YOUR GOALS,OUR COMMITMENT.

Task Force on
Climate-related
Financial
Disclosures
2023

01

02

Governance

Strategy

Overview of Nikko
AM group governance5

Nikko AM groupsustainability governance6

Regional sustainability
governance example

803Contents

Risk
Management
Overview

35

Risk identification,assessment, and management 35
Climate change as adriver of group risk

37

Managing climate-relatedrisks within our investments

38

Introduction and overview

10In-house analyticalcapabilities: overview

12Top-down analysis:
scenario analysis

12Top-down analysis:
temperature alignment

20

Bottom-up analysis:
proprietary ESG-integrated
approach22

Bottom-up analysis:external data providers

24

Climate risk andopportunities

25

Active stewardship28

Market collaboration

30

04

Metrics &Targets
Overview

40

Methodology

41

Reported metrics

42

Targets

43

Foreword
With both 2022 and2023 characterised byextreme weather, we
are already witnessing
the widespread effects
that climate change
is having on ourenvironment. At Nikko
Asset Management(Nikko AM), we are
acutely aware of Asia’s crucial role in fighting
climate change. Headquartered in Japan andwith significant investments across Asia, weare committed to using our voice and influence
to accelerate the transition to a low-carbon
society. We do this by engaging not only with ourcompanies, but also with other key stakeholders
such as regulators.
When we look back to 2022, we see it as a yearof acceleration and expansion of our sustainable
investment efforts, including on climate change.
As part of our membership of the Net Zero AssetManagers initiative (NZAMi), we set an initialemission-reduction target for greenhouse gases.
We committed to reducing emissions by 50% by
2030 (from 2019 levels) for 43% of total group assets
under management. We were also pleased to have
met the high standards of stewardship set by the UK
Stewardship Code, of which we became a signatory
in 2022 and again in 2023.
There were also many regional improvements anddevelopments. Our Global Equity Team, for example,
now contacts investee companies to ensure thatthey recognise our obligations as signatories to
NZAMi and to encourage them to provide carbonemission disclosures. We also want to ensure that weunderstand their emission-reduction strategies andthat their targets are in line with the Paris Agreement.
Meanwhile, Nikko AM Asia has developed anenvironmental risk policy, and carbon metrics are
now fully integrated into our risk management. We
are looking to expand this process to other regions inwhich Nikko AM operates.

We invested substantially in our sustainable
investment capabilities in 2022. This culminatedin the development of our Global Sustainable
Investment Team. This new team significantly
expands the resources we commit to sustainability.
Indeed, we doubled the number of people devoted
to sustainability in less than 18 months — and thisexpansion continued in 2023.
Also in 2023, we committed to improving andstandardising the monitoring of climate-change risks
in our portfolios and to improving our disclosuresacross key asset classes and regions. These efforts led
to this enhanced TCFD report. The enhancements
include a significant expansion of the scope of
assets under management covered; the addition ofclimate scenario analysis; extended details on theidentification, management, and governance ofclimate-change risk; and a standardised approach toclimate metrics.
But analysing climate risks and opportunities inour portfolios is not new to us. We have been
incorporating carbon metrics in our active strategies
for many years now, and we find a lot of value inmeasuring climate risks from the bottom up. In
2023, however, we embarked for the first time ona detailed, top-down climate scenario analysis.
Although we recognise the importance of climate
scenarios, we also acknowledge the level ofcomplexity involved and the current limitations of
this approach, as we outline in this report. We arecommitted to evolving our models and disclosures in
the coming years to ensure that we can continue tocombine a top-down approach with our bottom-up
analysis.
Faced with the enormous and urgent task ofreshaping the future, we need all hands on deck as
we navigate the transition to a low-carbon economy.
So we continue to build our capabilities to ensurethat we have all the dedicated expertise required
to advance our decarbonisation efforts. We are wellaware of the dangers of complacency: we know that
we can and must do more in the years ahead.
Stefanie Drews, Group President

01

Governance5

Back to contents

Governance
Overview of Nikko AM
group governance
The Nikko AM (NAM) group andits affiliates have a presence in 11
countries/regions, with our in-house
investment teams located in seven of
our offices in four continents. We havea diverse workforce that includes 30
nationalities working together withthe common purpose of protecting
and growing the assets of ourcustomers in a way that best meets
their long-term investment goals.
Together, we provide high-conviction
asset management from across ourglobal network, as well as across a
range of active equity, fixed-income,and multi-asset strategies. We also
have a complementary range of
passive strategies, including someof Asia’s largest exchange-tradedfunds (ETFs).
While most of our AUM and clientsare based in Asia, our long-termbusiness goal is to offer best-in-classinvestment solutions for clientsworldwide. We implement crossborder delegation arrangements
whereby the locally contracted Nikko
AM group office manages businessdevelopment, supported by local
client-servicing teams. Portfolio
management is delegated to therespective regional Nikko AM entity
where the relevant investment
expertise is based.
The Nikko AM Group Board delegates
responsibility for day-to-day decisionmaking to our Global Executive
Committee (GEC), comprising
members of the senior management
team, whose details can be foundin the leadership section of our
website. The charts to the right show
a simplified representation of ourgroup governance structure.

Nikko AM governance
NAM Board of Directors
Independent Directors

Risk OversightCommittee

Global Executive
Committee

Board of Statutory
Auditors

Compliance
Oversight
Committee

Audit andSupervisory
Committee

Employees
Product
Committee
Control functions

Nikko AM Group’s supervisory and governance structure includes an audit and supervisorycommittee. The role of the committee is to strengthen oversight and enhance ourcorporate governance framework.

Stewardship governance structureGroup Board of Directors
Independent Directors

Global Executive Committee

Global Stewardship functions
ESG Global Steering
Committee
Stewardship and Voting
Rights Policy OversightCommittee

Subsidiary-specific
Stewardship functions
Local Boardof Directors
Independent Directors

Independent Directors

Local Proxy Voting
Oversight

Global Sustainable
Investment Department

Local Stewardship
Oversight

6

Back to contents

Nikko AM groupsustainability
governance
Governance of environmental,social, and governance (ESG)
activities operates at both theglobal and local subsidiarylevel. The overall oversightof our ESG activities is the
responsibility of the ESG Global
Steering Committee. It oversees
the integration of ESG within
investment teams, sets policy
and develops strategy, makes
external disclosures andrecommends ESG-related
initiatives and participation inexternal bodies. The Committee
meets on a quarterly basis on
average.
The ESG Global Steering
Committee is governed by the
GEC and, in addition, reports
directly to the Group Board. It ischaired by the chief investment
officer, and its voting members
are the heads of our investment
teams worldwide, who are in
charge of ESG integration andoversight in their individual
investment processes (including
company engagement and proxyvoting, where applicable).

This department is still expanding and is split into five functions:12

Regional ESG specialists:these are our ESG “allrounders” who work closelywith the investment teams
supporting their ESG
integration and stewardshipefforts. They also work closelywith our other functions, suchas client services and productdevelopment, to ensure that
we deliver the best outcomesfor our clients across the entire
value chain.

Research & integration: thisfunction, which is still being
developed, is responsible forsupporting our investment
teams and ESG specialists withsubject matter expertise andensuring we continuously
improve our integration
efforts. The function will
include, for example, anenvironmental specialist to
help us enhance our activities
in this area.

3
Stewardship: this function will support and co-ordinate our firmwide stewardship efforts. It will aim to continuously improve ourstewardship activities, including engagement, proxy voting, and ESG
research and respective disclosures.

Through these channels, theGroup Board is kept informed ofmaterial climate-related risks andopportunities while day-to-day
management is delegated to
relevant committees and senior
members of staff.
The Nikko AM group also has adedicated Global Sustainable
Investment Team that provides
expertise and support on ESG
matters.

4

5

Data & reporting: thisfunction is dedicated tosourcing, storing, validating
and disseminating ESG data
globally, as well as providing
support with ESG data
analytics and reporting.

ESG regulations: this function
is responsible for identifying,assessing, determining, andsupporting our approach to
ESG regulations and standards
globally.

7

Back to contents

Global sustainable investment department governance structureGroup PresidentGroup Chief Investment Officer

Global Head of Sustainable Investment

Regional ESG
specialists

Research andintegration

As part of this structure, the global
head of sustainable investment
reports directly to the group president
and chief investment officer. This acts
as another channel through which
the group ensures that ESG mattershave appropriate senior leadershipoversight. The underlying functions of
the department report directly to theglobal head of sustainable investment.

Stewardship

Data &
reporting

The core priorities of the global headof sustainable investment centre
around shaping our sustainable
investment strategy, building the
Nikko AM group’s Global Sustainable
Investment Team and working closelywith investment teams and otherbusiness functions in all the regions
to strengthen the firm’s ESG
capabilities and provide insight onbroader ESG topics. This mission is
supported by senior leadership, whohave dedicated key performanceindicators (KPIs) to improve thegroup’s management of ESG.

ESG regulation

Members of our Global Sustainable
Investment Team provide key support
on the management of climate-relatedrisks and opportunities. For example,
the ESG data & reporting function is
responsible for data on physical andtransition risks.

8

Back to contents

Regional sustainability
governance example
Although we have global
sustainability governance to oversee
group ESG matters, including climaterelated risks and opportunities, we
retain regional flexibility that allows
each of our entities to further tailor
the approach regionally, as required.
For instance, for our Japanese
operations which represent the
majority of the business, a great
deal of resources is devoted to theirgovernance and stewardship.

The Stewardship and Voting Rights
Policy Oversight Committee monitorsand supervises our engagementwith Japanese investee companies
and proxy voting, ensuring that both
remain in line with our fiduciary and
ESG principles and meet the interestsof clients.
The committee was launched in2016 as a way of enhancing thetransparency of our stewardship
activities and strengthening ourgovernance. Four of the committee’sseven members are from outside
the Nikko AM group, making thecommittee highly independent. Its
decisions carry weight, as it reports
directly to the Group Board on

matters such as the governance of ourstewardship activities and conflicts ofinterest, ensuring, for example, thatproxy votes are used in line with our
Conflict of Interest Control Policy.
Directly answering to the OversightCommittee is the Stewardship andProxy Voting Committee, whichis responsible for formulating
stewardship policy, providing
guidance on stewardship activities
and updating our group proxyvoting policy, addendums to which
can be applied at the subsidiarylevel in line with local customs andthe requirements of the respective
investment teams. The chart below
shows a simplified representation of
our group governance structure.

Oversight of proxy voting at our Japanese entity
Board of Directors
ReportReportOversight

Stewardship and Voting Rights Policy Oversight Committee(Majority of external committee members)
ReportOversight

ESG Global Steering Committee

Oversight/Advice

Stewardship and Voting Committee

Our Japan Sustainable Investment
Department (previously known as theActive Ownership Group or AOG) was
set up in 2017 to enhance the firm’s
ability to, firstly, make judgements
on how to exercise voting rights andimplement stewardship activities
in our Japanese portfolios; and,secondly, conduct engagements withJapanese companies not alreadycovered by sector analysts in actively
managed portfolios. As a result, evenstocks that are held only in passive
portfolios are subject to engagement.

As another example, our European entities have extended their sustainability
governance to enhance local board and senior-management oversight of
ESG activities, risks and opportunities. For both Nikko AM Europe and Nikko
AM Luxembourg, a dedicated board committee (the ESG and Stewardship
Oversight Committee) has been established for two main purposes:
1

To oversee and approve all
ESG & stewardship activities
undertaken by the entities

2

Review and approve the entities’
responses to developing ESG
requirements, as well as
enhancing standards ofstewardship

On a quarterly basis, this committee analyses, reviews, and approves ESG andstewardship activities that include, but are not limited to, governance, policy
revision, engagement, and voting activity, and responses to ESG-related
regulations and standards.

02

Strategy

10Back to contents

Strategy
Introduction and overview
As an asset manager, we recognisethat a range of market-wide andsystemic risks can directly affect thevalue of the assets that we invest
in. As we are a fiduciary, one of our
key responsibilities is to manage
these risks to improve outcomes forour clients. So it is in our interest to
support investment approaches andwider initiatives that advance this.
Nikko AM is guided by ourcommitment to putting clients’ bestinterests first and placing fiduciaryand ESG principles as the highest
guiding themes of our corporate
values and actions. This commitment
is underpinned by action. For
example, in 2022 we undertook aproject to redefine our ESG operating
model. This was driven by our newgroup president and culminated in
the launch of our Global Sustainable
Investment Team in August. The
creation of this global team and theother organisational developments
highlighted in this report reflect theimplementation of our updated ESG
strategy and our commitment tomeeting high international standards
on ESG.
Our policies on ESG, responsible
investing, and stewardship are
available on our website under thefollowing headings: Fiduciary and
ESG Principles, Commitment to
Responsible Investment, Position
Statement on Climate Change,
Sustainability Report, Engagement
and Stewardship Strategy, andStewardship Activities Report and
Self-assessment.

1

Our ESG ambition is backed by range of external commitments. For example,
we joined the Net Zero Asset Managers Initiative (NZAMi) in 2021, and in 2022
we submitted our initial disclosures and interim climate targets. Notably, an
initial 43% of our assets have been committed to be managed in line with net
zero (or USD 115.68 billion1), with a reduction target of 50% by 2030 from 2019baseline. We will continue to progress our net-zero commitments initiatives andlink them to wider projects, such as our reporting under this framework. Our
progress towards this target is described under Metrics and Targets (page 39).
We recognise climate change, with its underlying risks and opportunities, as
one of the greatest challenges that the global community faces. It is an issue
that will affect all sectors, albeit on different timescales and to different extents.
Some impacts are indirect, such as carbon taxes affecting the companies weinvest in, while others are direct, such as the impact of those (potential) carbon
taxes on us as a corporate. Beyond known effects, we also acknowledge thatsystemic changes may arise from the increased instability of physical systems
as global temperatures rise. We assess and address these impacts through two
main channels:
Our investments: to understand the impacts of climate change on ourinvestments, we use various climate-related research tools and analyses
to understand and manage our exposure to transition and physical risks,
as well as to climate-related opportunities. Further detail on these tools
is provided later in this report.

Our operations: corporate sustainability is embedded within ourorganisation. We have thoroughly examined our impact on theenvironment and set a measurable target that holds us accountablefor our emissions. Our firm-wide target, as outlined in our Nikko AM
Group Environmental Policy, is to reduce our greenhouse gas (GHG)
emissions by 40% per employee by 2030, compared with our 2019
emission levels. Our operations have been certified as carbon neutral
since 2019 by Carbon Footprint Ltd, a UK-based consultant. More details
can be found in our 2023 Sustainability Report under Helping theEnvironment.

In the sections that follow, we will focus on how we consider climate change
and its associated risks and opportunities in the investments we manage.

AUM figures as of 31 December 2019, calculated as of 31 December 2021

11

Back to contents

Nikko AM’s position on climate change
We recognise that climate change is one of the greatest challenges the global community faces and is a market-wide
and systemic risk with implications for the financial system. Since the adaptation of the landmark Paris Agreement in2015,2 the world has been increasingly working towards a common goal of limiting temperature increase to well below
2°C above pre-industrial levels and pursuing efforts to limit the increase to 1.5°C above pre-industrial levels. We outline
our approach to addressing climate change in our Position Statement on Climate Change.
We strongly believe that ESG considerations are inherent to long-term corporate value creation and contribute to therealisation of sustainable economic growth. In the light of this, we view ESG issues as an integral part of our fiduciary
duty to clients and endeavour to incorporate ESG principles in all our investment processes. This includes climatechange risks and opportunities.
Nikko AM approaches climate change through three pillars:

1

2

3

In-house analyticalcapabilities through “ESG
integration” where climaterelated risks and opportunities
are assessed as part of ourinvestment processes. Moredetails on our in-house
analytical capabilities will
be provided in the following
pages (12–24)

Active stewardshipis inherent part of ourinvestment processes. We
believe that active dialogue
and the exercising of voting
rights, where appropriate, canlead to positive outcomes forour companies, our clients, andour firm

Market collaboration toaccelerate common goals in
the investment community
through the participation
in investor coalitions,collaborative engagements,
and consultations

These three pillars underpin our external commitments, such as our goal to achieve net zero by 2050 and our interim
targets. To enhance our position on climate change, we are committing to update our Position Statement on
Climate Change. This will include more detailed plans on Nikko AM’s climate transition plan. We will report on thesedevelopments in due course.
As encapsulated in our Commitment to Responsible Investing, we are committed to transparent disclosures, throughreporting on the progress made towards our commitments and the outcomes of our investment decisions.
Reporting on our activities (transparency)
External commitments
In-house analytical capabilities

2

Active stewardship

Paris Agreement: https://unfccc.int/process-and-meetings/the-paris-agreement

Market collaboration

12

Back to contents

As part of Nikko AM’s strategy toconstantly improve our frameworks
and assessments of climate-related
issues, we have further developed our
in-house analytical capabilities. This has
allowed us to conduct both top-down
and bottom-up analyses to assess ourportfolios’ exposures to both physicaland transition risk, which better
informs our investment decisions.

Top-down analysis
GHG emissions monitoring

In-house analyticalcapabilities: overview

Scenario analysis

Temperature alignment

Bottom-up analysis

Proprietary ESG-integrated
approach

External data providers

In the next sections, we will provide
more details of our top-down andbottom-up approaches, including
the tools we use and the analysis we
conduct.

Top-down analysis:
scenario analysis
Scenario analysis is a process for
identifying and assessing thepotential implications of a rangeof plausible future states underconditions of uncertainty. Hence,climate scenario analysis aims tointerpret the potential financial
impact on our individual holdings or
portfolios from climate-related risks
under various scenarios.
In accordance with therecommendations by the Task
Force on Climate-Related Financial
Disclosures (TCFD), we have assessed
our portfolios for both transition andphysical risk under multiple climate
scenarios, using industry-recognised
third-party models to ensuretransparency and interpretability.

Methodology
We draw on MSCI Inc’s ClimateValue-at-Risk (CVaR) model and theterminology associated with it. We
acknowledge that the understandingof and, hence, the process ofassessing climate-related risk andits impact are constantly evolving,
and we will update our approachaccordingly.
In assessing MSCI’s methodology, we
understand that there are multiple
limitations, such as sector andgeographical nuances, which arestill evolving in the model. We also
note that some of the underlying
models reflect neither the adaptation
and/or mitigation actions taken bycompanies and governments in
response to climate-related risks
nor how we as investors have taken
the approach of active ownership to
mitigate such climate risks. We also
acknowledge that there are data gaps
and data points that have not been

considered as part of the analysis.
Additionally, the analysis is basedon a snapshot of our holdings, asof 31 December 2022, whereas ourportfolios are dynamic.
To help assess the underlying risk, weutilise both top-down and bottomup processes, which provides a more
holistic analysis than relying solely ona third-party data source. Our bottomup approach is presented later, andour commentary here is related tothe top-down methodology. As weare conducting analysis on a broad
range of securities, there will be cases
where data is missing. To ensure ourrisk measurements are not skewed
by the missing data, we have taken
the approach to reweight all metrics
based on a data-coverage factor,
which means the percentage covered
within each metric is always 100%.
We have chosen not to use any filling
approaches given the idiosyncratic
nature of the data.

13

Back to contents

Scope

Transition risk

Our analysis is conducted on our
exposure to public listed equity andcorporate bonds. Analyses on our
in-scope portfolios cover 67.5% of
the total assets under management(AUM) that are managed by ourJapan Equity, Japan Fixed Income,Japan Investment Technology, Asia
ex-Japan Equity, Asia Fixed Income,Global Equity and Global Fixed Income
investment teams as of 31 December
2022. Our in-scope Japanesedomiciled holdings are aggregatedand reported as “NAM JP” and ourin-scope companies domiciled out ofJapan are aggregated and reported
as “NAM ex-JP”. For our fixed-income
portfolios, we include corporate bondsand exclude sovereign, supranational
and agency issues, as scenarioanalysis methodologies are nascent,which limits the accuracy of thesedata points. The analysis takes into
consideration both active and passive
portfolios managed by Nikko AM.

In the global effort to address
climate change and support theParis Agreement, countries globally
have ratified the Paris Agreement,
committing to put forth climate
action plans, also known as nationallydetermined contributions (NDCs),
on how they would work towards
reducing their country’s carbon
emissions. However, this would not
be without economic and societal
impact. As countries enact climate
action plans to reduce their carbon
emissions, their decisions cascade
down to the population — corporates
and individuals. This can result inpolicy and legal risks stemming from
regulatory changes, technology
advancements, and changes inmarket demand. Therefore, transition
risk is defined as the risks stemmingfrom the global transition towards alower-carbon economy.3 This does
not happen consistently at the same
nature, speed, and focus, however,and is subject to sectoral andgeographical nuances.
MSCI’s transition-risk methodology
assesses companies’ CVaR undervarious Network for Greening the
Financial System (NGFS) climate
scenarios.4 This assessment focuseson policy risk, modelling a company’s
CVaR as a function of its annual
carbon emissions and annual carbonprice estimates over 15 years. The
carbon-price estimates used are
dependent on the climate scenario.
As a result, the CVaR associated withthe company is the aggregated cost
it is expected to pay to reduce its
carbon emissions to reach emissionreduction targets over 15 years.
The process utilised by MSCI provides
a sound grounding for us to analysetransition risk, while acknowledging
that there are limitations to themethodology.
First, the model assumes that all
costs are internalised across a sector,
with no assumptions of cost passthrough across supply chains. Thiscan result in misallocation of risks

3
4
5

between companies across the value
chain. However, we understandthat modelling the cost passthrough from policy risk is complex.
Second, we know from real-world
policies enacted that policy risk is
not the same across sectors andgeographies. It is likely to be morematerial for carbon-intensive sectors
and companies operating in more
stringent regulatory environments,
but this is less reflected in thethird-party methodology applied.
Additionally, the model does nottake into consideration pre-emptive
steps taken by individual companies(e.g. carbon-cost pass-through,capital expenditure and operatingexpenditure investments) to reduce
their exposure to such policy risk.
We address the limitations observed
as part of our bottom-up, ESGintegrated fundamental analysis toholistically understand the potential
risk faced by our companies. How
our investment teams integrate ESG
as part of their investment process isdetailed under Bottom-up analysis:
Proprietary ESG-integrated approach(from page 22).
We have assessed our portfolios
under the following scenarios:
 1.5°C and 2°C■ Orderly — climate policies
introduced early with gradualintensification. Transition risk isrelatively subdued■ Disorderly — delayed ordivergent climate policies.
Higher transition risk from
more stringent and stricter
measures that are delayed
and/or divergent acrosscountries and sectors, leading
to higher carbon pricing
 NDCs — climate policies are
implemented only in somejurisdictions but are globally
insufficient to halt global
warming. Implies temperature riseof 3°C by 2100,5 which leads tohigher physical risk.

Transition Risk Definition: https://www.tcfdhub.org/Downloads/pdfs/E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf
NGFS Climate Scenarios: https://www.ngfs.net/ngfs-scenarios-portal/
UNFCCC: https://sdg.iisd.org/news/unfccc-reports-warn-about-2-5c-warming-amid-glimmers-of-hope/#:~:text=The%20UNFCCC’s%20
second%20synthesis%20of,2.5%C2%B0C%20of%20warming

14

Back to contents

Transition risk represents the largest
risk to our holdings, with the 1.5°C
Disorderly scenario posing the most
severe risk to our portfolios, given that
it is the most disruptive scenario.
Under the 1.5°C Disorderly scenario,
the model indicates a potential CVaRof over 40% for our NAM JP assets, asseen in Figure 1, and over 20% for ourNAM ex-JP assets as seen in Figure 2.
Under a more orderly scenario (1.5°C
Orderly), the potential risk diminishes
substantially, to 10% for NAM JP and
5% for NAM ex-JP.
Diving deeper into the numbers,
we are unsurprised to find that thebulk of our risk is attributable tocarbon-intensive sectors, such asenergy, materials, and utilities. Whenjurisdictions start to increase carbon

prices in a bid to bring down carbon
emissions, the cost to companies inthese sectors will increase should theiremissions profile not come down.
As a global asset manager with bothactive and passive strategies, we arelikely to maintain some exposure tothese sectors, but we will continue tomonitor the risk and apply mitigation
techniques as described later in thereport.
Most of our passive assets are held in
our NAM JP portfolios with a minor
portion in our NAM Asia (Asia exJapan Equity and Asia Fixed Income)portfolios. We have limited discretionover our passively held funds, andthe transition risk largely mirrorsthat of the indices the funds track. To
mitigate the transition risk faced byour passive assets, we take an active
stewardship approach by engaging
our companies and actively voting on
all of our equity holdings.

If we take our Global Equity UCITS
fund as an example in Figure 3, thefund has a lower transition risk thanits benchmark (the MSCI All Country
World Index) as the fund has acommitment to keep its portfolio’s
relative carbon intensity more than
20% below the benchmark. So, giventhat the transition-risk scenarios here
are driven by a company’s carbon
emissions, the portfolio carries
significantly lower risk under all
scenarios.

Figure 2. Transition risk — NAM ex-JP

0.0

0.0

-5.0

-5.0

-10.0

-10.0

-15.0

-15.0

Climate Value-at-Risk (%)

Climate Value-at-Risk (%)

Figure 1. Transition risk — NAM JP

For our actively managed funds,
where we have more flexibility inmanaging our portfolios, we are able
to more actively mitigate transition
risk. We see that transition risk still
exists but is far less pronounced thanin their relative benchmarks.

-20.0
-25.0
-30.0

-20.0
-25.0
-30.0

-35.0

-35.0

-40.0

-40.0

-45.0

-45.0
1.5°
ORDERLY

2°
ORDERLY

1.5°
2°
DISORDERLY DISORDERLY

3°
NDC

1.5°
ORDERLY

2°
ORDERLY

1.5°
2°
DISORDERLY DISORDERLY

3°
NDC

15

Back to contents

Figure 3. Transition risk — Global Equity
0.0

Climate Value-at-Risk (%)

-5.0
-10.0
-15.0
-20.0
-25.0
-30.0
-35.0
1.5° ORDERLY
Global Equity

2° ORDERLY

2° DISORDERLY

3° NDCBenchmarkPhysical risk
In recent years, we have seen
increasing occurrence and severityof natural disasters such as wildfires
and hurricanes, but also of weather
patterns such as prolonged andheavier rainfalls leading to floods.
With climate change leading tohigher global temperatures, thefrequency and severity of such
events is only set to increase. These
events have financial implications fororganisations, not only through direct
asset damage, but also indirectly
through operational disruptions
that can stem from changes to
productivity. Therefore, physical risk
is defined as risks stemming from thephysical impacts of climate change.
The risk can be event-driven (acute)or longer-term shifts in climate
patterns (chronic), which lead tochanges in habitable landscapes.6
Whether it faces acute or chronic
weather events, the economic system
will have to adapt.

6

1.5° DISORDERLY

MSCI’s physical-risk methodology
models companies’ CVaR based ona variety of potential physical-risk
events over 15 years. The impact
from these physical-risk events canbe measured in two distinct ways —disruption to operations and direct
damage caused by the events. As thetype and impact of physical risk islocation-specific, the methodology
models the likelihood of thesechanging weather patterns and,
subsequently, the potential impact tocompanies’ individual assets at a local
level. So the CVaR associated with thecompany is the aggregated cost it isexpected to pay as a result of revenue
loss and disruption to operations over
15 years.
We acknowledge that there arechallenges in modelling the impact ofphysical risk, as the expected change
to weather patterns may deviate
from the trends that have alreadybeen observed and used to create
forecasts. This deviation can occur ineither direction, which means thatthe actual outcome may be more orless severe than currently forecast andmay occur more or less frequently.
This limits the ability of any model toaccurately predict how physical-risk
types will develop and, even more so,the extent of its potential financial
impact.

A limitation the model faces isthe consideration of physical-risk
adaptation initiatives (e.g. floodwalls, insurance) deployed by thecompanies and jurisdictions inrelation to managing the impactsof physical risk. These physical-risk
adaptation efforts may not fully
eliminate the potential financial
impact from physical-risk events but
will limit the extent of impact felt,
which is an important consideration.
We assessed our portfolios under thefollowing scenarios: Average scenario: most likely
impact of climate change over themodelled 15-year period — i.e.
the expected value of the cost
distribution.
 Aggressive scenario: the 95th
percentile of the cost distribution
and explores the severe downsiderisk within the distribution tail —i.e. the worst-case scenario.

TCFD Physical Risk: https://www.tcfdhub.org/Downloads/pdfs/E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf

16Back to contents

The potential CVaR from physical risk
on our funds is significantly lower thantransition risk in both the average andaggressive scenarios. Unlike transition
risk, where CVaR is largely a functionof the sector our companies are in, thegeographic location of our companies’
assets is key for physical risk.
Under the aggressive scenario, our
NAM JP assets see a potential CVaRof about 18% (Figure 4) and slightly
above 8% for our NAM ex-JP assets(Figure 5). Under the average scenario,
the potential CVaR is significantly
lower, at about 10% for NAM JP (Figure4) and about 4% for NAM ex-JP (Figure5). Given that NAM JP is fully invested
in Japanese assets, its physical risk isconcentrated in Japan, which has highphysical risk because of its location,
whereas the physical risk of NAM ex-JP
assets is more diversified globally.

Further analysis of the data reflectsthat CVaR is more pronounced in
geographical locations with high acuterisk (i.e. event-driven). These events
tend to occur suddenly, disallowing
ample time for risk-adaptation or
mitigation efforts. Additionally, theseverity of these events cannot be
predicted, which can result in theinsufficiency of implemented riskmitigation or adaptation efforts.
Therefore, the geographical locations
with the highest acute risks would
result in the greatest asset damage
and operational disruption.

actively voting on all of our Japaneseequity holdings. Although we canphysically feel and see the devastating
impacts of various physical-risk
events globally, the translation of
how these physical risk events havean impact on the companies’ future
value is unclear. Unlike transition risk,
where companies can largely mitigate
their risks from decarbonisation,
physical risk largely relies on
adaptation measures — not justfrom the company, but also from theauthorities, the broader private sector
and society at large.

We have limited discretion over our
passively held funds, so their physicalrisk largely mirrors that of the indicesthey track. Therefore, to mitigate thephysical risk faced by our passive
assets, just like with transition risk, wetake an active stewardship approachby engaging with our companies andFor our actively managed funds, where
we have more flexibility in managing
our portfolios, we are able to actively
factor in physical-risk considerations
when assessing our portfolio holdings.
Physical risk still exists but is less whencompared with these funds’ relative
benchmarks.

Figure 5. Physical risk — NAM ex-JP

0.0

0.0

-2.0

-2.0

-4.0

-4.0

-6.0

-6.0
Climate Value-at-Risk (%)

Climate Value-at-Risk (%)

Figure 4. Physical risk — NAM JP

-8.0
-10.0
-12.0

-8.0
-10.0
-12.0

-14.0

-14.0

-16.0

-16.0

-18.0

-18.0
-20.0

-20.0
Average

Aggressive

Average

Aggressive

17

Back to contents

If we take our Asia ex-Japan Equity
UCITS fund as an example in Figure
6, the fund has a lower CVaR fromphysical risk than its benchmark(MSCI Asia ex-Japan Index). This
would mean that the fund faces
lower potential financial impact
from physical risk events than thebenchmark does — in both average
and aggressive scenarios. Even so,with the increasing climate-related
events in the recent years, we
continue to engage with our holdingson their preparedness for physical risk
adaption and as a way for us to raiseawareness of the physical risk facedby their assets.
When assessing physical risk, we arealso able to determine the potential
physical-risk events that might havethe greatest impact on our portfolio
holdings. This is largely driven by
where our portfolio holdings’ assets
are located.
If we take NAM ex-JP as a casestudy, as showcased in Figure 7, thelocation of our portfolio holdings
spans regions such as Asia ex-Japan,
Europe, and the Americas. Under bothaverage and aggressive scenarios,
coastal flooding presents the greatest
CVaR, followed by heat under the
average scenario and precipitation
under the aggressive scenario. We
see that for each physical risk type,if climate change is not kept undercontrol, there will be a potential
significant exacerbation of physicalrisk events under the aggressive
scenario. With increasing and more

severe coastal flooding events, which
we are currently reading about in thenews, the CVaR from coastal flooding
would increase around five-fold, fromslightly more than 2% to 10% over thesame 15-year modelling period.
Interestingly, however, several
companies in our portfolios might
stand to benefit from a warmer
climate. For companies that operate
in regions with snowfall, we see apositive attribution under the average
scenario. But even with a warming
climate towards the aggressive
scenario, we still see CVaR of about
1% for snowfall events as a result of
the connections between different
weather events that can exacerbate
their impacts.

Figure 6. Physical risk — Asia ex-Japan Equity

Climate Value-at-Risk (%)

0.0

-4.0

-8.0

-12.0

-16.0

-20.0
Average
Asia ex Japan Equity

Aggressive

BenchmarkFigure 7. Physical risk (by type) — NAM ex-JP
2.0

Climate Value-at-Risk (%)

0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
Heat

SnowfallAverage

Aggressive

Coastalflooding

Precipitation

Low Riverflow

Tropical
cyclones

Wild
fires

Fluvialflooding

Wind

Cold

18

Back to contents

Technological opportunities
Given the shifts that are occurring
because of our changing climate,opportunities are likely to be createdalongside the risks that have beenhighlighted. These opportunities canoccur through direct actions, such as
investing in more efficient processes,or through indirect actions across
supply chains, such as the shift tocleaner energy sources. A myriad ofclimate-related opportunities canresult from such actions. However, weunderstand that there is complexity
in how these opportunities canbe assessed, particularly with thedata-based limitations on holisticallyencapsulating or assessing them.
Therefore, we rely on our bottom-up
analysis across many of our holdings.
This allows us to assess the context ofthe company’s operations, the regions
and sectors in which it operates, andits overall strategy, which may not be
fully evident in existing data.
To supplement our bottom-up
analysis, we can further measureopportunities by drawing on thirdparty data providers. This not only
enables us to broadly assess theclimate-related opportunities for our
passive holdings but also provides us
with additional insights into our more
active holdings.

MSCI’s methodology on climaterelated opportunities focuseson current green revenue andopportunities arising from newtechnologies. These factors areincorporated with the following
considerations:1) Current portion of green
revenue, which can be comparedwith that of the closest peers
to assess which companies will
benefit most from changes within
their sector
2) Opportunities into the future,
where R&D/green patents playa role in determining who thelikely beneficiaries are overthe next 15 years. Patents areanalysed to determine the likely
future beneficiaries of changing
stances towards climate. Rather
than simply rely on overall patent
numbers, MSCI considers citations
to assess the “value” of patents,
which can then be compared withthose of peers to identify likely
beneficiaries from technology
advancements
Aggregating the two factors produces
a technological opportunities CvaR,
which captures the current and future
benefits in such a way that short-term
benefits are more closely linked torevenue and mid-term benefits arelinked to R&D.

We understand the limitations ofusing broad datapoints to assess
technological opportunities andof confining the consideration ofclimate-related opportunities to justR&D/green patents, as factors suchas operational improvements canhave a material impact. However,
we also understand that this allows
us to gain a high-level, top-down
overview of potential opportunities
that our portfolios are able to capture.
We continue to rely primarily on ourbottom-up analysis and in-depth
considerations of climate-related
opportunities to best define theseopportunities. This provides a more
idiosyncratic assessment, in keepingwith our approach for more active
funds.
For our active funds, we identify
climate-related opportunities ofcompanies individually, as partof our bottom-up ESG-integrated
investment process, with portfolio
managers and analysts providing
the necessary insight. For our
passive holdings, which form alarge proportion of our AUM, we
believe it more necessary to identify
climate-related opportunities in amore structured and systematic way.
For instance, for NAM JP where themajority of our assets are passive,
we find that the technologicalopportunities data reflects thepotential of our Japanese holdings tomaterially offset the transition risks
highlighted earlier.
To illustrate technologicalopportunities, we use our NAM JP
assets as a case study. As shownin Figure 8, the technologicalopportunities are greatest under the
1.5°C Disorderly scenario, at slightly
above 35%. Under this scenario,
the urgency to decarbonise is thegreatest and steepest because of thedelay in taking action. Therefore, theneed for technological advancement
is greatest. Under a more orderly
scenario (i.e., 1.5°C Orderly), NAM
JP’s technological opportunities areslightly above 15%.

19

Back to contents

Figure 8. Technological opportunities — NAM JP
40.0
35.0

CLimate Value-at-Risk (%)

30.0
25.0
20.0
15.0
10.0
5.0
0.0
1.5°
ORDERLY

2°
ORDERLY

1.5°
DISORDERLY

2°DISORDERLY

3°
NDC

Transition risk and technology opportunities represent opposing outcomes from the same factor, namely the impactthat changing policy actions will have on our companies. By aggregating these across the portfolio, we can assess theoverall impact from this changing policy actions. Looking at the aggregated risk faced by NAM JP in Figure 9, we see not
only that transition risk is negated in all scenarios except the 1.5°C Disorderly scenario but also that there is an additional
positive contribution to the holdings’ value.
Figure 9. Aggregated risk — NAM JP
8.0

Climate Value-at-Risk (%)

6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1.5°
ORDERLY

2°
ORDERLY

1.5°
DISORDERLY

2°DISORDERLY

3°
NDC

20

Back to contents

Top-down analysis:
temperature alignment
The magnitude of global temperaturerise is one of the key factors that will
determine the state of the world welive in. Accordingly, governments
and organisations such as theIntergovernmental Panel on Climate
Change (IPCC) have called for global
temperature rise to be limited towell below 2°C above pre-industrial
levels and have pursued efforts tolimit the temperature increase to
1.5°C above pre-industrial levels.
The measurement of temperaturealignment helps translate acompany’s carbon intensity into an
intuitive temperature scale (°C) to
communicate how companies arealigned with the Paris Agreement of
1.5°C. This allows us to understand
not only the exposure of our holdings
to climate-related risk but also how
our holdings are decarbonising (i.e.
risk mitigation).

MSCI’s methodology for warming
potential considers the current andany stated reduction targets thecompany might have. The modelutilises the logarithmic relationshipbetween carbon intensity (Scope 1,
2, and 3) and temperature, taking
into consideration the sector thecompany is in. As well as the warming
effect, the model also takes into
consideration the cooling impact(i.e. emissions reduction) derived
from low-carbon technology and the
expected revenue that the company
will generate from this. From thesefactors, the company’s total warming
potential can be derived basedon both the current intensity andthe expected intensity based oncompany-specific reduction targets.
We understand that the relationshipbetween emissions and temperature
is not straightforward and that theability of companies to reduce theiremissions is highly dependent on
the context of their operations. Some
examples include the regulatory
landscape in which they operate,
the availability of resources, andtheir supply-chain dependencies.
With the methodological limitations
and assumptions that are inherent
in models, we believe that themodel can currently only gauge theextent to which the companies andtheir targets are in line with a 1.5°C
warming scenario.
One of the drivers behind warming
potential is the company’s initiatives
to reduce its carbon intensity, whichtakes into consideration carbonreduction commitments and,
consequently, their alignment with
1.5°C or 2°C pathways. Given this,companies will be categorised into
one of the following groups: Strongly
Misaligned, Misaligned, 2°C Aligned,and 1.5°C Aligned.
The translation of companies’commitments and targets into
temperature alignment allows us togauge the ambitiousness of thesetargets, which can drive further due
diligence and engagements withour companies, in addition to ourbottom-up research.

21

Back to contents

Temperature alignment assesses the impact of our portfolio holdings (“warming potential”) based on their current
emissions profile and committed targets, up until 2100. From this, we can determine the extent of their alignment
towards limiting temperatures to 1.5°C or 2°C.
In analysing the warming potential with consideration of company-level targets, the temperature is about 3.05°C(Figure 10) for NAM JP assets and about 3.60°C for NAM ex-JP assets (Figure 11). Without consideration of companies’commitments, temperatures of both NAM JP and NAM ex-JP assets are at about 3.30°C (Figure 10) and 3.75°C (Figure11), respectively. Although the targets committed are shown to reduce the companies’ impact, there is still room for
more advanced and faster action towards decarbonisation.

Figure 10. Warming potential — NAM JP

3.59°C

3.28°C

3.04°CWith targets

Figure 11. Warming potential — NAM ex-JP

Without targets

As noted, we have limited discretionover our passively held funds, so thewarming potential closely mirrors
those of the indices the funds track.
Regardless, we seek to mitigate ourportfolio holdings’ impact on climatechange through active ownership —via engagement and proxy voting, as
described previously.
For our actively managed funds,
where we have flexibility in managing

With targets

our portfolios, we can be more
selective and tilt towards companies
with credible transition plans andwho are making real-world impact
through decarbonisation.
To further enhance our risk
assessment and inform our analysis,
we assess the temperature-alignment
bands of our portfolio and underlying
holdings. Temperature-alignment
bands are categorised as 1.5°C

3.74°C

Without targets

Aligned, 2°C Aligned, Misaligned,or Strongly Misaligned. Based on
our analysis in Figure 12, we findthat close to 50% of our (Nikko AM
group) investments in scope for thisreport are 1.5°C and 2°C aligned. This
insight will further help to focus ourstewardship activities to those thathave greatest negative impact on
climate change.

Figure 12. Temperature-alignment bands — Nikko AM group
40.0
35.0

% weight of assets

30.0
25.0
20.0
15.0
10.0
5.0
0.0
1.5°C Aligned

2°C Aligned

Misaligned

Strongly Misaligned

22

Back to contents

Bottom-up analysis:
proprietary ESGintegrated approach
In our actively managed strategies,
our investment teams identify
attractive companies through indepth bottom-up research, based on
their own philosophy and approach.
We integrate ESG factors and therisks and opportunities they present
for the company into this process,providing additional considerations
for investment decisions. As a large
proportion of companies held in
our active funds are simultaneously
held in passive funds, many of theconstituents of our passively held
portfolios have also been actively
researched, including on ESG.
We do not adopt a one-size-fits-all
approach to ESG integration. The
main responsibility for implementing
our fiduciary duties falls on ourinvestment teams, and they are givena remit to act in the best interests ofour clients within the global and local
governance frameworks provided
by the group. This means that our
ESG integration and engagement
processes are bespoke to each
investment team, ensuring thateach chooses the methods mostappropriate and effective for them.
Where appropriate to the asset
class, investment strategy, and client
requirements, certain investment
teams may maintain specific ESG
policies and procedures pertaining
to their investment philosophy andprocess.

Although ESG issues are rarely
the only consideration when
making investment decisions, anunderstanding of these issues informs
the investment process and gives ourinvestment teams a more roundedview of companies. So ESG factors
such as climate change, nature, andbiodiversity under the environmental
pillar are considered as part of ourinvestment policies and processes,
and not treated as part of a separate
exercise. We strongly believe that
attention to ESG factors is essential
to good investment discipline —core to any business and inherent
to its long-term value creation while
contributing to the realisation ofwider sustainable economic growth.
Given this view, we endeavour toincorporate ESG considerations acrossall asset classes and geographies.
That said, different asset classes
have different dynamics, with varied
geographies and industry sectors
adding to the complexity. Each of ourinvestment teams is therefore allowed
to view ESG implementation throughits own lens, leading to diverse
approaches across the organisation.
Whatever the approach, we strive
to apply all ESG policies to thehighest standard, continually seeking
improvement and innovation.
Our ESG risk analysis is integrated
into the investment research function
rather than outsourced to a separate
team. Each investment team is
responsible for the assessment ofrisks that may affect the success andlong-term sustainability of holdingsin the portfolio. Our detailed process— including stress-testing investment
candidates, stock selection, andportfolio construction — also helps
to ensure that the whole investment
team is engaged in managing ESG
risks.

The investment teams across thevarious regions are supported by the
Global Sustainable Investment Team,
which is made up of five functions— regional ESG specialists, research& integration, stewardship, data &reporting, and ESG regulations — asoutlined under Nikko AM Groupsustainability governance from page
2 onwards. This team takes the lead inareas such as firmwide ESG policies,
frameworks, initiatives, regulatory
matters, organising ESG resources forinvestment and risk personnel, andenhancing our firm’s understandingof important emerging global ESG
developments. For instance, the ESG
specialists support the investment
teams as part of our aim of having all
investment professionals integrate
ESG into their investment processes
to the fullest extent. They alsobuild relationships with various
ESG-focused organisations andregularly share information with the
ESG Global Steering Committee ondevelopments such as ESG-related
legal changes in countries aroundthe world. The Global ESG Global
Steering Committee reports to theGroup Board. The establishment ofa centralised ESG data team allows
for consistency, accuracy, andimprovements in the coverage of our
ESG data, as well as the expansionof our analytics capabilities. This
strengthening of the team goes
hand in hand with plans to expand
our external ESG data sources — forexample, through the acquisition ofadvanced climate analytics tools.
The table below gives a brief
overview of the approach taken to
ESG integration for our in-scope
portfolios. More details on how Nikko
AM’s investment teams integrate ESG
and conduct stewardship activities
can be found in our annual responseto the UK Stewardship Code andour 2023 Sustainability Report,
covering activities in FY2022.

Back to contents

Asset class ESG integration
Japanese
equity■ ESG is integrated into investment decisions through the use of a selection process based on “creating
shared value” (CSV) evaluations. The concept of CSV evaluations comes from the work of Harvard
University professor Michael Porter, who found that the creation of social value leads to economic value.
■ We have used our own CSV evaluation as part of our investment process since 2013 and introduced CSV
stock price in 2021. The latter indicates fair stock prices based on CSV evaluation, to enhance ESG/CSV
integration in our investment process. The CSV evaluation currently comprises 12 factors grouped into
three categories — ESG, competitiveness, and financial strength.
■ “Carbon neutrality” is one of the factors and is used to evaluate a company’s initiative to address climate
risks and seek opportunities.

Globalequity■ ESG analysis is undertaken by each portfolio manager and fully integrated into the stock-picking
process to ensure we can robustly evaluate the materiality of each factor and its potential impact in
the future.
■ Our four-pillar “Future Quality” analysis includes in-depth evaluations of ESG factors to determine
their effect on the company’s risks and returns.
■ Research includes an analysis of a company’s corporate governance, social practices, theenvironmental sustainability of its products or services, and its capacity to fund its growth and ESG
commitments.

Asia
ex-Japanequityand China
equity■ ESG analysis is incorporated 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 (SASB) and MSCI.
■ As part of our in-house proprietary ESG scoring methodology, individual companies are scored on
ESG pillars alongside fundamental analysis, which is aggregated to provide a company-level score.
ESG-focused research is also used to identify areas for company engagement and improvement.

Japan
fixed
income■ ESG is integrated as part of fundamental credit analysis of corporate issuers■ There are eight key ESG factors: two under the environmental pillar, three under the social pillar, andthree under the governance pillar.
■ In 2023, we began to further incorporate ESG considerations into our analyses of sovereign issuers.

Globalfixed
income■ The majority of fixed-income assets managed by the investment team are in AAA-rated bonds.
Particularly in the case of corporate credit, ESG factors are considered to the extent that they are
deemed material to the investment case and in line with our clients’ risk appetite and perspectives on
ESG investing.
■ We utilise a proprietary ESG platform to aggregate ESG data in order to enhance our ESG evaluationof sovereign, supranational, and agency (SSA) and corporate issuers. This complementary tool allows
us to compute ESG rankings based on the variables we think are the most relevant for each fixedincome field or sector and gives us full control over the data sources we use, allowing for multiple
data feeds.
■ We use a proprietary sustainability-assessment process for all the holdings in our Green Bond fund.
This bottom-up review process is framed around three key elements for a labelled bond issuance: theissuer’s sustainability strategy; the pre-issuance bond framework; and the post-issuance allocationand impact report.

Asia fixedincome■ ESG analysis is incorporated into all company research as part of bottom-up fundamental analysis
and portfolio construction. ESG-focused research is also used to identify areas for issuer engagement
and improvement■ Our ESG Materiality Map is applied to companies to identify ESG issues based on the Sustainability
Accounting Standards Board and MSCI but adapted to reflect conditions in Asia.
■ In 2022, we developed a proprietary ESG sovereign-rating model using public data from sources suchas the World Bank, the United Nations, and the European Commission Emissions Database for Global
Atmospheric Research (EDGAR).
■ We use 21 indicators that broadly cover all three areas of ESG (environmental, social, andgovernance). These include GHG emissions (per capita and proportional to GDP), an index of humandevelopment, and a measure of government effectiveness. Implemented in 2022, the new model has
since been deployed as an ESG element in our sovereign model.

23

24

Back to contents

Bottom-up analysis:external data providers
Data from external service providers
is used as one input in our investment
decision-making process to
supplement our bottom-up analyses
and the stewardship of the assets
we manage. For our ESG analysis, we
use data from a variety of sources,
including MSCI, Bloomberg, ISS,
and Good Bankers. Data from thesesources is further supplemented
by publicly available data sources(e.g. sustainability reports). We
also have regular meetings withexternal ESG analysts to improve ourunderstanding of how they engage
with companies and to enhance thequality of the research we receive.
The quality and depth of reports
and insights are considered, as wellas the effectiveness of the vendor
in providing us with the necessary
insights to fulfil our stewardshipobligations on behalf of our clients.

In 2022, we established an ESG data
team. This team has focused on
improving the availability and qualityof data, as well as access to it. A
primary concern has been to ensurethat our data is accurate, timely, andconsistent across all investments
and regions covered. One important
service provider that we currently use
for the provision of ESG data analysis
is MSCI. As part of an internal project,which is continuing, we have had
several calls, teach-ins, and email
discussions with MSCI to ensure weboth understand and know how to
use the data it supplies. The resultsof these sessions then feed into
discussions between the ESG data
team and the investment teams
to decide how to use the data inpractice.
For instance, as reflected in thesections above, we utilise MSCI’s CVaR
to conduct and report on our scenario
analysis and climate-related datasuch as GHG emissions and intensity

calculations. When we see errors, weliaise with third-party data providers
and try to resolve them in a timely
manner. Additionally, a large portionof our AUM are in Japanese andAsia Ex-Japan equities, and in fixedincome assets where coverage by
third-party providers is still evolving.
We find that there are data gaps anddelays, and at times we disagree withthe analyses or ratings even when
they are available. So we do not rely
exclusively on these services.
Additionally, we conduct all
engagement with companies
ourselves, not only to make better
informed investment decisions
but also to push for enhanced
disclosures on climate-related metrics
and encourage target setting tocollectively improve the quality ofdata in the market.

25

Back to contents

Climate risk andopportunities
We broadly consider climate risks andopportunities over the following time
horizons:
 Short term: three to five years inline with investment horizons
 Medium term: Up to 2030 in linewith interim net-zero targets
 Long term: Up to 2050 in line with
net-zero targets
We are mindful that the considerationof climate-related risks andopportunities takes place overa longer period of time thaninvestment time horizons.

Identifying and understanding thetypes and impact of the risks, andthe time horizon over which theserisks can manifest, are important
to us as investors. This is because
these risks could result in reduced
security valuations of our underlying
holdings, thus potentially impacting
our portfolios and revenue, as wellas entailing reputational risks to thefirm. The following table outlines theclimate-related risks our companies
face, the potential impact on them,and ultimately, the potential impact
of such risks on us as an asset
manager, should we not take preemptive steps to mitigate such risks.

Alongside the risks that arise froma changing climate, the transition
towards a lower-carbon economy
presents climate opportunities
that our companies can tap into.
As asset managers, we encourage
our companies to seek climate
opportunities throughout their value
chain in their products and services.
In the table below, we outline howvarious opportunities impact ourcompanies, which could in turnimpact us as asset managers.
Our mitigation activities are describedthroughout this report and include,
but are not limited to, the following
activities:
 In-depth bottom-up research Active stewardship Top-down scenario analysis
 Portfolio risk monitoring

26

Back to contents

Risk

Description

Potential impact on
our companies

Timeframe

Potential impact on
us as asset managers

Transition Risk
Regulatory& legalRisk from new
and/or advancing
climate-related
regulations andpotential climate
litigation thatmight impact
a company’s
operations and/or
products/services

Industry- andregion-dependent
E.g. carbonintensive sectors(short term), lesscarbon-intensive
sectors (mediumto-long term)

Increased costs from:■ Increase in carbon price■ Compliance cost or fines due
to regulatory breach■ Increased costs fromaccelerated decarbonisation
measures■ Potential climate litigation

Technology

Risk from theneed to invest
in technologicalinnovations tokeep up withtransition towards
a lower-carbon
economyIndustrydependent; onavailability oftechnologies
E.g., automotives(short term),
cement (longterm)

Increased cost from:■ Writing-off less efficient assets■ Capex investments in loweremitting technology■ Lower profitability due toinefficient operations■ Lower demand compared withcompetitors

MarketRisk from shifting
consumer
behaviour, henceswitch of demand

Industrydependent
E.g., automotives(short term), steel(long term)

Decreased revenues from:■ Reduced demand for
products/services■ Inability to capture changing
market demand

Reputation

Risk from public
perception of
a company’s
response to
climate risk or its
contribution toclimate change

Short, medium,and long term

Decreased revenues from:■ Reduced demand due tonegative perception (e.g.
greenwashing)■ Increased cost of debt

■ Lower AUM■ Lower revenue

Physical Risk
Acute

Risk to physicalLong term
operations fromincreased severityof extreme weather
eventsChronic

Risk to physicaloperations fromshifts in climate
patterns that
may impact
productivity and/or consumer
behaviour

Long term

Decreased revenues due to:■ Reduced production
capabilities hence output
due to damaged facilities andsupply-chain and transport
disruptions■ Changing consumer patterns
as a result of changing climate
conditions
Increased cost from:■ Rising insurance premiums or,
ultimately, inability to insure■ Asset write-offs due to asset
damage■ Changing physical landscapeand natural resources
availability (e.g. water scarcity)■ Lower AUM■ Supply-chain
reverberations
that result in
implications
throughout ourinvestments fromoperational losses
and slowdowns
linked to weather
events.

27

Back to contents

Opportunity

Description

Timeframe

Potential impact on
our companies

Potential impact on
us as asset managers

Transition Risk
Resource
efficiency

Opportunity from
more efficientuse of energy andresources

Short term

Energy source

Opportunity fromthe transition
to lower-carbon
sources of energy

Region-dependent Increased revenue frome.g. policy-driven
transitioning towards moresustainable energy sources.
This can lead to improved
financial planning andlower-cost volatility in lightof emerging carbon-tax
regulations.

Products &services

Opportunityfrom the ability
to develop
products andservices to capture
opportunities inthe shift towards
a lower-carbon
economyShort-to-medium
term

Increased revenue fromdeveloping of products
or providing services that
can aid other companies
in transitioning towards alower-carbon economy.

Markets

Opportunity arising Short-to-medium
from ability to adapt term
to and capturechanging consumer
behaviour

Increased revenue from
capturing changing clientdemands.

Resilience

Opportunity arisingfrom the ability to
manage the impactsof climate risk

Increased revenue due tomore efficient resource use
and allocation.

Region-dependent Reduced cost from asset
e.g. country
damage or operational loss
adaptation
as a result of climate risk.
measures■ Increased AUM

28

Back to contents

Active stewardship

Engagement activity

Nikko AM recognises stewardshipas an important part of our
fiduciary duty. Active engagementwith our companies is built into ourinvestment processes and plays an
integral role in fulfilling our duty asa good steward of the capital ourclients have entrusted us with.

As highlighted in the section Bottom-up analysis: Proprietary ESGintegrated approach, ESG is integrated into our investment process, withinvestment teams engaging with our companies on relevant ESG issues
both before and during the period of investment.

Globally, our Engagement and
Stewardship Strategy defines
our approach to corporate
engagement. As a testament toour stewardship activities, webecame a signatory to the UK
Stewardship Code (UKSC) in 2022.
We responded to the UKSC as agroup, so the stewardship activitiesof our investment team worldwide
are represented in our response. We
have recently published our latest
Response to the UK Stewardship
Code 2020, covering the reporting
period 1 January to 31 December
2022. We see stewardship as thecore action that we can take toaddress climate-related risks in ourown portfolios and in the wider
economic system. By tracking andholding companies to account andengaging with material carbon
emitters, we believe that we canbetter mitigate climate-related risks
and benefit from climate-related
opportunities.
Our stewardship activities are
not limited to only our actively
managed holdings. As previously
mentioned, a significant proportionof our AUM, particularly ourJapanese equity AUM, is passively
held. This limits our influence since
we do not have the ability to reduceor divest these holdings. However,
our Japan Sustainable Investment
Department has been actively
working to influence positivechange at target companies oncore ESG themes even where thesecompanies are held only in passive
portfolios. This is an ongoing, multiyear project with a strong focus
on climate change, among otherpertinent ESG topics.

Our regional ESG specialists also perform more thematic engagements(for example, in relation to our responsibilities under NZAMi andCA100+), but the analysts and portfolio managers in our investment
teams are ultimately responsible for engaging with the companies they
cover and assessing the ESG risks and opportunities that inform portfolio
buy and sell decisions.
In 2022, across all regions, 37% of our ESG-related engagements focusedon the environmental pillar, on topics such as climate change.
Our engagement methods vary according to the needs of the situation.
They include the following: one-to-one company dialogues, including on-site visits
 management calls and roadshows written communications
 collaborative engagements
Where we engage with companies to shape corporate behaviour
and influence positive change, we may escalate the discussions. The
escalation methods vary across asset classes and regions. We describe
them in more detail in our Nikko Asset Management Group Engagement
and Stewardship Strategy. Escalation case studies are shared in our latest
response to the UKSC 2020.

Voting activity
Proxy voting is one of the major elements of our stewardship activity in ourequity portfolios, and we take great care to ensure that our voting serves theinterests of both companies and clients. Where we invest through passive
strategies, we strive to incorporate stewardship through the voting ofproxies and the engagement process, where appropriate.
The Nikko AM Group Proxy Voting Policy establishes our company-wide
approach to proxy-voting decisions. This policy establishes the principles
we use for determining the exercise of voting rights at the group level.
Implementation of the group-wide policy is undertaken by our local
businesses, with the freedom to interpret the rules to suit local conditions.
This gives our regional investment teams the ability to tailor their approachto stewardship according to the attributes of the local market. As a result,
there are some variations in how stewardship activities, including voting, areimplemented across the group. For example, our UK entity and Japan Equities
Team have supplemental proxy-voting policies (Proxy Voting Policy UK
Addendum; Standards for Exercising Voting Rights on Japanese Stocks)
that address environmental and social principles, such as climate change.
Over 2022, we analysed 7,274 shareholder meetings and voted on 75,242
resolutions. We cast votes on all shares where there were no legal, client or
technical constraints.
Over the past few years, we have noticed a rise in shareholder resolutions
filed against companies that are climate laggards or are not transitioning.
Recently, during the 2023 AGM season, we supported several climaterelated shareholder resolutions filed against some of the biggest Japanese
corporations, such as Toyota, Mitsubishi Corporation, and Tokyo ElectricPower Company (TEPCO). We will continue to support climate-relatedshareholder resolutions where appropriate.

29

Back to contents

Case study: engagement by asset class (Japan equity)
Our largest AUM lie in our Japanese equity
investments, with a large proportion held in passive
portfolios. Although this limits our ability to eventuallydivest from the company, we continue to use our
influence to drive change through active ownership
activities.
Our Japanese equity investment teams have a deep
understanding of local markets and the intricacies ofJapanese corporate culture, which helps us develop
relationships with the companies in which we invest.
Sources of information extend beyond written forms,
such as financial statements, sell-side research, andlocal news flow, with managers placing an emphasison direct contact with company management,
including site visits. We are one of the largest asset
managers in Japan, where the market generally tends
to be under-researched by non-domestic peers, andour local presence in Tokyo helps to facilitate dialogue
with companies. Over the years, we have been able toestablish strong local relationships, providing us withunique insights, investment opportunities that might
have otherwise been overlooked and the ability toundertake unusually far-reaching stewardship.
Since August 2021, a key focus of the Japan
Sustainable Investment Department (previously
known as the Active Ownership Group or AOG) has
been to work with portfolio managers and analysts
in the Japan Equity Department to engage withlarge and mid-sized firms specifically on ESG issues.
In deciding which firms to engage with, we baseour priorities on several stewardship considerations,
including ESG, corporate earnings, asset efficiency,
and shareholder return. After each engagement,a report is created to track progress and is sharedinternally. Feedback is also provided to active
investment portfolio managers. Since August 2023,
the department has been fully incorporated into the
Global Sustainable Investment Department, which
increased its scope to cover all the asset classes
managed by our Japanese investment teams.

In 2023, the Japan Sustainable Investment
Department revised its Key ESG Themes (from three
in 2021 to six) for engagement with our Japaneseequity investments. Selection of the key themes keeps
in view evolving societal and market developments,
such as changes in the social environment, corporateawareness, and consumer preferences. We believethat these selected themes will contribute to better
investment returns in the medium-to-long term. In
particular, the two key priorities identified as part ofthe environmental pillar are action for a decarbonised
society and biodiversity.
The shift toward a decarbonised society iscreating growth opportunities for companies withenvironmentally friendly technologies. At the sametime, decarbonisation and other such changes put
companies at risk of potential cost rises, and theirbrand power may be damaged if they fail to takesufficient action. This is making decarbonisation
increasingly important as a driving force for future
corporate value. We use our engagement to urge firms
to address these changes: for example, by allocating
business resources to related fields and preparing
for the associated risks. Our analyses of companies’
actions in this area are pivotal to our assessments of
their corporate value.

Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, norconstitute a recommendation to buy or sell.

30

Back to contents

Market collaboration

Collaborative engagements

Climate change is not an
isolated issue but a systemic riskthat affects every region andevery sector — be it directly or
indirectly. Collective action isneeded, not just from corporations
and governments, but also fromthe financial sector (throughboth private and public financing
vehicles) to direct funding towards
sustainable solutions. Accordingly,
we participate in and support
various initiatives that aim to drive
real-world impact to mitigate
climate risks and seek climate
opportunities.

In some instances where one-on-one company engagements deliver
insufficient progress, we believe that collaborative engagements with likeminded investors can increase shareholders’ influence on companies’ corporate
behaviour and ESG performance.7

Additionally, as part of ourcommitment to meetinginternational standards, we arecontinually improving many of
our existing frameworks, policies,and disclosures. For example, andas outlined below, in 2022 wedeveloped and disclosed our 2030
net-zero target under the Net Zero
Asset Managers Initiative. Market
collaboration is described in moredetail in our latest response to the
UK Stewardship Code.

7

Our regional investment offices select the most suitable and effective
engagement methods for their portfolios. Although we are seeing increasing
investor collaboration efforts across regions, this engagement method is still
relatively uncharted in some parts of the world. In some parts of Asia, forexample, one-on-one engagements can be viewed as more constructive andculturally appropriate to build on trust. In Japan specifically, we participate
in collaborative engagement while taking into consideration the possibilities
associated with joint shareholdings.
Mindful of these important regional nuances and our commitment toconstructive, positive, and pragmatic engagements, we carefully select ourengagement methods while remaining committed to supporting collaborative
engagements.
In 2022, we participated in multiple climate-related collaborative initiatives
organised by Climate Action 100+ (CA100+) and the Asia Investor Group
for Climate Change (AIGCC), outlined in our case studies below. These
initiatives enable not only collaborative engagement with corporates but alsocollaborative discussion among like-minded peers through working groups.
Over 2023, we ramped up our engagement efforts under CA100+, taking on aco-leading role in an engagement with Mitsubishi Heavy Industries, one of theworld’s biggest manufacturers of gas turbines.
In 2022, we supported a letter put together by the Investor Agenda,
communicating to governments, our investor expectations on climate change.
In 2023, we engaged policymakers and governments in other ways, throughparticipating in regulatory consultation papers on their climate initiatives,
directly with ministries, or through state-owned enterprises where possible.

Coordinated Engagements: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209072

31

Back to contents

Case study: engagement with UltraTech (CA100+)
CA100+ is an investor-led initiative that seeks tocollaboratively engage with the world’s largest GHG
emitters to reduce their emissions. In 2022, our Asia
ex-Japan Equity Team participated in the collaborative
engagement with UltraTech, India’s biggest cementcompany.
UltraTech operates in a hard-to-abate sector in acountry whose electricity supplies are dominated bycoal-fired power. As a result, its carbon intensity is oneof the highest, both in Asia and among its peers. Overthe years, there has been little material improvementin the company’s carbon intensity, and it had yet
to announce a strategy to move towards a lowercarbon future. In 2021, the company’s high emissions
had caused us to sell the shares held in our Asia
Ex-Japan Equity regional portfolios, where emissionintensity benchmarks are relatively tight. However,
we continued to hold the shares in our Indian equity
portfolios, where benchmark emission intensities
are relatively high and where UltraTech is part of theindex. Having already engaged the company directly
ourselves with little noticeable effect, we believed
the company represented an important target for acollaborative effort by CA100+.
In our previous direct engagements with UltraTech,
our focus had been on getting the company toimprove its current carbon emissions. The focus of
our collaborative engagement was more on strategy
and, specifically, that set by the Disclosure Framework
Indicators established by CA100+. As a result, ourpriority targets for UltraTech in 2022 and 2023 were as
follows:
 to reduce GHG emissions in the years to 2025 on aclearly defined path (Indicator 4)

 to make a commitment to aligning its capitalexpenditure plans with its long-term GHGreduction target or to phase out planned
expenditure in unabated carbon-intensive assets
or products (Indicator 6)
 to introduce an executive remuneration schemethat includes climate-change performanceelements (Indicator 8.2)
 to acknowledge that it has responsibility forhelping achieve a just transition to a net-zero
economy (Indicator 9)
 to make a commitment to implementing therecommendations of the TCFD (Indicator 10)
We were encouraged by the latest CA100+ investor
group meeting, noting that UltraTech had been
receptive to what participants had to say and hadsince incorporated some recommendations in its latest
sustainability report. These included the following: adopting TCFD disclosures and conducting
physical- and transition-risk analyses having its carbon targets verified by the UNbacked Science Based Targets initiative, with theaim of reducing GHG 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
and collaboratively as part of CA100+, and will
monitor the company’s progress in delivering its
transition strategy in accordance with its interim andlong-term targets.

 to lay out a decarbonisation strategy that explains
how UltraTech intends to meet its medium- andlong-term GHG-reduction targets (Indicator 5)

Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, norconstitute a recommendation to buy or sell.

32

Back to contents

Case study: engagement with Perusahaan Listrik Negara(PLN) (AIGCC)
The AIGCC is an initiative to create awareness andencourage action among Asia’s asset owners andasset managers about the risks and opportunities
associated with climate change. In 2022, weparticipated in one of their working groups, theAsian Utilities Engagement Programme (AUEP),
which seeks to collaboratively engage with Asia’s
systematically important electric utilities to increase
the effectiveness of climate engagement with acommon agenda.
In 2022, our Asia Fixed Income Team participated in
the collaborative engagement with Perusahaan Listrik
Negara (PLN), Indonesia’s only vertically integrated
electricity utility, whose bonds we own in our Asia
Fixed Income portfolios. The state-owned company is
the country’s dominant provider of power generation,transmission, and distribution, accounting for morethan 70% of electric-power production. The company
is also the sole buyer for Indonesia’s independent
power producers.
With a total installed capacity of around 45.9GW,
close to 90% of PLN’s production is powered bythermal sources, exposing the company to high riskin the transition to zero carbon. Not surprisingly, thecompany scores poorly among APAC utilities for bothabsolute and relative carbon emissions. In addition,
PLN’s governance continues to lag global peers. The
Indonesian government appoints half the directors of
the board, severely limiting its independence.
In the light of these environmental and governanceissues, the AUEP is aiming to engage with theboard and senior management to secure several
commitments:
1. To strengthen the governance framework toensure the board’s accountability and oversight forclimate-change risks and opportunities. Specifically,
to clarify the role and responsibility of the
Sustainability Committee in the implementation of
PLN’s decarbonisation strategies
2. To draft action plans to reduce GHG emissions
in line with the Paris Agreement of the UN’s
2015 Climate Change Conference. This covers
decarbonisation strategies, requiring a timetable tophase out coal-based emissions in less-developed
economies by 2040 at the latest, with similarcommitments for natural gas

3. To provide enhanced corporate disclosure in linewith the final recommendations of the TCFD
4. To outline the physical risks the company faces
from climate change and the strategies it isadopting to mitigate these risks
5. To engage with policymakers 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
In September 2022, we participated in our firstcollaborative engagement call with other membersof the AIGCC who were engaging PLN as part of the
AUEP. The call was held with PLN’s climate-change
team. The team presented five possible routes thatthe company’s decarbonisation pathways might
follow. Based on the accelerated scenario, it outlined
in more detail the company’s roadmap to net zero by
2060, which would see its emissions peak in 2030, inline with Indonesia’s national target. As part of theseplans, the company has committed itself to building
no new coal-, oil- or unabated gas-based power plants
after 2030, making hydropower the dominant energy
source in its renewables mix.
From PLN’s perspective, four key issues need to be
unlocked for the company to accelerate its net-zeroemissions target. These are as follows: ensuring supportive electricity pricing
 maintaining favourable finance channels
 deploying new technologies, such as carbon
capture, utilisation and storage, and hydrogen
power, in large scale in Indonesia
 increasing support from public policy, such as
incentives for the adoption of electric vehicles
Over 2023, we continued to collaboratively engage with
PLN through the AIGCC and will continue to actively
monitor its compliance with decarbonisation strategies
over the short, medium, and long term, with a particularfocus on the timetable to phase out coal-based
emissions in line with 1.5°C temperature scenarios.
Reference to individual stocks is for illustration purpose only anddoes not guarantee their continued inclusion in any portfolio, norconstitute a recommendation to buy or sell.

33

Back to contents

External commitments
In line with our firmwide stance todrive real-world impact and enabledecarbonisation, we have madeseveral commitments, one being toalign our assets with net zero by 2050.
In 2021, therefore, we joined NZAMi,
and in 2022 we submitted our initial
disclosures and interim 2030 target.
We committed to a 50% reduction
in carbon footprint for 43% of our
total assets — as compared with our2019 baseline. More details on themethodology behind our NZAMi
commitment and the progress madetowards it are outlined in Metrics andTargets (page 39).
Additionally, in becoming a signatory
to NZAMi, we have committed
to creating investment productsaligned with net-zero emissions by
2050 and to facilitating increased
investment in climate solutions.
In December 2022, our Japan
Investment Technology Department
launched a Japanese Equity Climate
Change Solution Strategy. As detailed
in our 2023 Sustainability Reportunder Japan Investment Technology
Team (pages 18–20), the portfolio
aims to achieve a 50% reduction
in GHG emissions versus the TOPIX
while minimising tracking error
against the index. Details on theconceptualisation of the strategy canbe found in our whitepaper Climatechange solutions in Japan, recently
published by Masayuki Teraguchi,
Head of Japan Investment Technology
Department.

Additionally, there has been asignificant number of regulatory
developments in the European Union
in relation to ESG issues, notably
the Sustainable Finance Disclosure
Regulation (SFDR) categories. Thishas coincided with rising investor
demand for products that integratematerial ESG factors from both
valuation and wider environmental/social-impact perspectives.
To address both these points, we put
a global framework in place in 2022
to allow products to be elevated toa higher SFDR categorisation. This
framework consists of minimum ESG
criteria that must be integrated into
the investment process for a productto achieve a certain SFDR status.
These criteria include, for example,
negative screens or exclusions,
positive screens (screening forcompanies that have enhanced ESG
characteristics) and portfolio-leveltargets, such as lower GHG emissions.
To ensure that the minimum criteria
have been met, all candidates for achange in SFDR categorisation haveto pass through an internal process.
This includes their initial adaptationby the investment team and ESG
specialists to include the requisite
ESG characteristics, followed byinternal approvals.

In addition to collaborative
engagements on climate change, we
continue to support and participate
in industry initiatives that will further
the sustainability agenda. The
following is a list of initiatives that
we support, participate in, or are
signatories to: TCFD Net Zero Asset Managers initiative(NZAMi)
 GFANZ (Glasgow Financial Alliancefor Net Zero) Japan Chapter
 Climate Action 100+ (CA100+)
 Asia Investor Group on Climate
Change (AIGCC)
 The Investor Agenda■ Global Investor Statement toGovernments on the Climate
Crisis
 CDP
 The UK Stewardship Code (UKSC)
 Japan Stewardship Code
 United Nations Principles for
Responsible Investment (UN PRI)
 International Corporate
Governance Network (ICGN)
 30% Club Investor Work Group(Japan) Women’s Empowerment Principles
In 2023, we look to further collaborate
with and support ongoing industry
initiatives, and to participate ininitiatives that engage on the otherfacets under the environmental pillar.
Accordingly, we have signed up to
Nature Action 100, a global investorengagement initiative on nature andbiodiversity loss, as well as VBDO, an
investor initiative on plastic pollution.

34

Back to contents

03

Risk
Management

Back to contents

Risk Management
Overview
The Nikko AM Group Board has ultimate responsibility for the management, direction, and performance of the group.
The Nikko AM Group Board delegates responsibility for day-to-day decision-making to our Global Executive Committee(GEC). Further delegation then occurs to relevant departments across the business.
The Group Risk Management Department oversees the risk management of the group apart from compliance risk
(which is overseen by our Legal & Compliance Department). The Risk Management Department reports on risk to the
GEC via the Risk Oversight Committee and, periodically, to the Group Board.
Each of our group entities manages risk in line with our Group Risk Management Policy. As part of this, each entity
has its own risk department and committees, which report into the central Risk Oversight Committee. Through thisgovernance, we enable regional flexibility while retaining central oversight and reporting.
Within each region, quarterly risk reports are typically prepared by the executive owner of each risk. These quarterly
assessments detail an overall summary position of the risk, highlighting key issues, key events and potential future
exposures. These are presented to the relevant regional risk committee and then up through our group structure.

Risk identification, assessment,
and management
Risk appetite
For the group, the willingness to take on risk isdetermined at a local level by the respective boards,
with oversight from the GEC in Tokyo.
Risk appetite defines the nature and level of risks
considered acceptable to the group as part of our
day-to-day operations. It forms the basis against whichrisks are monitored and reported.
Our risk appetite is developed and agreed by theboard. It is inextricably linked with global and local
strategy, business plans, and shareholder and client
expectations; it is a fundamental component of therisk-management framework.
Climate-related risk is viewed as a “risk driver” — apotential internal or external event that creates or
influences existing risks. For example, heightened
physical or transition risk in our portfolios leads togreater investment risk — the risk that our portfolios
underperform against objectives, targets, or
benchmarks.

35

36

Back to contents“Three lines of defence” model
Nikko AM operates a “three lines of defence” model to assign risk-management responsibilities. This model is based on
the principle that, to be effective, risk-management capability must be embedded in front-line teams with independent
oversight and assurance.
 First line of defence
The first line of defence is thedepartments themselves (andtheir relevant heads/leads). These
functions are directly involved ineach business and operation of
the group and so are responsible
for risk identification (including
climate-related risks), assessment
and control (in line with thegroup-defined risk appetite). An
annual risk and controls selfassessment process is conductedto ensure that functional risks andcontrols are periodically reviewed
and updated.

First lineof defence

 Second line of defence
Oversight departments such as
risk, compliance, and legal form
the second line of defence. These
departments are independent
from the first line and conductongoing monitoring to ensure
the effective application of ourrisk-management framework.
Monitoring of climate-related risk
within our investments is a good
example of this in action. Ourinvestment teams use relevant
tools and analysis to makeinvestment decisions. This includes
climate-related risks, opportunities,
and supporting metrics. Our
second-line investment-riskteam performs independent
monitoring of our portfolios.
Where appropriate, it will
challenge our investment teams
on levels of climate-related risk,
with any conclusions and actions
documented. We are continuing
to refine and support this processwith additional data capabilities.

Second lineof defence Third line of defence
The Internal Audit Department
undertakes internal audits of
Nikko AM group companies
and evaluates the design,
implementation, and effectivenessof internal controls over processes
within the group, including
governance, risk management,
and compliance with laws andregulations. Audit engagements
are performed based on anannual audit plan approved by
the Group Board, and audit results
and status of follow-up on theimplementation of corrective
action plans are reported directly
to the Group Board.

Third lineof defence

Business Units

Risk Management& ComplianceInternal Audit

Operation andmonitoring

Verification

Oversight andindependent assurance

Identify and manage risks that occur
in their business function that could
threaten the achievement of thebusiness unit objectives.
Responsible for complying with the
Risk Management Methodology
including the completion of risk
assessments.

Provides independent oversight of
the first line of defence.
Assess and oversee risk at thefirm level employing a risk-based
approach focusing on the key risks.
Responsible for the developmentof the risk management policies,
systems and frameworks.

Provide independent challenge
and objective assurance regarding
the design and effectiveness of theinternal controls framework.
Responsible for providing assurance
to Nikko AM Senior Management
and Audit Committee on all aspectsof Risk Management and control
arrangements.

37

Back to contents

Risk lifecycle
 The process of identifying, assessing, and managing risk is broadly applicable to both the investments we manageand our own operations
 In the identification of risk, each business unit adopts an approach to ensure that all known risks are clearly identified
and the estimated exposure to this risk is reported and escalated through the company. Risks can be identified anddescribed in terms of their potential impacts and the likelihood of those impacts
 From a climate-related-risk perspective, we primarily monitor their impacts on our investments
Our approach to the management of climate-related risk is described in the sections below:

Climate change as a driver of group risk
A risk driver is a potential event in our internal or external environmentthat causes risk. We believe that the impact of these risk drivers must be
considered in the management of each of our risk categories. As mentioned
earlier in this report, Nikko AM recognises the importance of climate change
and the physical and policy-related impacts, or risks, that it creates. As anorganisation, we view climate-related risks predominantly as cross-cutting
drivers of existing risks. Over the past 12 months, we have undertaken a
project to ensure that these risks are further explicitly integrated into our riskmanagement framework.
As we are an asset manager, climate risks from our investments are the mostmaterial to our business, so they form our key focus. However, work hascommenced in some of our regional subsidiaries to integrate climate-relatedrisks across our full taxonomy of risks, including operational risks. The tablebelow highlights the group’s key risks for which climate-change drivers havebeen identified on either a global or regional basis.

Risk type

Description

Comments

Investment

Risk that Nikko AM portfolios
underperform against benchmarks,
objectives, or competition

We view the potential impact of climate change on ourinvestments as one of the drivers of group risk.
Exposure of our companies to heightened physical andtransition risks exposes our portfolios to potential loss.
This may have negative impacts on our ability to maintainor grow AUM.

Compliance

Risk that the group may fail to meet
its regulatory obligations. This
includes the failure to meet new
requirements as they are established

Climate change has driven various national commitments
and regulatory frameworks worldwide.
Policy risk impacts the group through an increasing
number of climate- or ESG-related regulatory
requirements with which we must comply.
Failure to meet these requirements may result in
regulatory sanctions/fines and/or litigation

Operational

Risk of loss or other business impacts
resulting from inadequate or failed
internal processes, people, systems,
or external events

Climate change can lead to some potential negative
impacts on our business operations.
Within our European entity, as described later in thisreport, climate and other ESG risks are being integrated
across the risk-management framework.
These risks can lead to business costs resulting fromsupplier disruption, systems failure, and other related
operational events.

38

Back to contents

Managing climaterelated risks within ourinvestments
Climate-related risk is being
embedded into existing processes
and procedures across the group.
This includes surfacing relevant
information through governancestructures across our investment, risk,sustainable investment, and corporate
sustainability functions.
As highlighted earlier in this report,
our investment teams identify
attractive companies through indepth bottom-up research based on

1

their own philosophy and approach.
This already includes understanding
how ESG risks (and opportunities)
may impact value. The section
Bottom-up analysis: Proprietary ESGintegrated approach highlights how
our investment teams integrate ESG
factors, including climate, into theirdecision-making process.

for additional monitoring of further
climate-related risks. Many of Nikko
AM’s regional offices already haveframeworks in place to monitor GHG
emissions, but work is underway
to further advance these processes
across regions and asset classes. We
will report on the progress in next
year’s TCFD report.

Additionally, to monitor risks on an
ongoing basis, we conduct frequent
investment-risk monitoring on
portfolios and benchmarks. We
incorporate two levels of assessment:a global baseline, which focuseson GHG emissions; and a regional“top-up” approach, which allows

To conduct our analysis, we utilise
data from a third-party vendor, as
outlined earlier in this report.

As a first stage, all funds will bemonitored by our Risk Department. Our
process will use existing frameworks andprocess to ensure a high-level overview
of risk across all portfolios. All data will be
provided by our primary data provider,but calculations will run “in house” toallow customisation for our needs.

To ensure accuracy of our metrics, wewill utilise a two-stage process:2

As a second, independent stage,
our Global Sustainable Investment
data team will work with frontoffice departments to develop
independent analysis. While thedata will be provided by the samedata provider, all calculations will
be run independently, with further
customisation to meet
end-user needs.

Through this two-stage process, we are seeking to ensure accuracy and ensure that the analysis is usable for all parties.
The independent processes help us to achieve two lines of defence and ensure a robust data-quality process withappropriate checks and accountability.

39

Back to contents

04

Metrics andTargets

40

Back to contents

Metrics and Targets
Overview

Scope of the metrics and targets

In working towards our goal ofaligning our portfolios to net zeroby 2050, we use a range of metrics
to track and monitor our progress
but also to mitigate climate-relatedrisks and capture opportunities.
As a signatory to the NZAMi,
we completed our initial target
disclosures8 in 2022, committing to
43% of our assets (or USD 115.68
billion) to be managed in line with net
zero. Our interim 2030 target is a 50%
reduction of our portfolios, relative
to our 2019 baseline (84.7tCO2e/USD
million invested).

The metrics below capture our carbon emissions for CY2021 and CY2022 (years
ending 31 December 2021 and 31 December 2022, respectively) for the listed
equity and fixed-income corporate holdings in our in-scope portfolios.

Our TCFD report focuses on theinvestments we manage. Disclosureson our corporate operations
can be found in our Nikko AM
Environmental Report 2022, where
we outline our Nikko AM Group
Environmental Policy and how weare managing our operational carbon
emissions.

8

MetricDefinition

Absolute carbon emissions(tCO2e)Total GHG emissions of a portfolio.

Carbon footprint(tCO2e/USD million invested)

Total GHG emissions of a portfolio,
normalised by the enterprise value
including cash (EVIC) of the portfolio.

Weighted average carbon
intensity (WACI)(tCO2e/USD million revenue)

Portfolio’s exposure to carbon-intensive
companies.

Nikko AM NZAMi Disclosures: https://www.netzeroassetmanagers.org/signatories/nikko-asset-management-co-ltd/

41

Back to contents

Methodology
In our previous TCFD reports, we only
reported on representative flagshipfunds. As we look to continuously
improve on our disclosures, we have
expanded the scope of our reporting
to include more portfolios. We have

Metricaligned with the Partnership for
Carbon Accounting Financials (PCAF)9to calculate our absolute carbon
emissions and carbon footprint(equivalent to economic emissions
intensity under PCAF) and TCFD for
weighted average carbon intensity

Equation(WACI).10 While PCAF uses “enterprisevalue including cash” (EVIC) as thedenominator, TCFD uses a revenuebased denominator. We internallymonitor and report on all three
metrics to obtain a more holistic viewfor decision-making.

Uses

Limitations

Track changes in
GHG emissions ofa portfolio on an
absolute basis.

Data is notnormalised, so
suboptimal tocompare portfolios
or against
benchmark.

Carbonfootprint

To compare
portfolios
regardless of their
AUM.

Sensitive tochanges in issuer’s
EVIC and portfolio
weights.

WACI

To compare
portfolio andbenchmark.

Revenue baseresults in a bias
towards companies
with higher pricing
levels.
Sensitive tochanges in issuer’s
revenue andportfolio weights.

Absolute
carbonemissions
Emissions are allocated based on equity-ownershipapproach where the company’s emissions apportioned tothe portfolio is based on ownership share of the company
based on EVIC.

Emissions are allocated based on portfolio weights (current
value of investment relative to current portfolio value)rather than equity-ownership approach.

Calculations were computed in August 2023, when we used the most recent data available for GHG emissions (i.e.,
Scope 1 and 2) and financial data (i.e., EVIC and revenue). This is in line with the latest Global GHG Accounting andReporting Standard for the Financial Industry suggested by PCAF. There might be future restatements of numbers
disclosed in the past driven by more recent disclosures and changes in methodology, data provider, or data quality.

Partnership for Carbon Accounting Financials (PCAF) Methodology (page 63): https://carbonaccountingfinancials.com/files/downloads/PCAFGlobal-GHG-Standard.pdf
10
Taskforce for Climate-related Financial Disclosures (page 1): https://www.tcfdhub.org/wp-content/uploads/2022/04/Table-3.pdf
942

Back to contents

Reported metrics
The following metrics are reported as of 31 December 2022, for our in-scope portfolios.11 In the table, we have included
aggregated carbon metrics as of 31 December 2021 for an illustration of how we have progressed over the years.
Asset class

AUM12(USD billion)

Absolute
emissions(million tCO2e)

Carbon footprint WACI(tCO2e/USD(tCO2e/USD
million invested) million revenue)

Coverage(% AUM)13

Equity

100.3

6.1

61.1

84.1

99.9%

Fixed income

1.3

0.3

243.7

369.7

89.7%

Equity

10.8

0.6

53.4

148.8

99.6%

Fixed income

6.5

0.2

63.1

135.6

43.1%14

Total (as of 31 Dec 2022)15

118.9

7.2

62.4

94.4

Total (as of 31 Dec 2021)

146.0

7.8

54.9

92.4

NAM JPNAM ex-JP

16

In 2022, absolute emissions have reduced to 7.2 MtCO2e, from 7.8 MtCO2e in 2021. However, both our carbon footprint
and WACI have increased slightly. Movements in carbon metrics are not always attributable to a single factor such ascompany emissions. They have to do with a wide array of factors, including portfolio positioning, changes in revenue,
EVIC (which can also change due to market movements), foreign exchange movements such as weakening yen against
the USD, and data coverage. Therefore, it is important to evaluate various data metrics to get a full picture of the
progress made in the reduction of GHG emissions over the years.
As expected, coverage for equities is substantially higher than for fixed income (for both NAM JP and NAM ex-JP) andmore apparent for NAM ex-JP. Our NAM ex-JP assets are largely invested in Asia ex-Japan where data disclosures forthe region is still relatively low. We have seen progress made in terms of ESG data disclosures over the years, with ESGrelated regulations mandating disclosure of key ESG metrics, such as GHG emissions. As investors, we will continue toengage our holdings to enhance disclosures of key ESG metrics, including GHG emissions.

The in-scope portfolios are the same as those defined under the Strategy section; however, there might be differences depending on data availability.
AUM that is in scope and has data availability.
13
Based on carbon data availability. The output is represented as a percentage of AUM that is in scope.
14
Lower coverage is caused by a wide range of issues, including third-party classification methods, which is something we continue to review.
15
Carbon metrics for 31 December 2022 were run in June 2023. We are using MSCI data points that were produced for 2021.
16
Carbon metrics for 31 December 2021 were run in June 2023. We are using MSCI data points that were produced for 2020.
11
12

43

Back to contents

Targets

Approach

Our net-zero target follows themethodology set out in the Net Zero
Investment Framework (NZIF), whichdraws on the IPCC scenarios.15 We
have committed 43% of our assets (orUSD 115.68 billion16) to be managed inline with net zero. As a start, our initial
target covers our equity strategies, forthe following reasons:

For our NZAMi commitment we takeon an active ownership approach.
Our Japan Sustainable Investment
Department (part of the Global
Sustainable Investment Team) has
narrowed down, from over 2,000
companies, a climate-focused
engagement list consisting of 70
companies. Of these companies, 60 of
those chosen account for 72% of theoverall GHG emissions (Scope 1+2)
across Japan equity,18 which makes up
the largest portion of our AUM. The
remaining 10 were chosen because
they are important companies withregard to their Scope 3 footprint.
As part of the engagement plan,
the team evaluates the companies’
corporate initiatives against NZAMi’s
recommended framework.

 They form the largest portion of
our AUM Equity analysis methodologies are
more established than those forother asset classes
 Data coverage tends to be betterfor equities
We note that there have beensignificant improvements made inboth the methodologies and data
coverage of assets, especially fixedincome assets. As part of NZAMi, weare committed to renew our targets
every five years, with the view to be
more ambitious with each iteration;
we look to incrementally add further
AUM and asset classes to be managed
in line with net zero.
Our interim 2030 target is to reducethe carbon footprint of our committed
assets by 50%, as compared with ourbaseline year of 2019.17 Currently,
our commitment covers Scope 1
and 2 emissions. To the extent that it
is possible, we will include material
Scope 3 emissions when data
becomes more readily available.

We have also been incorporatingclimate-related considerations
beyond Japan. From a top-down
angle, several strategies havecommitted to portfolio-level GHG
emissions-reduction targets. For
instance, our Global Equity strategy
has a commitment to maintain its
portfolio’s GHG emissions at 20%
below those of its benchmark.

From a bottom-up perspective,
climate risks and opportunities are
considered as part of the various
investment teams’ ESG-integrated
process, as detailed in Bottom-up
analysis: Proprietary ESG-integrated
approach (page 22). As we detailed
in the sections above, climate-relatedrisks and opportunities are not thesame for all companies but dependon the industry and geography, acrossdifferent time horizons, with varying
severity and type of impact. These
nuances are taken into considerationas part of the materiality assessments
conducted for individual companies
in the investment teams’ bottomup analyses. So the investment
teams identify climate-relatedrisks where these are material tothe company assessed. We believethat stewardship is key to enable
collective decarbonisation and as atool to further assess and manage
climate-related risks and seek out
opportunities. So, to complement
our bottom-up approach, we takean active ownership approach. This
allows us to engage companies on
their climate-related risks, understandhow they are managing their risks andpush them to decarbonise. We engage
our companies — both directly andcollaboratively — to better understandtheir transition plans and to pushthem to set more ambitious targets to
reduce their emissions.

Net Zero Investment Framework (NZIF): https://www.iigcc.org/resource/net-zero-investment-framework-implementation-guide/
AUM figures as of 31 December 2021
17
As of 31 December 201918
As of 31 December 2019
15
16

44

Back to contents

Progress towards NZAMi
Since our initial target disclosures in October 2022, we have made progress towards our NZAMi commitment. Figure 13
shows that the carbon footprint of our committed portfolios was 65.4 tCO2e/USD million invested as of 31 December
2022. This represents a ~22.8% reduction from our 2019 baseline carbon footprint of 84.7 tCO2e/USD million invested.
Figure 13. Progress towards our NZAMi commitment
90.0

Carbon Footprint (tCO2e/US'm invested)

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.00
2019

2020

2021

2022

2023
Actual reduction

2024

2025

2026

2027

2028

2029

2030

Target reduction

We will continue to enhance our TCFD report and climate analytics with further details and analysis, to be disclosed innext year’s TCFD report.

Back to contents

Important information This disclosure was developed using information from MSCI ESG Research LLC or its affiliates or information
providers. Although Nikko Asset Management Co., Ltd.’s information providers, including without limitation, MSCI ESG Research
LLC and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the ESG
Parties warrants or guarantees the originality, accuracy, and/or completeness, of any data herein and expressly disclaim all express or
implied warranties, including those of merchantability and fitness for a particular purpose. The information may only be used for yourinternal use, may not be reproduced or disseminated in any form and may not be used as a basis for, or a component of, any financial
instruments or products or indices. Further, none of the Information can in and of itself be used to determine which securities to buy
or sell or when to buy or sell them. None of the ESG Parties shall have any liability for any errors or omissions in connection with any
data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if
notified of the possibility of such damages.
This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under suchcircumstances as may be permitted by applicable laws. This document does not constitute personal investment advice or a personal
recommendation and it does not consider in any way the objectives, financial situation or needs of any recipients. All recipients arerecommended 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
investments or participate in any trading strategy. Moreover, the information in this document will not affect Nikko AM’s investment
strategy in any way.
The information, opinions and data 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 no guarantee, representation or warranty, express or implied, andaccepts no responsibility or liability for the accuracy or completeness of this document.
No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document.
There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied byforward-looking statements and forecasts. Nothing in this report should be construed as a forecast, estimate or projection of futurefinancial performance. 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 guarantee of 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 lossof any principal investment. The mention of individual securities, sectors, regions or countries within this document does not imply arecommendation to buy or sell.
The risk arising from any environmental, social or governance events or conditions that, were they to occur, could cause material
negative impact on the value of the investment. Specific sustainability risk can vary for each product and asset class, and include but
are not limited to: Transition Risk, Physical Risk, Social Risk and Governance Risk.
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 under applicable regulatory rules or requirements.
All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended
by Nikko AM is strictly prohibited.
All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended
by Nikko AM is strictly prohibited.
Japan: The information contained in this document pertaining specifically to the investment products is not directed at persons inJapan 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 Asset Management 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 the rules of the FCA in the United Kingdom, and isdirected 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 andregulated in the Grand Duchy of Luxembourg by the Commission de Surveillance du Secteur Financier (the CSSF) as a managementcompany authorised under Chapter 15 of the Law of 17 December 2010 (No S00000717) and as an alternative investment fundmanager 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 United States 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.
Singapore: This document is for information to institutional investors as defined in the Securities and Futures Act (Chapter 289),
and intermediaries only. Nikko Asset Management Asia Limited (Co. Reg. No. 198202562H) is regulated by the Monetary Authority ofSingapore.
Hong Kong: This document is for information to professional investors as defined in the Securities and Futures Ordinance, andintermediaries only. The contents of this document have not been reviewed by the Securities and Futures Commission or any
regulatory authority in Hong Kong. Nikko Asset Management Hong Kong Limited is a licensed corporation in Hong Kong.

45

Back to contents

New Zealand: This document is issued in New Zealand by Nikko Asset Management New Zealand Limited (Company No. 606057,
FSP22562). It is for the use of wholesale clients, researchers, licensed financial advisers and their authorised representatives only
Republic of Korea: This document is being provided for general information purposes only, and shall not, and under no circumstancesis, 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 to acquire any financial investment product or service. The offering and sale of any 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.
Kingdom of Bahrain: The document has not been approved by the Central Bank of Bahrain which takes no responsibility for its
contents. No offer to the public to purchase the Strategy will be made in the Kingdom of Bahrain and this document is intended to beread 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 the Strategy 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 (as amended). No private or public offering of the Strategy is being made in Kuwait, and no 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 theStrategy in Kuwait.
Kingdom of Saudi Arabia: This document is communicated by Nikko Asset Management 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 any other party or published in full or in part for any purpose whatsoever without a prior written permission from Nikko AME.
This document does not constitute investment advice or a personal recommendation and 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 with this document,
Nikko AME is not treating that person as a client for the purposes of the FCA Rules other than those relating to financial promotion andthat person will not therefore benefit from any protections that would be available to such clients.
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 finance services to issuers
or may provide or have provided significant advice or investment services in any investments referred to in this document or in related
investments. Relevant confidential information, if any, known within any company in the Nikko AM group or Sumitomo Mitsui TrustHoldings group 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 be suitable for all
types of investors.
Oman: The information contained in this document nether constitutes a public offer of securities in the Sultanate of Oman as
contemplated by the Commercial companies law of Oman (Royal decree 4/74) or the Capital Markets Law of Oman (Royal Decree80/98,
nor does it constitute an offer to sell, or the solicitation of any offer to buy non-Omani securities in the Sultanate of Oman as
contemplated by Article 139 of the Executive Regulations to the Capital Market law (issued by Decision No. 1/2009). This document is
not intended to lead to the conclusion of any contract of whatsoever nature within the territory of 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 a prior written permission from Nikko Asset Management Europe Ltd (Nikko AME). No transaction will beconcluded 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 is not intended
to constitute, a public 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 andCommodities Authority or any other relevant licensing authorities or governmental agencies in the UAE. This document is for the useof the named addressee only and should not be given or shown to any other person (other than employees, agents or consultants inconnection 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.

46

Back to contents

47