees on the environment. One event was a study session with
Kozo Ishii, Japan Program Director for
the Marine Stewardship Council (MSC), in
which he explained the current state ofmarine resources and the MSC’s certification framework. Attendees also learned
about overfishing and the proliferationof illegal, unreported, and unregulated
fishing, as well as ocean temperaturechanges and acidification caused by climate change.
The group marked Earth Day in April
with a talk by Momona Otsuka, Chief
Environmental Officer at the Kamikatsu
Zero Waste Center, where attendees
learned about cutting-edge initiatives
for creating a circular economy. Then in
May, in connection with International Day
for Biological Diversity, it hosted a study

Nikko AM Sustainability Report 2023

Experts from within Nikko AM also gave
talks. For example, Satoshi Yanai, an analyst covering the automobile sector,
and Akihiro Ban, an electrical machinery analyst — both from the Equity FundManagement Department — led a study
session on electric vehicles in June. They
made presentations on the potential
for electric vehicles and the challenges
involved in popularising them in Japan.
In August, as a way to raise awarenessabout the environmental problems
caused by burning garbage, the groupheld an event where employees shared
their experiences of reducing the amountof garbage they produce by turning raw
household waste into compost for use ingardening.
Members of the Japan Environment Groupsession with Naoko Nakayasu, General
Manager of the Association of National
Trusts in Japan.
In September, the group invited Yuko
Iizuka from Sumitomo Forestry Co., oneof the largest forest owners in Japan, totalk about their approach to achieving

decarbonisation and a circular bioeconomy by managing their entire life cycleof wood products. Then, in October, Shoji
Numata, President of Machiokoshi Energy
Co. Ltd., spoke about his firm’s efforts tocommercialise Japan’s underdeveloped
geothermal energy resources.

In October, the Japan Environment Group
held an outdoor volunteer event for the
first time in three years. The event, organised in conjunction with Bloomberg and
the NPO The Lifestyle Research Instituteof Forests, was held in Yoyogi Park in
Tokyo. Ten Nikko AM employees took
part, collecting fallen tree branches sothey could be made into woodchips.

53

Sustainability group initiatives — Japan

Japan Philanthropy GroupThe Japan Philanthropy Group was createdin April with several volunteers who arecommitted to making a difference in Japanthrough financial contributions and volunteering. The group oversees Nikko AM’s
employee charity programme, and supports solutions for a variety of social challenges, including poverty, inequality, andisolation.

on how a child’s world can be changedby their experiences in the classroom.
Nikko AM employees participated again
in the annual FIT For Charity Run, the largest charity event in Tokyo for the financesector. The firm has been a sponsor of theevent since 2006 and joined its organising committee in 2022. Ahead of theevent, the organising committee’s chairperson and representatives from two of
the organisations that had received support through the event in the previous
year gave a seminar, explaining how FIT
helps to address social issues facing local
communities.

The employee charity programme is an initiative that allows employees to donate toorganisations selected by the Philanthropy
group through ongoing salary deductions,and which Nikko AM matches.
Representatives from the organisations
supported through the scheme give talks
to employees about the social challenges
they are working to address so more
people can learn about each initiative.
At one of these sessions, Hirokazu Morita,
Chairman of the NPO The Volunteers
Group to Send Wheelchairs to Overseas
Children, gave a talk on bringing greater
physical and mental freedom to children around the world. At another session, Megumi Nakamura of the United

Nikko AM Sustainability Report 2023

Employees volunteer to help ship out unused emergency water stockpiles to charity organisations.

Nations High Commissioner for Refugees(UNHCR) spoke on lessons learned fromSadako Ogata, the organisation’s former
high commissioner, and the UNHCR’s
humanitarian support.
In October, a seminar was given by Miku
Sano, head of the Tokyo office of The

Big Issue Japan, which works to enable
homeless individuals to support themselves. Attendees heard about the experiences of people who have been helpedby the organisation, as well as the issueof hidden homelessness in Japan. In
December, Takeaki Nakahara, President of
the NPO Teach for Japan, delivered a talkThe 2022 charity run was a hybrid event.
The online component took place inNovember and the main event was heldin person, for the first time in three years,on 18 December at the Japan National
Stadium. A total of 47 people from Nikko
AM participated in the event in various
ways.
The Japan Philanthropy Group will continue conducting a wide range of activities to educate others and help address
societal issues.

•

54Sustainability group initiatives — Asia

On the beach, on the pitch,and in the streets
In Singapore, 2022 marked thereturn to a pre-COVID normal.
This allowed the Asia SustainabilityGroup to organise and participate
in a variety of in-person activities
supporting our key pillars ofdiversity, equity, and inclusion(DEI); reducing inequalities; andprotecting the environment.

Looking out for the environment
Our first activity of the year was a beach clean-up
organised by the Singapore International Foundation(SIF), in conjunction with World Water Day. This was
our first in-person event since November 2019 —the same year we participated in the Water for Life
project in Cambodia with SIF. Seven Nikko AM staff
members, together with other volunteers, looked forrubbish along Selimang Beach in Singapore at low tide,collecting 218kg of plastic waste.
In 2022, we took a big step forward on our journey
to help conserve our biodiversity by partnering with
the Mandai Wildlife Group. Through a corporate
sponsorship programme, we contribute towards
the larger efforts of the group and their enrichment
programmes to enhance the wellbeing of animals in

Nikko AM has adopted a pygmy hippo at the Singapore Zoological Gardens

their care. We also adopted a pygmy hippo, a threatened
species, at the Singapore Zoological Gardens as part of thesponsorship.

Volunteers from Nikko AM collect plastic waste along Selimang Beach in Singapore

Nikko AM Sustainability Report 2023

The Mandai Wildlife Group is active in community
engagement, education, environmental protection,
55

Sustainability group initiatives — Asia

Art programme for children with Cahaya Community

biodiversity conservation. It builds regional researchand conservation capacity, and treats, rehabilitates,
and re-releases animals all over Singapore. The group’s
conservation projects are spread across 10 countries andthey are helping at least 68 species, of which 64% are
critically endangered.
Helping children develop new skills
Over the course of 2022, we worked closely with CahayaCommunity to run programmes for children in lessprivileged communities. The first was an art programme fora small group of children, providing them with a safe space
to explore their creativity. Six of our staff members — a fewof whom brought along their children — took part in thisproject, where being sustainable was a key concept. The
project used mainly recycled and environmentally friendly
materials.

Nikko AM Sustainability Report 2023

Sports day with Cahaya Community

On a more ambitious scale, we ran a sports day with
Cahaya Community for around 30 children, featuring
games such as netball, football, and a relay race.
Nine Nikko AM staff members volunteered for the
event, which provided a fun and healthy respite forthe children. It also served as a platform to impart
important soft skills such as problem solving,communication, and teamwork.
Diversifying our focus
With the aim of helping children beyond the shoresof Singapore, we held a used book and stationery
drive at the office to support a school in Iloilo City in
the Philippines, called Anecito Panolino Elementary
School, which had weathered a typhoon and othernatural disasters. This was done as a part of World

Environment Day in June. Through the generosity of
our colleagues, we donated numerous story books
and stationery items to students.
We also advocated for mental health by raising funds
for distressed youths in need of counselling. It was
our second year supporting Limitless, a non-profit
organisation, through a charity run in which 36 staff
members participated.

•

56

Sustainability group initiatives — EMEA

Getting behind thoseaffected by cancer
As part of the firm’s efforts to increasestaff engagement in corporate
sustainability, members of the EMEA
Sustainability Group asked ourcolleagues at the beginning of thecalendar year to nominate charities tosupport in the fiscal year of 2022.
Employees then voted on one to support, andthe charity with the most votes was Maggie’s, anorganisation that provides free cancer support tocancer patients and their families. Many staff members
first learned about Maggie’s through a “Lunch andLearn” session.
Throughout the year, the sustainability group held anumber of fundraising and volunteering events for
employees, starting with a raffle held at the officesummer party, with both Nikko Asset Management
Europe and its suppliers donating prizes, and allproceeds going to Maggie’s.
The London office participated in the London Night
Hike, where employees walked 10 miles along theThames River from one Maggie’s centre to another.
Employees also took part in the Santa in the City run
and Festive Kitchen Table Day in London, as well as the
Carols by Candlelight concert in Edinburgh. All these
activities raised both awareness and funds for Maggie’s.

Nikko AM Sustainability Report 2023

Delivering Christmas presents in London for the Salvation Army Toy Drive

Employees at the Edinburgh office joined the Together We Walk challenge, climbing the seven hills of Edinburgh, to raise funds for Maggie’s

In addition, employees at the Edinburgh office joined
the Together We Walk challenge to raise donations byclimbing the seven hills of Edinburgh. In fiscal 2022, thefunds raised for Maggie’s by employees, together withthe firm’s matching policy, totalled GBP 15,000.
The sustainability group also made contributions to anumber of other initiatives. For example, they collectedcoat donations from staff for WrapUp London, and they

donated presents to the Salvation Army in London andCash for Kids in Edinburgh. The firm matched the value ofthe gifts — GBP 1,000 in total, which was donated to thetwo charities.
In 2023, the EMEA Sustainability Group will again ask staff
to submit nominations and hold a vote to determine theoffice’s next charity partner for the new fiscal year.

•

57

Sustainability group initiatives — New ZealandEmpowering the marginalised,protecting the vulnerable
In 2022, the Nikko AM New ZealandSustainability Group chose to focus its
efforts on helping to empower people
who are financially marginalised.
In August, the group partnered with the advocacy
organisation Women in Super and the Young
Women’s Christian Association (YWCA) to host“Navigating Money in Your 20s”, an event to promote
improved financial literacy among young people.
Well-known, young influencers from challenging
backgrounds gave talks to the community about
what money means to them and what they wishedthey had known about budgeting and saving money
before they finished school.

vulnerable and marginalised people improve theirfinancial resilience.
The other cause that has been a focus for Nikko AM
New Zealand has been combatting modern slavery.
In 2022, we started offering the Freedom Fund,which allows management fees and proceeds frominvestments to go towards tackling modern slavery. In
addition, employees have led seminars on modern slavery
at national charitable events, and Nikko AM New Zealand
was presented with an award for advocacy of anti-humantrafficking by Tearfund, a local charity partner.

•

Panellists included Shaneel Lal (a transgenderadvocate who writes for The New Zealand Herald andhas a very large online following); Sonitani Kula Leger(an advocate for youth workers); Tangihaere Tukumai
Rangimarie (an advocate for people with disabilities);and Fatumata Bah (an analyst at the Ministry for
Ethnic Communities). The panel was facilitated by
Latayvia Tualasea Tautai, a financial mentor at a social
services organisation for Pacific peoples who was
included on the YWCA’s Y25 list of 25 women “under
25 doing cool things in the community”.
Going forward, the sustainability group aims
to strengthen its partnerships with community
organisations that are committed to helping
Nikko AM Sustainability Report 2023

Panellists at Navigating Money in Your 20s, an event organised by the sustainability group, in partnership with Women in Super and the YWCA

58

Sustainability group initiatives — Americas

Giving back to our community
The Americas Sustainability Group
continued to evolve as the workplace
opened up again in 2022. Throughout
the year, we increased our in-person
volunteer work while working andstaying connected virtually.
In 2022, the sustainability group donated over USD
10,000 to local non-profit organisations, such as The
Classical Theatre of Harlem and South Bronx United, ourcommunity partners. Members also collected items to
be donated and volunteered their time.
The Americas Sustainability Group cares deeply about
the local community, and two employee-organised
fundraisers allowed us to give back to those lessfortunate than ourselves.
— In July, it raised money to purchase school supplies
for local students living in transitional housing. The
group was able to buy almost 100 backpacks and fillthem with supplies such as notebooks and pencils.
— The second fundraiser was launched after an
extremely destructive Category 4 hurricane hit
the US. Nikko AM Americas employees provided
financial assistance to organisations that were on the
ground helping to clean up and build back stronger.
Additionally, the sustainability group held two volunteer
days during the year.
— In March, during Women’s History Month, a groupof employees volunteered for an organisationthat helps families, specifically pregnant women,
nursing mothers, and young children. The day was
Nikko AM Sustainability Report 2023

spent at the non-profit’s thrift store where
employees sorted new items, taggedclothing, and helped where needed.
— In August, employees worked with students
who were giving presentations as partof a summer school programme. The
students presented on different subjects
ranging from robotics, entrepreneurship,
photography, and wellbeing. Volunteers sat
in the audience, asking follow-up questions
and giving comments. This volunteering
opportunity was organised by South Bronx
United.
The group’s activities in 2022 made an impact
in our community and were aligned with thecompany’s sustainability goals. We are proudof the culture of sustainability we are building
from the bottom up.

•

The sustainability group raised money to buy school supplies for local students
living in transitional housing

Volunteers filled almost 100 backpacks with school supplies

South Bronx United event

59

Looking
Ahead

Sam Belton,
Nikko AM New Zealand,
NZ Business Development

Nikko AM Sustainability Report 2023

60

Looking ahead

Moving in a good direction
In 2022, we were very pleased
to see employees at all levelsof Nikko AM gaining a greaterawareness of sustainability
and ESG considerations —and also taking meaningfulaction.
One way we observed this was when ourcolleagues globally came together to contribute to a single cause. Shortly after the
conflict in Ukraine began, sustainability groups in each region coordinated a
global donation drive for humanitarian aid
in Ukraine. In a strong show of solidarity,
employees from all offices donated morethan USD 44,000, which was matched by
the firm.
It was also a year that senior management
engaged more with our employee-led sustainability groups, which form the foundation for all our sustainability activities.
The Corporate Sustainability Department
invited all Global Executive Committee
members to become Executive Sponsors
for at least one sustainability group, andcountry heads to become sponsors for thegroups in their respective regions.
This proved to be instrumental in raising
our colleagues’ awareness and morale, as

Nikko AM Sustainability Report 2023

they saw senior management participating in discussions and activities, as well asworking together with junior team members in various sustainability drives.
To recognise the contributions of thesesustainability group members, Nikko AM’s
president and executive chairman penned
letters of appreciation to each of themand told their line managers about theirachievements.
We also saw the membership of our sustainability groups grow in 2022. The addition of the Japan Philanthropy Group andthe International Women’s Group boosted
firm-wide membership from about 70 toover 110 — a record high — representing
approximately 11% of our employees, andtook us closer to reaching our target of
15% by 2025. This is further evidence thata sustainability-conscious mindset and aculture of volunteerism have taken root at
the firm.
Our annual sustainability town hall was a
big success. Colleagues from around theworld joined the session to hear about
management’s commitment to sustainability and the latest developments in ESG
and corporate sustainability at the firm.
Globally, we held more than 30 educational events in 2022 — the result of passionate sustainability group members
wishing to keep the Nikko AM community

informed about a wide range of issues
relating to sustainability. We believe thatevents like these help to encourage moreof our colleagues to join a sustainability group that aligns with their areas ofinterest.
In 2023, we plan to establish a policythat formalises the firm’s commitment tocorporate sustainability. As part of thisexercise, the Corporate Sustainability
Advisory Council will become a Steering
Committee, a counterpart to the ESG
Steering Committee that governs ourpractices as investment managers.
Together, these two groups will steer
the way Nikko AM behaves and invests,
ensuring that sustainability is the rudder
guiding all we do.
As the Corporate Sustainability
Department reaches its five-year milestone in 2023, we plan to review our threeareas of focus — diversity & inclusion,
reducing inequalities, and environment& climate — which are the pillars that
uphold our corporate sustainability initiatives. We will consult with all stakeholders
to identify any adjustments that need tobe made to reflect where we are on oursustainability journey.
We recognise that the key to continued
success in our activities is to ensure that
our colleagues remain passionate aboutsustainability, which keeps our bottomup culture vibrant. It is our responsibility to encourage positive behaviours, so
we want to do more to recognise andreward employees’ actions when theylead to good outcomes. As a start, wehave partnered with the global HR teamto review Nikko AM’s values to ensurethat they encourage sustainable mindsets and behaviours.
Nikko AM will continue to be a strong
advocate for a sustainable world, and wewill work together with external partners
to achieve this goal. As a long-term
investor and a global corporate citizen,
we are committed to doing our partto contribute to economic prosperity
as well as social and environmental
sustainability.

•

Joyce Koh and Daisuke Kono

Joint Global Heads of Sustainability

61

Additional
Information

John Permaul,
Nikko AM Americas, Systems

Nikko AM Sustainability Report 2023

62

External commitments
Our participation in external initiatives
ClimateActionGlobal Investors Driving Business Transition

Asia Investor
ClimateGroup Action
on Climate Change(AIGCC)Japan Association of
Value Creating ERM(Nikko AM Tokyo)

CDP

Principles for Financial
Action for the 21st Century(Nikko AM Tokyo)

Global Investors Driving Business Transition

ClimateActionGlobal Investors Driving Business Transition

ClimateClimateActionClimateActionActionClimateActionClimateClimateActionActionClimateClimateActionActionGlobal Investors Driving Business Transition
Global Investors Driving Business Transition

Global Investors Driving Business Transition

Global Investors Driving Business Transition

Global Investors Driving Business Transition

Global Investors Driving Business Transition

GlobalGlobalInvestors
InvestorsDriving
DrivingBusinessBusinessTransition
Transition

ClimateActionClimateActionGlobal Investors Driving Business Transition

ClimateActionGlobal Investors Driving Business Transition

ClimateActionClimateAction 100+
ClimateActionClimateActionClimateAction Corporate
International「 TCF D Cons or tium 」ロゴマーク

Global Investors Driving Business Transition

Global Investors Driving Business Transition

30% Club
Investor Group(Nikko AM Tokyo)

Global Investors Driving Business Transition

TCFD Consortium(Nikko AM Tokyo)

Global Investors Driving Business Transition

Governance Network (ICGN)

Global Investors Driving Business Transition「 TCF D Con s or tium 」ロゴマーク

Stewardship Codes

United Nations-supported Principles for
Responsible Investment (PRI)– UK Stewardship Code (Nikko Asset Management Ltd.)– Japan Stewardship Code (Nikko AM Tokyo)– Singapore Stewardship Principles (Nikko AM Asia)「 T C F D Co n s o r ti um 」ロゴマーク「 TCF D Cons or tium 」ロゴマーク「 TCF D Cons or tium 」ロゴマーク「 TCF D Cons or tium 」ロゴマーク

Task force on Climate-related Financial
Disclosures (TCFD)「 TCF D Cons or tium 」ロゴマーク

Nikko AM Sustainability Report 2023

「 TCF D Cons or tium 」ロゴマーク「 TCF D Cons or tium 」ロゴマーク

Global Investor Statement
to Governments on Climate Crisis

The Investor Agenda

Women’s Empowerment
Principles

The Net Zero Asset Managers initiative

LGBT Great

63

Contact information
JAPAN

EMEA

Nikko Asset Management Co., Ltd.
Midtown Tower, 9-7-1 Akasaka, Minato-ku, Tokyo, 107-6242, Japan
Tel:+81-(0)3-6447-6000
Email: corp-sustainability@nikkoam.com
Web: en.nikkoam.com

Nikko Asset Management Europe, Ltd.
Level 5, City Tower, 40 Basinghall Street, London EC2V 5DE, United KingdomTel:+44-20-7796-9866
Email: EMEAenquiries@nikkoam.com
Web: emea.nikkoam.com

Nippon Institutional Securities Co., Ltd. (NIS)(Subsidiary of Nikko AM)
Midtown Tower, 9-7-1 Akasaka, Minato-ku, Tokyo, 107-6242, Japan
Tel:+81-(0)3-6447-6080
Web: www.ni-sec.com/en/

HONG KONG
Nikko Asset Management Hong Kong Limited
24/F Man Yee Building, 60-68 Des Voeux Road Central, Hong KongTel:
+852-3940-3900
Email: HKinstibusinessdev@nikkoam.com
Web: www.nikkoam.com.hk

GERMANY
Nikko Asset Management Luxembourg S.A. (Germany Branch)
Tower 185, Friedrich-Ebert-Anlage 35 - 37, 60327 Frankfurt am Main, GermanyTel:+49-(0)69-505047-301
Email: EMEAenquiries@nikkoam.com
Web: www.nikkoam.de

LUXEMBOURG
Nikko Asset Management Luxembourg S.A.
Private Business Centre, 32 – 36 Boulevard d’Avranches, L-1160, Luxembourg
Email: EMEAenquiries@nikkoam.com
Web: emea.nikkoam.com

SINGAPORE

AMERICAS

Nikko Asset Management Asia Limited
12 Marina View, #18-02 Asia Square Tower 2, Singapore 018961
Tel:+65-6500-5700, 1-800-535-8025
Email: SGContactUs@nikkoam.com
Web: www.nikkoam.com.sg

Nikko Asset Management Americas, Inc.
605 Third Avenue, 38th Floor, New York, NY 10158, U.S.A.
Tel:+1-212-610-6100
Email: USsalesinquiries@nikkoam.com
Web: americas.nikkoam.com

NEW ZEALAND
Nikko Asset Management New Zealand Limited
Level 17, Vero Centre, 48 Shortland Street, Auckland 1010, New ZealandTel:+64-9-307-6363
Email: NZenquiries@nikkoam.com
Web: www.nikkoam.co.nz

Nikko AM Sustainability Report 2023

64

Important information
This document is prepared by Nikko Asset Management Co., Ltd. and/or its
affiliates (Nikko AM) and is for distribution only under such circumstances
as may be permitted by applicable laws. This document does notconstitute personal investment advice or a personal recommendation and
it does not consider in any way the objectives, financial situation or needsof any recipients. All recipients are recommended to consult with their
independent tax, financial and legal advisers prior to any investment.
This document is for information purposes only and is not intended to
be an offer, or a solicitation of an offer, to buy or sell any investmentsor participate in any trading strategy. Moreover, the informationin this document will not affect Nikko AM’s investment strategy in
any way. The information and opinions in this document have been
derived from or reached from sources believed in good faith to bereliable but have not been independently verified. Nikko AM makes noguarantee, representation or warranty, express or implied, and accepts
no responsibility or liability for the accuracy or completeness of thisdocument. No reliance should be placed on any assumptions, forecasts,
projections, estimates or prospects contained within this document. This
document should not be regarded by recipients as a substitute for the
exercise of their own judgment. Opinions stated in this document may
change without notice.
In any investment, past performance is neither an indication nor guaranteeof future performance and a loss of capital may occur. Estimates of future
performance are based on assumptions that may not be realised. Investors
should be able to withstand the loss of any principal investment. The
mention of individual securities, sectors, regions or countries within thisdocument does not imply a recommendation to buy or sell.
Nikko AM accepts no liability whatsoever for any loss or damage of any
kind arising out of the use of all or any part of this document, provided
that nothing herein excludes or restricts any liability of Nikko AM underapplicable regulatory rules or requirements.
All information contained in this document is solely for the attention anduse of the intended recipients. Any use beyond that intended by Nikko AM
is strictly prohibited.
Japan: The information contained in this document pertaining specificallyto the investment products is not directed at persons in Japan nor is
it intended for distribution to persons in Japan. Registration Number:
Director of the Kanto Local Finance Bureau (Financial Instruments firms)
No. 368. Member Associations: The Investment Trusts Association, Japan/
Japan Investment Advisers Association.
United Kingdom: This document is communicated by Nikko AssetManagement Europe Ltd, which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority (the FCA) (FRN 122084).
This document constitutes a financial promotion for the purposes of the
Financial Services and Markets Act 2000 (as amended) (FSMA) and therules of the FCA in the United Kingdom, and is directed at professional
clients as defined in the FCA Handbook of Rules and Guidance.
Luxembourg and Germany: This document is communicated by Nikko
Asset Management Luxembourg S.A., which is authorised and regulated
in the Grand Duchy of Luxembourg by the Commission de Surveillance duSecteur Financier (the CSSF) as a management company authorised under

Nikko AM Sustainability Report 2023

Chapter 15 of the Law of 17 December 2010 (No S00000717) and as an alternative
investment fund manager according to the Law of 12 July 2013 (No. A00002630).
United States: This document may not be duplicated, quoted, discussed or otherwise
shared without prior consent. Any offering or distribution of a Fund in the UnitedStates may only be conducted via a licensed and registered broker-dealer or a duly
qualified entity. Nikko Asset Management Americas, Inc. is a United States Registered
Investment Adviser.
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the Securities and Futures Act (Chapter 289), and intermediaries only. Nikko AssetManagement Asia Limited (Co. Reg. No. 198202562H) is regulated by the Monetary
Authority of Singapore.
Hong Kong: This document is for information to professional investors as defined in
the Securities and Futures Ordinance, and intermediaries only. The contents of thisdocument have not been reviewed by the Securities and Futures Commission or any
regulatory authority in Hong Kong. Nikko Asset Management Hong Kong Limited is alicensed corporation in Hong Kong.
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New Zealand Limited (Company No. 606057, FSP22562). It is for the use of wholesaleclients, researchers, licensed financial advisers and their authorised representatives
only.
Kingdom of Bahrain: The document has not been approved by the Central Bankof Bahrain which takes no responsibility for its contents. No offer to the public topurchase the Strategy will be made in the Kingdom of Bahrain and this document isintended to be read by the addressee only and must not be passed to, issued to, or
shown to the public generally.
Kuwait: This document is not for general circulation to the public in Kuwait. The
Strategy has not been licensed for offering in Kuwait by the Kuwaiti Capital Markets
Authority or any other relevant Kuwaiti government agency. The offering of theStrategy in Kuwait on the basis a private placement or public offering is, therefore,
restricted in accordance with Decree Law No. 7 of 2010 and the bylaws thereto (asamended). No private or public offering of the Strategy is being made in Kuwait, andno agreement relating to the sale of the Strategy will be concluded in Kuwait. No
marketing or solicitation or inducement activities are being used to offer or market
the Strategy in Kuwait.
Kingdom of Saudi Arabia: This document is communicated by Nikko AssetManagement Europe Ltd (Nikko AME), which is authorised and regulated by the
Financial Services and Markets Act 2000 (as amended) (FSMA) and the rules of the
Financial Conduct Authority (the FCA) in the United Kingdom (the FCA Rules). This
document should not be reproduced, redistributed, or sent directly or indirectly to
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This document does not constitute investment advice or a personal recommendationand does not consider in any way the suitability or appropriateness of the subject
matter for the individual circumstances of any recipient. In providing a person withthis document, Nikko AME is not treating that person as a client for the purposes of
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Nikko AME and its associates and/or its or their officers, directors or employees may
have or have had positions or material interests, may at any time make purchases

and/or sales as principal or agent, may provide or have provided corporate
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and not available to Nikko AME because of regulations or internal procedure is
not reflected in this document. The investments mentioned in this document
may not be eligible for sale in some states or countries, and they may not besuitable for all types of investors.
Oman: The information contained in this document nether constitutes apublic offer of securities in the Sultanate of Oman as contemplated by theCommercial companies law of Oman (Royal decree 4/74) or the Capital Markets
Law of Oman (Royal Decree 80/98, nor does it constitute an offer to sell, or thesolicitation of any offer to buy non-Omani securities in the Sultanate of Omanas contemplated by Article 139 of the Executive Regulations to the CapitalMarket law (issued by Decision No. 1/2009). This document is not intended tolead to the conclusion of any contract of whatsoever nature within the territoryof the Sultanate of Oman.
Qatar (excluding QFC): The Strategies are only being offered to a limited
number of investors who are willing and able to conduct an independent
investigation of the risks involved in an investment in such Strategies. The
document does not constitute an offer to the public and should not be
reproduced, redistributed, or sent directly or indirectly to any other party or
published in full or in part for any purpose whatsoever without prior written
permission from Nikko Asset Management Europe Ltd (Nikko AME). No
transaction will be concluded in your jurisdiction and any inquiries regarding
the Strategies should be made to Nikko AME.
United Arab Emirates (excluding DIFC): This document and the information
contained herein, do not constitute, and are not intended to constitute, apublic offer of securities in the United Arab Emirates and accordingly should
not be construed as such. The Strategy is only being offered to a limited
number of investors in the UAE who are (a) willing and able to conduct an
independent investigation of the risks involved in an investment in such
Strategy, and (b) upon their specific request. The Strategy has not been
approved by or licensed or registered with the UAE Central Bank, the Securities
and Commodities Authority or any other relevant licensing authorities orgovernmental agencies in the UAE. This document is for the use of the named
addressee only and should not be given or shown to any other person (otherthan employees, agents or consultants in connection with the addressee’s
consideration thereof ). No transaction will be concluded in the UAE and any
inquiries regarding the Strategy should be made to Nikko Asset Management
Europe Ltd.
Republic of Korea: This document is being provided for general information
purposes only, and shall not, and under no circumstances is to be construed
as an offering of financial investment products or services. Nikko AM is not
making any representation with respect to the eligibility of any person toacquire any financial investment product or service. The offering and sale ofany financial investment product is subject to the applicable regulations of the
Republic of Korea. Any interests in a fund or collective investment scheme shallbe sold after such fund is registered under the private placement registration
regime in accordance with the applicable regulations of the Republic of Korea,
and the offering of such registered fund shall be conducted only through a
locally licensed distributor.

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Miwa Takano,Nikko AM Japan,
Translation/Interpretation Group